Johannesburg - Markets celebrated yesterday after US Federal Reserve governor Ben Bernanke delayed the phasing out of his easy money policy and lowered projections on US growth this year to between 2 percent and 2.3 percent from a June estimate of 2.3 percent to 2.6 percent. But analysts pondered the longer-term implications of the delay and warned that the rally would not last.
Bernanke’s surprise decision to continue boosting liquidity in the US sent the JSE all share index to a record close of 44 302.94 points, while the rand reached a best level of R9.5484 to the dollar yesterday morning. At 5pm, it was trading at R9.6662. A month ago the currency came close to R10.40, on fears about the tapering of Bernanke’s quantitative easing (QE) programme, as well as troubles in the domestic mining industry.
Mark le Roux, the head of fixed income at Coronation Fund Managers, said the bond market had reacted “very positively” to the Fed’s announcement, with the yield on the R186, the government 2026 benchmark bond, falling from 8.14 percent at Wednesday’s close to 7.8 percent yesterday morning.
Stanlib chief economist Kevin Lings said analysts had seen a 70 percent chance of “a modest tapering of QE”. This expectation triggered massive outflows from emerging market funds over the past few months, sharply weakening currencies and undermining economic growth. The loss of momentum in emerging markets threatened to dampen prospects of a strong global recovery – a factor that might have influenced the Fed’s decision.
Ishaq Siddiqi, a market strategist at ETX Capital, suggested that Bernanke’s turnaround, after sending strong signals since May that he would start tapering the liquidity programme, had knocked his credibility.
Mohammed Nalla, the head of strategic research at Nedbank Capital, predicted the rally would be “transient”. He warned: “The market’s focus will now shift to the looming US debt ceiling debates in October with the possibility of a government shutdown likely to be risk-negative.”
US politicians are unable to agree on a formula to address their debt levels. A stand-off in 2011, prompted Standard & Poor’s to strip the country of its triple A credit rating, sending global markets into a tailspin.
Barclays warned that the continued liquidity boosts would delay needed adjustments in the global economy.
But it said, short term, the delay would support countries with high current account deficits – the gap between income from exports of goods and services and the import bill. South Africa’s deficit equalled 6.5 percent of gross domestic product in the second quarter. - Business Report