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Rand roils as S&P downgrades SA

Apr 03 2017 21:29
Trading desk, Easy Equities

Cape Town – The rand continued to weaken as political uncertainty forced the hand of credit ratings agency, Standard & Poor’s (S&P) Global Ratings, to downgrade South Africa’s long term foreign currency rating from BBB- to BB+.

The local currency rating has moved from BBB to BBB-, where the foreign currency rating previously was. Approximately 10% of South Africa’s debt is raised in foreign currency, with the majority denominated in rand. 

S&P were scheduled to announce their review of South Africa’s credit rating on June 2 however, Reuters reported that the agency held an emergency meeting over the weekend to reevaluate the country’s credit and made the downgrade announcement today at approximately 17:34.  

Moody’s currently has South Africa two notches above junk status and is set to announce its ratings review on Friday, April 7. However, it is expected that they will follow suit. 

The rand weakened sharply to R13.74 and by 21:12 was trading 2.36% lower at R13.73/$ from its previos close and from R13.57 upon the release of the ratings downgrade.  


The JSE ended firmer, closing just before the announcement.  

Overall markets were bolstered by resources and rand hedge stocks amid concerns regarding the lower sovereign credit ratings. In terms of the market movements for the day; the blue chip JSE Top 40 gained 0.87%, while the broader All Share Index firmed 0.77%.  

At the close of the JSE, the Resources Index was up 1.53%, the industrial index was 0.06% up.  The banks faced further weakness as the Financial Index lost 0.03%. 

Commodities

Brent Crude oil prices firmed to $53.14 per barrel after reaching the strongest level in almost four weeks during intra-day trade amid optimism that OPEC will extend its production-cut deal.

OPEC agreed in November last year to curb its output by around 1.2 m barrels per day for the first half of the year. Russia and a handful of other non-OPEC producers have agreed to jointly cut an additional 600k barrels per day.

Oilfield and data service provider Baker Hughes announced last Friday that the number of active U.S. rigs drilling for oil rose for 11 weeks in a row. The total rig count now sits at 662, the most since September 2015, suggesting that global oil supply exceeds demand.

Gold firmed 0.28% to $1251/0z as it continues to edge higher, however the metal is having trouble trending above its 200-day moving average. 

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

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