Johannesburg - The worldwide rally earlier in the week on financial markets, including the JSE, did not last long and on Thursday morning new worries about the oil price quickly put a damper on the strong run.
Although Asian shares edged up to a four-month high on Thursday as receding worries of a near-term US interest rate hike continued to buoy investors' appetite for riskier assets, the run did not continue on European markets and the JSE also lost ground.
Analysts said sliding oil prices prevented the markets from extending the previous day’s rally.
By mid-morning on Thursday the All-share index on the JSE was already more than 1% lower as investors used the opportunity to take some profits in the financial and resources sectors, after a strong run the previous day.
The Resources index was also hampered by the strong rand which is trading at its best levels this year, as local commodity producers receive less for their goods which are priced in dollar.
The oil price is generally regarded as an important indicator of the health of the world economy. Markets are also awaiting a series of other economic indicators, which can confirm the Federal Reserve’s view that there are still major risks for the global economy and markets. These include Friday’s US Institute of Supply Management data, non-farm payrolls and various global purchasing managers' indices, particularly that of China.
US crude hit its lowest level in more than two weeks, amid renewed worries of global oversupply after inventories in the United States rose to a record high.
US government data showed crude inventories were again at all-time peaks despite strong refinery runs. Oil prices, which fell to 12-year lows earlier this year, have risen about 50% since mid-February but analysts say the rally has now breached fundamentals and crude could trade lower.
The copper price, one of the leading commodity price indicators, also slid to the lowest level since March 3 as concerns over slowing Chinese demand mounted ahead of Friday's China official PMI release.
The dollar however continued to hover near seven-week lows versus the euro, still gripped by cautious comments from Federal Reserve chair Janet Yellen earlier in the week that US interest rates are unlikely to rise soon.
The weak dollar is good news for emerging currencies and the rand continued to trade below R15.00 to the dollar for the first time this year. By mid-morning on Thursday the local currency was trading at R14.86 to the dollar, almost the same level as the previous day.
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At that stage the All-share index was again below 52 000 points and traded 1.10% softer. The Top 40 index lost 1.1% to 45 881 points. The Financial index was at that stage already 1.63% lower and the Resources index 2.32% down. The Industrial index also followed the European markets lower and lost 0.66% by mid-morning.
Sasol [JSE:SOL] fell sharply on the combination of a weaker oil price and a strong rand. It was one of the busiest shares on Thursday and traded 3.12% lower at R435.45. The company’s income from synthetic fuel is determined by the oil price, but it has been hedged until now against a softer oil price by the very weak rand.
Analysts said future movements in the rand could be determined by economic developments in the US which have an influence on the dollar, as most of the bad news about the South African economy is already discounted.
BHP Billiton [JSE:BIL] was the biggest loser among the big dual-listed commodity conglomerates and traded 3.77% lower at R165.40. Anglo American [JSE:AGL], which is normally the most volatile of the big commodity shares, only lost 1.04% to R113.71. Glencore [JSE:GLN] was 1.23% softer at R32.10.
The big shares in the Industrial index were mostly lower. Naspers [JSE:NPN] lost 0.64% to R2 056.66 and SABMiller [JSE:SAB] traded 0.28% softer at R904.67. British American Tobacco [JSE:BTI] lost 0.58% to R864.00.
FirstRand [JSE:FSR] was again the busiest stock on the JSE in terms of volume, but the share price lost 1.75% to R46.57 after gaining more than 4% the previous day. Standard Bank [JSE:SBK] lost 2.34% to R129.69 and Old Mutual [JSE:OML] was 1.19% softer at R40.69.