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Markets turbulent, rand 4.8% weaker than pre-Gordhan recall news

Mar 28 2017 19:04
Trading desk, EasyEquities

Cape Town -  Day 2 of the trading week continues to see turbulent markets on the back of the news that President Jacob Zuma had recalled Pravin Gordhan from his investor roadshow on Monday. The rand is currently 4.08% weaker at R12.91 compared to the 20-month high of R12.31 against the USD reached on Monday morning, pre-debacle.

The ALSI top 40 ended the day 1.24% up, with miners and industrials piggy-backing off the weaker rand. The major movers of the day in these sectors were led by Sasol [JSE:SOL] (+5.89%), Naspers [JSE:NPN] (+3.11%) and BHP Billiton [JSE:BIL] (+2.8%).

At the close of the market, the Resources Index was up 2.45%, the Industrial Index was up 1.09% and the Financial index traded 0.1% higher – due to slight intraday recovery in the rand.

Political instability is particularly bad for investors exposed to banking stocks. We have reiterated to clients that interest-rate sensitive stocks, such as banks, are at high risk since their valuation is sensitive to SA bond rates.  Yields on South African long dated bonds have blown out in the last 24 hours, pricing further weakness in the local unit and current political shenanigans.

The market is still uncertain as to the outcome of this whole Pravin Gordhan debacle – with only media rumours speculating that President Jacob Zuma is set to fire Finance Minister Pravin Gordhan. This rumour is particularly unnerving for investors who see Gordhan as an emblem of stability.  Minister Gordhan made a late appearance this afternoon and confirmed that he was still employed as Finance Minister.

READ: SA’s economic credibility hinges on Gordhan’s job call

Should President Zuma fire minister Gordhan in the same fashion he did the previous minister Nhlanhla Nene – this will fail to convince the market that a change in personnel does not signal the undoing of National Treasury policies would trigger an unavoidable credit downgrade. A downgrade to sub-investment status would prove a very heavy burden for taxpayers who must service significantly more expensive debts to come.

Commodity markets:

Gold Bullion remained supported at $1 256/oz. in late trade – this continued strength, wasn’t enough to boost local gold miners, and the JSE Gold Index dropped 1.07%.

Brent Crude sat at $51.60/bbl in late trade, slightly firmer as markets accommodate a weaker dollar price as well as the announcement that Donald Trump is set to roll back Obama-era emission controls.

US market

The Dow Jones continues to ride an 8-day losing streak, as the tide shifts towards investors’ doubts about the Trump administration’s ability to implement ambitious economic reform.  The heightened investor scepticism surrounding president Trump’s policies and the speed of implementing reforms in the US is slowly chipping away from the all-time highs achieved on US equity indices over the last few weeks.  Market participants are still eagerly awaiting potential tax reforms promised by Trump.

International market news

Chinese giant Tencent, of which JSE company Naspers owns approximately 34%, has bought a 5% stake in Tesla - introducing potential synergies for the two companies; as both operate in a high-tech sector.  This sets the stage for Tesla to expand the scope of their research and development in the autonomous vehicle space. 

In terms of being prepared for any economic news:

· 28 March: Fed Chair, Janet Yellen speaks tonight at 18:50

· 29 March: Theresa May is set to trigger Article 50 to begin the negotiation proceedings for leaving he EU.

* This report is from the Trading Desk at EasyEquities, Fin24's latest content partner on equities and market moves.

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pravin gordhan  |  jacob zuma  |  currencies  |  markets  |  equities  |  rand


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