Naspers rally propels JSE

Cape Town – The numbers point to a solid trading day on the JSE with the weak rand acting as a catalyst, boosting rand hedge stocks.  Gold stocks remained under pressure, as the price of gold remains weak, reaching a 7 week low.

Naspers [JSE:NPN] climbed 3.13% to a record R2682.92 per share, following the rise in its Chinese investment, Tencent.  Tencent, a Chinese media colossus, closed 2.45% up in Hong Kong.

The rand weakness to the greenback was expected as the dollar rallied against major global currencies, as seen by the 0.44% increase in the dollar index.  The rand closed the trading session at R13.57 to the greenback as speculation rose that Moody’s is set to downgrade South Africa’s sovereign credit status by one notch, despite efforts made by Finance Minister Gigaba. 

READ: Moody’s may downgrade SA in coming weeks - economist

The JSE blue-chip Top 40 closed 1.03% higher, followed by the broader All Share Index which traded 0.89% up.  The rally was led by Industrials climbing 1.20%, Resources 1.22% and Financials 0.37%.  Gold miners continued to slide, with the overall index dropping 1.83%.

The banking Index rose 0.47%, adding to the soft rally seen of late.  A Moody’s downgrade, possibly later this month, and with the added possibility of a local ZAR debt rating downgrade to sub-investment, would test the recent soft rally since the sacking of Pravin Gordhan as finance minister at the end of March. However, all the big four are lower now than in March and if Moody’s joins S&P and Fitch then current levels will look toppish.

S&P maintained a negative outlook, leaving scope for a downgrade of the ZAR local currency rating, which could place further downward pressure on bank’s share prices and upward pressure on government bond yields.

The big four banks, FirstRand [JSE:FSR], Standard Bank [JSE:SBK], Barclays Africa Group [JSE:BGA], and Nedbank [JSE:NED], are particularly sensitive to fluctuations in long bond yields, the primary driver of the value of bank share prices which exhibit an inverse relationship to the ten-year government bond yield.

Weak economic indicators would otherwise suggest scope for easing but unfortunate political events that affect financial markets, country rating and the real economy, have tied the SA Reserve Bank’s hand. Rates are unlikely to go down but could possibly go up if political developments worsen.

The price of gold hit its lowest price since mid-March at $1,217/Oz as safe-haven demand retreated after market-friendly centrist Emmanuel Macron beat far-rightist Marine Le Pen to clinch the French presidency.

Investors await fresh signals on whether the Federal Reserve will raise interest rates next month as the precious metal is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced

In the United States, Apple's [NASDAQ:AAPL] market capitalisation crossed the $800B threshold for the first time on Monday, marking another major milestone for the world's most valuable company. With mixed quarterly earnings last week, CEO Tim Cook attributed some of the slowdown to the fact that consumers are holding out for the next iPhone launch, anticipated in September. Wall Street seems to agree, as analysts upped AAPL's 12-month price target nearly 30 times so far this May.

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