Cape Town - The JSE opened stronger as investors reacted to the weaker rand prices on the back of the S&P Global Ratings’ junk status announcement on Monday, after the close of the JSE.
The latest budget projection from Treasury estimates that government needs to borrow R2.5 trillion in 2017/2018.
The announcement to downgrade the investment status on foreign denominated debt relates to R263bn – roughly 10% of government total debt that is now sub-investment grade. The R2.2 trillion relates to domestic rand debt, which remains on the edge of investment grade.
The announcement to downgrade the investment status on foreign denominated debt resulted in the overnight collapse of the rand to R13.94/$ whilst yields on the 10 year R186 have surpassed 9% and remain vulnerable to unfolding developments.
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The weak rand boosted local mining stocks and rand hedges, with resources leading as the top performing sector on the JSE. News of increased opposition to President Jacob Zuma resulted in the rand firming to an intraday high of R13.52/$, pushing off the morning lows by +3%, with labour union federation Cosatu and the ANC’s own integrity commission calling on Zuma to resign. The strengthening of the rand has elevated the financial index by +0.04%, ending a week-long losing streak.
At the close of the JSE, the blue chip Top40 gained +0.41% while the broader All Share index was +0.39% up. Overall, markets were bolstered by resources and rand hedge stocks amidst concerns regarding lower sovereign credit ratings.
International markets
In US markets, the S&P500 opened lower as carmakers reported disappointing trade. Wall Street has shifted focus to President Donald Trump’s meeting with Chinese counterpart Xi Jinping at the end of this week. The weaker US equity markets were slightly bolstered by positive news that higher US exports have narrowed the trade balance deficit to $43.6bn.
European markets closed higher on Tuesday with shares in London leading the region; the UK FTSE 100 is up +0.55% whilst the German DAX is up +0.15% and the French CAC 40 rising by +0.33%
GRAPH: Rand vs dollar on Tuesday
Source: Bloomberg
Commodities
Brent Crude Oil prices firmed 0.90% to $53.60/bbl after Opec output fell by 200k barrels per day in March. The cut in production was inflated by halted production in Libya’s Sharara oil field.
Opec members have called for an extension of the deal to reduce output, however compliance among Opec members declined to 89% in March as members such as Saudi Arabia fear losing market share as US shale production continues to climb rapidly.
Gold continued its short-term rally, firming $3.7 to $1256.63/Oz. At the time of writing, the US dollar index had firmed slightly, putting pressure on the price of gold as it looks to test the 200-day moving average near $1260/Oz.
*This report is from the Trading Desk at EasyEquities, Fin24's latest content partner on equities and market moves.
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