JSE slides as US inflation, interest rate fears spook the global market
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JOHANNESBURG - STOCKS at the JSE were spooked by inflationary pressures and possible higher interest rates after the US recorded 13-year high consumer inflation.
The rate of the US consumer price inflation (CPI) jumped to 4.2 percent on Wednesday, the highest since 2008 and well above forecasts of 3.6 percent rise. The jump in US consumer prices prompted a risk-off sentiment from investors on fears that the US Federal Reserve (Fed) would tighten its dovish monetary policy sooner than expected. The JSE All Share Index closed 1.86 percent lower to 66 168.65 points dragged down by miners as a recent rally in prices of iron ore and platinum paused. African Rainbow Minerals fell 5.2 percent to 4.9 percent to R275.32 per share, while Anglo Gold eased R320.90. Kumba Iron Ore tumbled 4.33 percent to R686.33, while BHP shares slid 3.49 percent to R449.55. Platinum prices remains near a six-year high, trading mostly above $1 200 (R16 944) per ounce since the third week of April, not far from a more than six-year high of $1 302 touched in mid-February, FXTM’s market analyst Han Tan said the markets were spooked by the higher-than-expected CPI in the US. “The latest inflation prints are stoking market fears that runaway prices may crimp the ongoing economic recovery, while potentially forcing the Fed’s hand to intervene by reining back its support measures,” Tan said. “Still, considering the extent of the reaction so far, market moves may be relatively muted over the coming days.” JSE stocks had a strong month in April with all major domestic asset classes posting positive returns, with the property sector outperforming and bonds doing better than equities. Markets.com chief market analyst Neil Wilson reiterated that the inflation scare had driven stocks to a decline.
“A hot inflation print from the US has left stock markets around the world nursing losses,” Wison said. “Higher inflation readings are headwinds for equity markets, underscoring the broad market trend of the last month as investors unload tech/growth/momentum.” Meanwhile, the rand pared previous gains and by 5pm had retreated to R14.10 to the dollar, 5 cents lower than the same fix on the previous day, as investors fled to the safe-haven of the greenback on the back of slowing commodity prices. Alexander Forbes chief economist Isaah Mhlanga said the rand would weaken against the greenback in spite of having a stronger fair value. Mhlanga said the current fair value of the rand against the dollar was around R14 on the back of the rally in commodity prices which are expected to remain close to current levels through 2021. “The currency outlook is dimmed by the ongoing fiscal risks, which may result in the USD/ZAR to trade above fair value,” Mhlanga said. “Local fiscal and growth risks will keep the rand structurally above its fair value due to the strong recovery, particularly in developed economies, rising commodity prices, robust Covid-19 vaccine roll-out and continued stimulatory policy responses by developed market economies.”