The rand began the week on the back foot as risk aversion towards emerging market (EM) currencies continues to plague financial markets and concerns over the global banking crunch persist.
Investors have been on edge about the stability of the sector as some institutions are coming under strain, and the uncertainty continues to drive demand for safe-haven assets, with the dollar trading stronger.
The rand fell 0.2% to R18.30 to the US dollar yesterday as markets continued to worry about the effects of the banking crisis, fears of a US recession, and rising interest rates in both the US and South Africa.
Concerns over the health of private sector banks in advanced economies have been supporting risk-off, as are worries over still-high inflation, while the European Central Bank and Bank of England warned of further rate hikes to tame inflation.
Investec chief economist Annabel Bishop said risk aversion had not fallen for emerging markets yet, despite growing expectations that the end of the US rate hike cycle was now in sight.
Bishop said much would depend on market concerns around the banking system, and the shoring up of liquidity, with central banks rushing to reassure markets on their respective banking sectors' health.
However, she said this was not allaying concerns currently.
“Financial market volatility negatively affects risk sentiment, in turn reducing investor appetite for emerging markets assets,” Bishop said.
“Concerns over the US recession have increased; however, no evidence is due in the data for several weeks yet of any economic weakness.
“Markets consequently still see marked risks, and this has counterbalanced the likely positive effect that the recent reduction in hawkishness in the Fed’s tone last week would normally have had on financial markets.
“The rand has pulled back somewhat, from R18.62/$1 last week, but markets are now fretting over the increased chance of US recession.”
Meanwhile, South African stocks edged higher yesterday in spite of resource-linked stocks taking a beating.
The JSE All Share index was 0.8% higher to 75 283 index points, in line with its global peers, on cautious optimism that the US banking turmoil could be contained.
This was after the announcement of the takeover by First Citizens Bank of part of the deposits and loans of Silicon Valley Bank.
Market sentiment was also boosted by hopes for extra support for bank funding after reports that US authorities were in the early stage of deliberation about expanding emergency lending facilities.
However, the gains in financials and industrials partly offset steep losses in tech companies, with Naspers and Prosus losing 4% and 4.1%, respectively. South African thermal coal exporter Thungela Resources tumbled 7% despite reporting a 97% jump in full-year profit, amid soaring coal prices, as the company said it cut guidance on Transnet woes.
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