JSE down on global US rate hike jitters

Johannesburg - Rising bond yields globally, indicating that bond markets might be discounting a rise in US interest rates as early as next week, spooked international markets on Monday and the JSE was no exception.

European shares fell by their most in nearly three months in early deals on Monday, and Asian shares suffered their sharpest setback since June.

As a result, the JSE was at one stage almost 2% lower on Monday with all the major indices sharply lower.

It must be said however that the indices fell sharply shortly after the opening, and then moved sideways for the rest of the morning.

By mid-morning the All-share index was 1.66% lower at 52 459 points, while the Top 40 index traded 1.67% softer at 45 960 points. The biggest losers were the Resources and Gold indices, which lost 3.21% and 3.15% respectively after Europe’s Stoxx index for basic resources gave up 3.5%.

The Financial index was 2.22% down and the Industrial index, which includes most of the dual-listed shares which are also listed in Europe, lost 1.05% of its value by mid-morning.

Global markets were a bloodbath and on Monday MSCI's broadest index of Asia-Pacific shares outside Japan fell 2.4% after it traded at a 3-month peak last week. It was the largest daily drop since the frenzy caused by Britain's vote in late June to leave the European Union. The Nikkei index in Tokyo lost 2%.

Europe's STOXX 600 index was 1.8% down in early trade, set for its biggest fall since late June. On Friday the Dow Jones index lost 2.13% and the broader Standard & Poor's 500 index 2.45%.

The VIX index, Wall Street's fear gauge and a significant indicator of the mood in financial markets, closed at the highest level since late June on Friday.

The reason for the drop in shares prices is rising bond yields, because super-low yields have made returns on equities seem relatively more attractive. Any sustained climb in yields would likely weigh on stock valuations.

The yield on benchmark German debt had turned positive for the first time since July 22 and ended at 0.02%, its highest since June 23. Yields on US 10-year and 30-year paper hit 11-week peaks.

Analysts said investors in the bond markets fear a hike in interest rates as early as next week, as some members of the Federal Reserve have been trying to convince markets that the September meeting would be "live" for a rates hike, although the futures market only expects  a one-in-four chance of a move.

No fewer than three Fed officials are expected to speak later on Monday, and any hint of hawkishness would likely put further pressure on bonds and equities.

The mood on international markets was also dampened by news that the Democratic candidate in the US presidential election has been diagnosed with pneumonia. Markets have generally assumed Hillary Clinton would win the presidency and have not yet discounted the risks if Donald Trump should win.

Among the big dual-listed shares Naspers [JSE:NPN] lost 2.43% to R2 43.53 and Steinhoff [JSE:SHF] was 1.77% softer at R83.30. Richemont [JSE:CFR] lost 1.40% to R86.12.

SABMiller [JSE:SAB] bucked the trend and gained 0.84% to R843.30, but the other beer giant, Anheuser-Busch InBev [JSE:ANB], was 0.17% lower at R1 788.53. MTN [JSE:MTN] lost 2.20% to R114.13, but Aspen [JSE:APN] recovered 1.76% to R334.80 after last week’s sharp losses in reaction to disappointing results.

Sanlam [JSE:SLM], which reported lower earnings last week due to difficult economic conditions, took another hit on Monday and traded 4.53% softer at R61.97. Old Mutual ]JSE:OML] was 1.82% weaker at R36.33. FirstRand [JSE:FSR] lost 2.03% to R45.87.

Some of the high flyers in the resources sector fell back sharply. Anglo American [JSE:AGL] traded 4.51% softer at R154.11 and Kumba [JSE:KIO] gave up 4.87% to trade at R37.51. Lonmin [JSE:LON] lost 4.92% to R37.51.