JSE closes flat as Reserve Bank keeps rates unchanged

The JSE closed flat on Thursday after the South Africa Reserve Bank kept rates unchanged in a unanimous decision, but adopted a slightly more hawkish tone.

The Bank now expects five increases of 25 basis points by the end of 2020, from a previous four, based on the Bank’s own modeling, although it emphasised that its quarterly projection model was only a broad policy guide.

The Bank increased its forecast for inflation in 2019 and 2020, but downgraded average headline inflation for this year to 4.8% from 4.9%.

The rand showed little reaction to the Bank’s decision, trading largely unchanged, at R13.47 to the dollar. The Bank now views the local currency as under-valued. It was at R12.37 at the time of the previous monetary policy committee (MPC) meeting, after the Bank said in March it was over-valued, at R11.66.

The GDP growth forecast for 2018 was lowered to 1.2% from 1.7%.

Reserve Bank governor Lesetja Kganyago said key uncertainties remained in the global environment. “The Bank assessed the risks to the inflation forecast to be on the upside.”

While the risks of a hike in rates was rising, weak growth would likely cause policy makers to hold fire, Capital Economics analysts said. “We expect policy makers to leave their key rate on hold this year, before loosening policy a bit in 2019.”

Platinum stocks were the main losers on the day after the metal price dropped more than 2% to $800 an ounce. Gold stocks were also lower, albeit off their intra-day lows.

Data from the Minerals Council SA (formerly the Chamber of Mines) showed that 80% of SA’s gold mines were unprofitable at prevailing gold prices of about R520,000/kg. Gold has been pummeled by the stronger dollar ,as well as US Federal Reserve chair Jerome Powell’s recent comments on US employment and inflation.

Market focus on the day was on the retail sector with Woolworths, Massmart and Dis-Chem releasing trading updates, while Kumba Iron Ore informed the market about expected weaker results for the full year.

The all share closed 0.07% higher at 56,276.70 points and the top 40 gained 0.06%. General retailers rose 0.79% and industrials 0.38%. Platinums shed 2.07%, the gold index 0.82%, banks 0.7%, food and drug retailers 0.67%, and property 0.35%.

Kumba Iron Ore dropped 2.45% to R300.45. It said total production rose 2% in the second quarter.

ArcelorMittal rocketed 18.47% to R2.95 after saying it expected to report an interim headline profit, following the sale of its interest in local producer Macsteel.

Lonmin shed 4.26% to R6.51 and Anglo American Platinum 1.84% to R346.50.

Absa shed 1.8% to R156.84.

Woolworths ended the day 0.53% higher at R53.18, in choppy trade, after earlier saying it expected to report a full-year loss due to the impairment of its Australian department store chain, David Jones.

Massmart jumped 7.98% to R115, after reporting that interim sales to end-June rose 1.9%.

Dis-Chem leapt 7.07% to R27.73. Releasing its trading update for the four months to end-June, the company said total sales rose 11% to R7bn, compared with the matching period a year ago.

Naspers rose 0.68% to R3,388.