JSE slips amid ECB policy concerns

Johannesburg - Global markets were rattled on Wednesday morning by media reports about the possible withdrawal of the European Central Bank's bond buying programme, and the JSE did not escape the uncertainty.

The rot started in New York last night, followed by the Asian and European markets on Wednesday and by mid-morning the major indices on the JSE were all down, with the Gold index again the biggest loser.

Bond yields were near two-week highs on Wednesday, which is detrimental to share prices as investors are increasingly nervous about the prospect of an ultimately end to central bank stimulus.

By mid-morning the All-share index was 0.35% lower at 51 861 points and the Top 40 index had lost 0.36% to 45 309 points. The Gold index was 1.79% lower, but the Resources index recovered from earlier losses and was unchanged. The Financial index had lost 0.69% and the Industrial index with the big dual-listed shares traded 0.33% lower.

Bloomberg reported on Tuesday that the European Central Bank (ECB) would probably wind down its €80bn monthly bond purchases gradually before ending its quantitative easing programme, citing unnamed officials at eurozone countries' central banks.

Investors are also concerned about continuing hawkish comments by US policy makers about the prospects of higher interest rates in the US. Traders have now priced in a 63% chance of the Federal Reserve raising rates in December, according to the CME Group's FedWatch tool.

The result was that the dollar reached the highest point in almost two months on Tuesday, which is detrimental for the price of gold and other commodities.

Gold plunged 3.3% on Tuesday, its biggest tumble since September 2013, to its lowest level since Britain's vote to leave the European Union. It recovered some of those losses on Wednesday, climbing 0.3% to $1 272.12 an ounce, but gold shares were again sharply lower.

The Gold index has been on the decline since August 2, when it was more than 165% higher than the beginning of the year.

Wednesday’s level of 1 868 points is more than 38% lower than the peak of 2 950 points on August 2, but is still 66% higher than the 1 125 points with which the index started the year.

During that period the gold price increased by 35% from $1 075 per ounce to $1 353/oz on August 7, but since then it has lost more than 6% to trade at $1 272.00/oz on Wednesday morning.

Gold shares were the hardest hit by the strong rand, which meant that gold mines received less in rand for their gold. The rand price of gold lifted almost 12% from R16 872/oz at the beginning of the year to R19 799/oz on June 23, but at Wednesday’s level of R17 467 was only 3.5% higher than the beginning of the year. The rand earlier this year traded as low as R16.85 to the dollar, compared to the current level of R13.75.

Sibanye Gold [JSE:SGL] lost 4.29% to R42.84 on Wednesday, which means that the share price is now more than 30% lower than the 52-week high of R70.23 reached on August 1. Investors are perturbed by the labour unrest at the group’s Cooke mine, where production was stopped due to violence between rival unions. Sibanye’s share price is however still 126.5% higher than the R12.57 with which it started the year.

Harmony [JSE:HAR] lost 2.45% to trade at R42.63. The share price is still 152.8% higher than the R18.48 at the beginning of the year, but as recently as August 1 it was more than 200% higher for the year when the stock reached a 52-week high of R66.65.

Oil surged, defying the stronger dollar thanks to a report suggesting US fuel inventories may have fallen for a fifth straight week. Brent crude added 0.9% to $51.32, hitting a four-month high on Tuesday. Sasol [JSE:SOL] responded by gaining 0.59% to R378.71.

In the industrial sector Remgro [JSE:REM] lost 4.25% to R230.95. The investment company’s share price was dragged down by its investment in Mediclinic [JSE:MDC], which lost more than 16% of its market value over the last 30 days on the back of disappointing results from its operations in the Middle East. Mediclinic was 0.79% down at R157.34.

British American Tobacco [JSE:BTI] shed 1.56% to R868.87, but Naspers [JSE:NPN] edged 0.07% higher to trade at R2 349.54. Richemont [JSE:CFR] was also 0.79% higher at R84.73.

Anglo American [JSE:AGL] was again a star performer in the resources sector, gaining 1.21% to another 52-week high of R175.09.