JSE falls on hawkish Fed surprise

The JSE closed weaker with global markets mixed on Thursday as investors digested Wednesday’s hawkish US Federal Reserve’s update. Global equity markets were surprised as the Fed signalled two interest rate hikes in 2023 and raised its 2021 inflation forecast by one percentage point from the federal open market committee’s (FOMC) meeting in March.

But Fed chair Jerome Powell said projections for rate increases should be “taken with a big grain of salt” and reiterated his view that recent higher inflation is transitory. He issued no guidance on when the Fed will begin tapering its bond-buying.

The JSE all share closed at a threeweek low with miners, banks and financials faring worst on the day. The bank index dropped the most since March 29 2021 with the rand weakening. The precious metals index had its worst one-day drop since May 2020. “As expected, the Fed kept monetary policy unchanged at its June meeting,” said Oanda market analyst Sophie Griffiths. “However, it did surprise the market with a sudden hawkish shift. The US central bank now expects two interest rate hikes in 2023, up from zero at their last meeting. Even more significantly, seven policymakers out of 17 expect at least one hike in 2022.

“The Fed sees the US economy recovering at a faster pace than before, warranting an acceleration towards policy normalisation. The markets had been toying with the idea of the Fed gradually starting to talk about tapering asset purchases … the hawkish punch came out of the blue.”.

The JSE all share fell 1.08% to 66,585 points and the top 40 to a similar extent. Precious metals fell 5.05%, resources 3.33%, banks 3.14% and financials 2.18%. Absa led banking losses, down the most in about seven weeks, 4.37% to R136.66. FirstRand lost 3.79% to R54.10. In precious metals, DRD Gold fell the most in more than seven months, 7.59% to R15.09. Goldfields fell 6.43% to R132.80, Sibanye-Stillwater 6.15% to R57.71 and Impala Platinum 4.67% to R227.61.

The rand tracked weaker emerging-market currencies, hitting an intraday R14.1599/$, its worst since mid-May. At 6.30pm, it was down 0.72% at R14.1166/$ and 0.13% to R19.6249/£. The euro eased 0.79% to $1.1896. “Risk assets are suffering the after-effects of FOMC as the 1% improvement in the dollar index precipitated broad-based weakness among emerging market spectrum of currencies,” said RMB global markets research head Nema RamkhelawanBhana. The rand’s near 1.5% depreciation since Tuesday’s close “is aligned to losses experienced by most emerging market pairs but slightly more than most commodity currencies”.

Gold fell 2.2% to $1,771.20/oz and platinum 5.19% to $1,061.63. Brent crude lost 2.36% to $72.13 a barrel.