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JSE closes lower on Fitch ratings downgrade

Apr 07 2017 18:29
Trading desk, EasyEquities

Cape Town - The positive sentiment shared by South Africans uniting for a common cause was not visible on the JSE on Friday, as South African sovereign debt suffered a second ratings downgrade to junk status.

International markets were largely focused on US President Donald Trump’s decision to order a targeted cruise missile strike against a Syrian airfield in retaliation to a deadly chemical attack launched against civilians last week.  

The military action saw index futures weaken along with the US dollar index, whilst US defence stocks rallied in early morning trade.

The focus on US dollar weakness defended the rand against the sub-investment grade rating downgrade issued by Fitch.  

Downgrade blow

The latest downgrade by Fitch includes both local and foreign currency debt, unlike the recent downgrade by S&P.  This means that S&P rates local ZAR debt higher than Fitch, however S&P have a negative outlook on South Africa, while Fitch noted that their outlook is stable.

Short-term foreign and ZAR default ratings are downgraded to B from F3. F3 means fair quality grade with adequate capacity to meet financial commitments whilst B is of speculative nature with minimal capacity to meet commitments.  What Fitch is saying in lay terms, is that they do not have confidence in South Africa’s ability to repay debt in a currency that we issue.

The JSE closed lower overall, as the blue-chip Top 40 weakened 0.18% and the broader All Share Index softened 0.12%.  The weakness was led by the Resources Index which softened 0.88% and the Industrial Index which closed 0.18% lower.  The Financial Index managed to weather the storm and firmed 0.22%


International markets

US index futures extended losses in early trade on Friday after disappointing US jobs data rattled investors already spooked by US air strikes on Syria.  

The S&P 500 was -0.11% softer in early trade after US non-farm payroll reported that US job growth slowed sharply. Only 98 000 jobs were created in March, around half of expectations of 177 000 while unemployment rates dropped 0.2% TO 4.5% - the lowest level in nearly 10 years.  

Brent crude firmed +0.53% to $55.18/bbl and Gold rallied +1.15% to $1265/Oz on the news of the Syrian Airstrike.  President Trump launched over 50 tomahawk missiles at the Shayrat air base near Homs, which was used to launch the deadly chemical attack on Syrian civilians.

The lower US dollar index and heightened threat of geopolitical tensions has driven investors to the safe-haven asset and commodities.

*This report is from the Trading Desk at EasyEquities, Fin24's latest content partner on equities and market moves.

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rand  |  markets  |  ratings agencies  |  junk status  |  currencies

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