The JSE ended trade higher yesterday with the rand rising to its strongest level in more than a month against the dollar buoyed by the strength of the gold price as fears of a wider banking contagion abated.
The JSE All Share Index rose 0.6% to 76 480 points yesterday, and the rand moderated to R18.08 to the US dollar, its strongest since February 20 amid the gold rally, and moving away from a near three-year low of R18.60 hit on March 21.
This was also boosted by the dollar’s general weakness after the US Federal Reserve raised interest rates by the expected 25 basis points and said the fight against inflation might require only one more hike this year.
The gold price moderated around $1 963 (R35 530) an ounce yesterday, slightly pausing a recent rally and hurting demand for safer assets amid the ongoing battle to prevent the banking crisis from spreading further.
In the JSE, Sibanye-Stillwater led slight gains in gold stocks, rising 1% to R37.84 per share while Harmony Gold gained 0.2% to R74.28, with AngloGold Ashanti, moderating at R416.71, but Gold Fields eased 0.3% to R240.20 per share.
The market has cheered news that First Citizens BancShares agreed to buy all deposits and loans of failed Silicon Valley Bank.
US Federal Reserve Head of Banking, Michael Barr, blamed the collapse of SVB on mismanagement rather than financial system vulnerabilities.
Barr also told lawmakers that SVB’s troubles were due to “terrible” risk management, suggesting it could be an isolated case.
Oxford Economics lead economist Adam Slater said their analysis of the latest evidence suggested that the situation of the banks contagion was some way from being as severe as the global financial crisis, but the risks to growth were serious.
Slater said bank failures alone did not mean the world was in a full-blown systemic banking crisis, and financial stress measures were not at alarming levels yet.
However, he said some international contagion had been seen, with the failure of Credit Suisse and the Fed having to provide dollar liquidity abroad.
“Banks are in a better position to withstand losses and funding strains than in 2007. But leverage is still high by historical standards and there are pockets of weakness, including some emerging market banks,” Slater said.
“The strains on banks will be transmitted to the real economy mostly via tighter credit conditions. By how much isn’t yet clear. Importantly, this may take time as asset impairment – and banks’ reactions to it – could be a slow-burning process.
“Still, we’re already at a point where our baseline global growth forecasts are starting to be affected and downside risks are significantly higher.”
BUSINESS REPORT