The JSE went into a tailspin yesterday as the rand plunged to yet another more than two-year low over severe power cuts in South Africa while equity markets fell for the fifth consecutive day due to unfavourable global and local factors.
The rand yesterday reached R17.77 against the US dollar after plummeting to R17.80 on Friday as investors worry about South Africa’s economic recovery prospects after Eskom ramped up its rotational power cuts to Stage 6 on Sunday and forecast even worse stages of loadshedding this week.
This was the lowest the rand has been since August of 2020 as the US dollar continued to gain against all other major currencies.
By 5pm the rand was at R17.70 to the dollar, 10c weaker than at the same time the previous day.
The rand has been tracking the consistent decline seen in riskier currencies as the darkening outlook for global growth encouraged investors to flee to safety, magnified by the return of intense loadshedding by Eskom.
The financial markets are also worrying over increased hawkishness at the US Federal Open Market Committee (FOMC) meeting. The US monetary policy decision takes place on Wednesday after South African market hours, and will lead the decision for South Africa’s interest rates on Thursday.
The South African Reserve Bank is expected to hike rates by at least 50 basis points after raising the key repo rate by 75 basis points in July.
This would take the repo rate to 6.0% and the prime rate to 9.5% per annum.
Data for consumer prices is being released tomorrow and headline inflation in South Africa is expected to have eased to 7.5% year-on-year in August from 7.8% in July.
Investec chief economist Annabel Bishop said the financial markets have started to factor in more than a 75 basis points (bp) hike in the US, which has negatively affected risk sentiment, causing the rand to weaken towards R18/$1 on substantial US dollar strength.
Bishop said South Africa was not expected to hike by more than the US, and this added to the rand weakness too.
“Should the Fed deliver a 75bp hike on Wednesday, and take a slightly more balanced tone, the rand could strengthen later in this week from current very oversold levels, which are far removed from fair value,” Bishop said.
“Markets are starting to digest the possibility of higher inflation for longer, and so a weak global economy and high interest rates for longer too, which is negatively affecting sentiment as it will weaken the return on risk assets.
“For the rand, rising uncertainty in global financial markets causes weakness, and this has been an ongoing trend this year since April, when global economic growth forecasts were revised substantially lower.”
Meanwhile, the JSE All Share Index fell over 1% to around 65 650 early yesterday, later closing at 66 474.86 points, led by resource-linked stocks amid lingering concerns over global growth.
South32 lost 4.4% to R46.84 per share, Northam Platinum was 3.3% lower to R156.68 per share as the resources index eased 0.6% to 61 077 points.
The International Monetary Fund and the World Bank have both downgraded global growth forecasts for 2022 yet again, indicating that the global economy may be edging towards a recession in 2023.
BUSINESS REPORT