Johannesburg - Bets that the Federal Reserve could be done raising interest rates for this year hurt the dollar on Thursday morning with negative results for stock markets worldwide.
The JSE also followed global trends.
Investors are seeking the safety of the Japanese yen, gold and bonds after Janet Yellen, chairperson of the Federal Reserve, did not manage to improve the market sentiment when addressing Congress Wednesday night.
Although she was optimistic about the US economy, she indicated that risks regarding the current market turmoil and a slowdown in China could delay further interest hikes. With interest rates currently at record lows there are now fears that central banks will be powerless to stimulate their economies and markets if needed.
The result was that the dollar reached the lowest level against the yen since February this year, the oil price dropped sharply and Wall Street and Asian markets lost further ground. Banking shares were again in the firing line on fears that a further economic slowdown will increase their credit risks.
Financial shares were also the biggest loser on the JSE and by mid-morning the financial 15-index was already more than 1% lower than the previous day. At that stage the All-share-index traded 1.15% lower on 47 719 points and the Top 40-index dropped 1.5% to 43 363 points.
Gold shares were, however, again on the rampage as the flight into safe haven assets pushed the gold price above $1 200 per ounce. By midday the precious metal traded at $1 208 per ounce, more than $11 higher than the previous day.
Gold shares responded drastically with the gold index 8.99 9% higher by midmorning, with the top gold shares all making strong gains. This happened despite a reasonably strong rand, which traded below R16 to a dollar at R15.99.
Analysts warned Thursday morning that current market trends are similar to the economic crisis in 2008 when the world economy receded into a recession. Particularly worrying is the insatiable demand for US Treasuries, which drove longer-term yields to one-year lows and flattened the yield curve in a way that has presaged economic recession in the past.
"In some ways it is reminiscent of 2008 with tightening credit markets, bank shares under pressure and worries that central banks are powerless," said Shane Oliver, head of investment strategy at AMP Capital, though he suspects markets are overly pessimistic this time.
It seemed that investors are already preparing for such a possibility.
Standard Bank and FirstRand were among the busiest shares on the JSE on Thursday morning. Standard Bank traded 2.97% lower on R107.71 and FirstRand lost 2.46% to R42.80. Nedbank was the biggest loser among the four big banks and traded 3.37% softer on R139.56 and Barclays Africa gave up 3.13% to R139.56. Nedbank is now 20% lower than three months ago and Barclays Africa 19%.
Among the big insurers Old Mutual traded 3.18% softer on R35.30 and Sanlam was 2.74% lower on R52.82.
The gold index’s performance was in sharp contrast to financial shares. Before Thursday's gains the gold index was already more than 64% higher than a month ago. The index reached a new 52-week high of 1 878 points on Thursday, after trading as low as 757 points in August last year. All the major gold shares were more than 8% higher.
DRD Gold was again the top performer with a gain of 11.49% to R5.63, while Harmony was 8.81% stronger on R40.53. Anglogold gained 8.77% to R179.47, Gold Fields 8.23% to R67.32 and Sibanye 8.2% to R45.01.
Naspers was again in the limelight on the industrial index, which lost 1.2% in early morning trade. By midmorning on Tuesday Naspers was another 2.74% down to R1 723.76. The share has already lost more than 15% over the past month due to concerns about its exposure to the turbulent Chinese economy through its interest in the Chinese internet giant Tencent.