Publications
Partners
Johannesburg - Global markets were lower on Wednesday as economic data from the US raised the odds of the Federal Reserve hiking interest rates, but by mid-morning the JSE was still in positive territory.
Good results from SABMiller [JSE:SAB], one of the biggest shares on the JSE, and the weaker rand gave the Industrial index a boost. The Financial index also improved somewhat from the previous day’s losses on prospects of higher interest rates.
Markets worldwide focused their attention on the possibility of higher US interest rates, after the country's consumer prices recorded their biggest increase in more than three years in April. The data pointed to a steady inflation build-up that could give the Fed ammunition to raise rates later this year.
Wall Street was lower on Tuesday evening and Asian markets followed suit on Wednesday morning, as higher US interest rates can lead to an outflow from emerging markets back to the US where risks are perceived to be lower.
Such a possibility also boosted the dollar, and the rand dropped 1.42% in mid-morning trade to R15.83 to the dollar. An emerging market outflow can also have a negative influence on the local market and the South African economy.
But by mid-morning the All-share index was still 0.45% higher at 52 764 points and the Top 40 index had gained 0.62% at 46 683 points. The Industrial index was already 1.12% up after strong performances from giants such as SABMiller, Richemont [JSE:CFR] and Naspers [JSE:NPN], which all benefited from the softer rand.
The Financial index was also in the black and traded 0.72% higher. Higher interest rates in the US will force the South African Reserve Bank to raise its rates too, which could be particularly beneficial to banks.
The resources sector was however 1.38% lower, and the Gold index lost 1.76% as the strong rally in commodity prices took a breather in response to the stronger dollar. Gold, platinum and copper prices were all down, but the oil price remained above $49.00 per barrel.
Expectations in the US about interest rates have changed dramatically over the past day or two and traders now see the probability of a rate hike at 58%, up from roughly 42% on Monday, according to the CME FedWatch tool.
It also seems if the Fed is trying to prepare the market for such a possibility. The Fed president in Atlanta, Dennis Lockhart, who is seen as a policy centrist on the board, said on Tuesday that he still assumes there will be two to three rate hikes. This view was echoed by San Francisco Fed president John Williams while Dallas Fed president Robert Kaplan, seen as a hawk, said he would push for an interest rate increease in June or July.
Other US data on Tuesday showed housing starts and industrial production rebounded strongly last month, adding to the case for an early rate hike.
The local market responded positively to SABMiller's full-year results, although its pre-tax profit was 16% lower than the year before. Earnings before interest, tax, depreciation and amortisation were however higher in all the regions the company operates in, and the margins were also higher.
Earnings were hurt by a $572m charge from impairments to investments in Angola and war-torn South Sudan, as well as $160m in costs associated with the Anheuser-Busch InBev [JSE:ANB] deal.
By mid-morning the share price was 2.16% higher at R964.30. Before Wednesday’s jump, SABMiller made steady progress over the past month, gaining 2.67% over the past seven days and 5.87% over the past month. The company said it still expects its takeover by AB InBev to be completed in the second half of the year.
At mid-morning Richemont traded 1.96% stronger at R98.90, and Naspers gained 1.73% to R2 114.58. The latter performed strongly over the past week, and before Wednesday's trade the stock was already 7.72% firmer over the past seven days.
The share price benefited from the news that Avito.ru, Russia’s biggest online classifieds website in which Naspers owns a 68% stake, grew first-quarter revenue by 86% as page views increased.
Shares of Chinese internet giant Tencent Holdings, of which Naspers owns 34%, also gained strongly this week in Hong Kong on speculation that Apple will invest $1bn in Tencent’s taxi app Didi Chuxing.
Nedbank’s [JSE:NED] share price, which reached a 52-week low of R165.77 on Tuesday, recovered strongly on Wednesday and by mid-morning was already 1.21% up at R168.66. Standard Bank [JSE:SBK] traded 0.59% higher at R115.12 and FirstRand [JSE:FSR] gained 0.57% to R41.63.
In the commodity sector, Anglo American [JSE:AGL] lost 5.26% to trade at R136.00 and Glencore [JSE:GLN] was 3.59% lower at R29.80. BHP Billiton [JSE:BIL] lost 1.71% to R191.61.
