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Weak rand a fillip for some JSE indices

Johannesburg - The rand was again under pressure on Friday and that helped some of the major indices on the JSE higher, although gains were still quite modest by mid-morning.

The weaker rand, which traded 1.74% softer at R14.55 to the dollar, was the result of a rampant dollar which sprinted to a more than 13-and-a-half year high against a basket of major currencies on Friday. US debt yields also hit near one-year highs on expectations that president-elect Donald Trump's policies will boost the economy.

US markets are still discounting the possibility that Trump’s policies to stimulate growth will lead to higher inflation and eventually to higher interest rates. This will leave many emerging market currencies and assets, including those of South Africa, vulnerable should investors rotate more funds back to the United States.

The weaker rand means the big dual-listed shares on the JSE are worth more in the local unit. These companies, which earn most of their income abroad in foreign currencies, also earn more in rand if the currency is weaker. Share prices in London, where most of the dual-listed shares are also listed, opened higher too which boosted these shares even more.

By mid-morning the JSE's All–share index was only 0.09% higher at 50 665 points, while the Top 40 index traded 0.23% stronger at 44 272 points. The best performer was the Industrial index, which includes most of the dual-listed shares, which gained 0.87% in early trade. Financial shares, which are vulnerable to a weaker rand, however shed 0.65% by mid-morning.

The Gold index lost 2.52% as the gold price slumped to a five-and-a-half month low of $1 205.9 per ounce as a result of the strong dollar. Resources shares were also hampered by the strong dollar and shed 0.65%.

The latest economic data in the US indicated that interest rates hikes are on the cards. US consumer prices posted their biggest increase in six months, while housing starts surged to a nine-year high and jobless claims fell to the lowest level since November 1973.

Federal Reserve chair Janet Yellen told the Joint Economic Committee of Congress on Thursday that Trump's election has done nothing to change the Federal Reserve's plans for a rate increase "relatively soon".

Interest rates futures for 2017 are now starting to price in one or more interest rate hikes next year, a change from before the election when they priced in a less than 50% chance of a rate increase in 2017.

Future movements in rand value will also depend on the South African Reserve Bank’s decision on local interest rates next week. The bank is expected to keep domestic rates unchanged at 7% next Thursday, a decision which could put pressure on the rand given that investors are bracing for a US rate hike in December.

Investors are also worried South Africa could see its credit rating lowered over weak economic growth and political skirmishes.The first rating agency review is due on November 25 from Moody’s, which rates South Africa two notches above junk. Peers Fitch and Standard & Poor's, which have it just one level above sub-investment grade, will give their verdicts in December.

Among the big dual-listed shares in the industrial sector, Naspers [JSE:NPN] traded 1.72% higher at R2 181.0 and Steinhoff  [JSE:SHF] was 1.34% stronger at R71.70. Richemont [JSE:CFR] gained 2.38% to R95.58.

In the resources sector Anglo American [JSE:AGL] lost 1.10% to R197.67.

Old Mutual [JSE:OML], one of the few dual-listed shares in the financial sector, gained 0.89% to R33.90. Investec [JSE:INL], which is also listed in London, traded 1.64% higher at R90.463. The South African group, which reports in pounds, posted a 0.7% increase in statutory operating profit to £281.4m for the six months to end-September 30 2016. On a currency neutral basis, operating profit rose 1.6%.

In pound terms, the group’s operating profit before tax dipped 0.2% to £314.5m whereas it increased by 2% to R6.25bn in rand terms.

READ: Investec posts slight rise in first-half earnings

Among the local banks, FirstRand [JSE:FSR] lost 1.84% to R49.09 and Standard Bank [JSE:SBK] was 1.79% softer at R195.06.

Dis-Chem [JSE:DCP] made a modest debut on the JSE. The share opened at R23.26 but then lost ground and slipped to R20.73 by mid-morning.

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Rand - Dollar
18.88
+0.3%
Rand - Pound
23.86
+0.2%
Rand - Euro
20.39
+0.2%
Rand - Aus dollar
12.33
+0.1%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
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