JSE opens lower as dollar continues to gain amid falling US bond yields

The JSE opened lower on Tuesday on weaker Asian markets as industrials retreated in risk-off trade, led by Naspers.

Naspers was again lower following a weaker Tencent in Hong Kong trade, after recently diversifying earnings, by among others, investing in a German second-hand car dealership.

US bond yields fell sharply in overnight trade, with the 10-year erasing all the gains from the past few weeks when it hit a seven-year high of 3.12%. On Tuesday morning it was at 2.8886% from 2.9277%.

At the same time the dollar continued to gain ground against the euro, keeping the rand on the back foot at R12.5521 to the dollar from R12.4648. The euro was at $1.1578 from $1.1624.

Until recently, weaker US bonds reflected a stronger dollar, as bonds were sold off and invested in the dollar in anticipation of a more hawkish stance from the US Federal Reserve.

Analysts said the market was now reflecting lower inflationary pressures in the US and political tension in the eurozone, mainly in Italy (where a new government has not been formed yet) and now in Spain.

“We are seeing an intriguing move in the markets,” said Stanlib retail investment director Paul Hansen.

So far there was no evidence of a slowing US economy, although it could also be that inflation is perceived to be under reasonable control too, despite the strong economy, he said.

Hansen said since February, the stronger dollar had been driven by the superior growth rate of the US economy relative to Europe and Japan.

US Federal Reserve officials again poured cold water on a further hawkish stance from the Fed with St Louis Fed president James Bullard saying on Tuesday that it was difficult for the Fed to raise interest rates by a large margin when the Bank of Japan and the European Central Bank were pursuing accommodative policies.

The market was eyeing expected movements on the Dow, opening later in the afternoon following Monday’s Memorial Day public holiday. The Nikkei 225 was 0.55% lower, a one-month low as growth concerns affected sentiment, and the Hang Seng had lost 1.04%.

At 10am the all share was 1.07% lower at 56,246.40 points and the top 40 lost 1.18%. Industrials were down 1.53%, general retailers 1.45%, food and drug retailers 1.14%, financials 0.78% and banks 0.76%.

The gold index rose 0.36%.

British American Tobacco lost 1.08% to R642.50.

Old Mutual plc was down 1.41% to R40.68. The group said on Tuesday it would proceed with a plan to sell 9.6% of Quilter, formerly Old Mutual Wealth, to institutional investors.

Steinhoff Africa Retail was 4.14% lower at R16.20 after reporting a 49.1% drop in interim headline earnings per share (HEPS) to end-March.

Telkom lost 0.7% to R51.34 and MTN 1.24% to R113.72.

Naspers dropped 2.69% to R3,119.09.

Mediclinic shed 3.29% to R103.08.