South African and global stocks had a bullish run yesterday on the back of the market’s US Federal Reserve rate cut hopes.
The JSE index reverted some initial losses to close about 0.5% up at 77 539 points, its highest in nine months, mainly driven by heavyweight resource-linked stocks and tech companies, according to Trading Economics.
Traders continued to reassess the outlook for interest rate cuts, while also monitoring more corporate results across the globe. On the data front, a larger-than-expected rise in US jobless claims offered further evidence of cooling in the labour market, raising hopes of interest rate cuts by the Fed.
AFP reported the London and Frankfurt stock exchanges hit record highs yesterday as the Bank of England kept its interest rate at a 16-year high, but raised hopes of a cut in the coming months.
Meanwhile, Wall Street rose following data showing a climb in claims for unemployment benefits that could raise the prospect of a US rate cut.
The British capital’s benchmark FTSE 100 index, which has been breaking records repeatedly in recent days, topped 8 390 points a couple of times during the day.
The DAX in Frankfurt came just shy of striking 18 700 points. The Paris CAC 40 also rose after falling earlier in the day.
The Bank of England kept its key rate at 5.25% for a sixth meeting in a row in efforts to tame inflation, mirroring a wait-and-see approach by the Fed and European Central Bank, AFP reported
“There is a cautious sense of optimism with analysts predicting we are edging closer to the first cut in interest rates since the pandemic, with the first cut potentially this summer,” said Richard Flax, the chief investment officer at Moneyfarm.
The rand strengthened against the dollar to R18.4917 at 8.20pm.
Annabel Bishop, the chief economist at Investec, said on Wednesday that the the rand had remained constrained by risk-averse sentiment, with the US stretching out its launch of its anticipated interest rate cut cycle has had a negative effect on emerging markets (EM), their currencies and their capital flows.
Volatility had been significant in emerging markets, including currencies, as the US Federal Reserve funds futures had seen probabilities continuously fall for an early US rate cut this year, now pulled into quarter four 2024, she said.
Institute of International Finance (IIF) noted in its Global Debt Monitor report this quarter that debt in EM had grown to $105 trillion (R1 949 trillion), doubling over the past decade, adding to concerns around global financial stability.
The largest growth in EM debt had come from India, Mexico and China, while for South Africa, the IIF noted South Africa needed an improvement in investor confidence after a lengthy period of capital flight.
Bishop said: “Global financial flows into EM markets will benefit the rand when the US interest rate cut cycle begins, with historically very substantial rand strength being seen. We expect the rand to pull towards its PPP (purchasing power parities) of R15.00/USD over the next few years.“
She said the expected rand outlook was also dependent on the outcome of South Africa’s national election this month.
“The expected case is the ANC gets around 45% of the vote with and ANC/IFP (plus ACDP and some smaller parties if necessary) national coalition,” she said..
Bishop said what was also key for the rand was trade performance, with the terms of trade weaker for quarter one 2024. Load shedding was higher in quarter one 2024 than in quarter four 2023, while port congestion eased but was not cleared, and weak commodities prices added to the malaise for the rand.
BUSINESS REPORT