Markets were trading cautiously on Wednesday, on the back of a more hawkish US Federal Reserve.
The dollar index rose above 105.5, hitting one-week highs as hawkish remarks from a Federal Reserve official lifted the currency.
Minneapolis Fed President Neel Kashkari said on Tuesday that he expected the central bank to remain put for an extended period until there was clear evidence of disinflation, and did not rule out the possibility of a hike if inflation accelerated, Trading Economics said.
At 11.59am, the rand was 0.51% weaker against the dollar, at R18.58.
Bianca Botes, a director at Citadel Global, said: “There was little by way of new developments yesterday. Markets did, however, keep a close eye on Fed speak, which, once again, talked down the chance of any imminent rate cuts.
“The dollar gained some ground on the back of the hawkish Fed speak and the rhetoric saw emerging market currencies give up some of their recent gains.”
Botes said today’s data included local forex reserves numbers and more US Federal Reserve speak this afternoon.
The rand traded largely sideways yesterday and started the day trading at R18.52 against the dollar, R19.89 against the euro and R23.13 against the pound.
The JSE index edged lower, to around 76830 points, after three successive sessions of gains, mainly pressured by resource-linked stocks and telecommunication companies, according to Trading Economics.
Further losses were curbed by a more than 5% surge in shares of Anheuser-Busch InBev after it reported a rise of 2.6% in first-quarter sales, in line with forecasts. In corporate news, it's been reported that the JSE has engaged in discussions with the Chinese tech giant Tencent, expressing hopes for its potential listing in South Africa.
Tail risks from elevated interest and inflation rates and an uncertain geopolitical backdrop were lurking in the shadows and could put a dampener on hopes for a quick equity market recovery, said Bernard Drotschie, the chief investment officer at Melville Douglas, Standard Bank's boutique investment management company.
This comes as the global economic recovery is gaining traction, boosting investor appetite for international stocks, even as the geopolitics in the Middle East casts a shadow over investment markets.
“While we have no reason to doubt the improved economic growth outlook, we must also recognise that several indicators suggest that the global economy appears rather mature or ‘late cycle’,” he said.
“We believe that a lot of the good news linked to a combination of positive earnings momentum, lower interest rates and falling inflation is already reflected in many share prices, with little margin of safety for investors in the event of disappointment.”
Drotschie added that the Israel-Gaza war was a potential risk to the oil market, inflation and interest rates if it escalated into a wider regional conflict.
“As such, caution must be the watchword for investors in the immediate term, with the focus centring on quality businesses until the margin of safety from a valuation perspective becomes more favourable,” he said.
Remarks from a slew of Federal Reserve officials remained on investors’ radar for clues about the timing of potential interest rate cuts.
SA Foreign Exchange Reserves
Gross foreign exchange reserves in South Africa fell to $61.795 billion (R1.148 trillion) in April 2024, down from a three-month high of $62.323bn in the previous month. Decreases were observed in SDR holdings ($6.188bn versus $6.213bn in March) and foreign currency reserves ($46.287bn versus $47.198bn). On the other hand, gold reserves increased from $8.912bn to $9.32bn. The forward position, which represents the central bank’s unsettled or swop transactions, remained unchanged at $0.508bn, Trading Economics noted.
Oil
Brent crude futures fell toward $82 (R1 523) per barrel, heading back to the lowest levels in nearly two months, after reports that Russian Deputy Prime Minister Alexander Novak indicated Opec+ could consider increasing crude production. The group of major producers will meet on June 1 to decide on output policy for the second half of the year, according to Trading Economics.
Gold
Gold held steady near $2 310 per ounce as investors anticipated new signals from several Fed officials due to speak this week, seeking clearer insights into the potential timeline for Fed rate cuts.
BUSINESS REPORT