JSE set for cautious start on Friday ahead of US rates decision

The JSE could be in for a cautious start on Friday as investors shift their attention to monetary policies in the US and Europe.

The European Central Bank (ECB) issued a dovish statement on Thursday, projecting an accommodative framework for monetary policy, although the central bank’s president, Mario Draghi, said the risk of a recession in the region is “pretty low”.

This, together with improved macroeconomic readings in the US, means investors are less optimistic about drastic interest rate cuts by the Federal Reserve.

“Durable goods data have improved materially since the Fed last met, as have labour market, retail sales and inflation numbers,” analysts at ANZ Banking Group said on Friday.

“This would seem to argue that the softening global economy has so far had a negligible impact on domestic US activity,” the bank said, adding that another strong labour market report was expected for this month.

“The Fed may be constrained by domestic data to deliver a pretty cautious 25 basis point cut next week.”

US stocks closed lower overnight, with the S&P 500 index losing 0.5%. Asian markets followed suit on Friday. Hong Kong’s Hang Seng index fell 0.5%, the Shanghai Composite 0.2%, and Japan’s Nikkei 225 shed 0.6%. Korea’s Kospi edged 0.6% lower and Australia’s main benchmark 0.3%.

But Chinese internet and gaming giant Tencent continued its strong run this week, adding 0.7% in Hong Kong. This suggests another positive start for major shareholder and Africa’s biggest public company, Naspers. 

JSE-heavyweight BHP Group gained 0.5% in Australia.

Meanwhile, JSE-listed landlord Liberty Two Degrees is expected to publish interim results on either Friday or Monday 29 July.

The SA Reserve Bank, whose private shareholding structure and cautious approach to rate cuts has come under fire in recent months, will hold its annual general meeting on Friday morning.

No major data releases are expected locally. In the US, the first estimates of second-quarter economic growth numbers are expected, and these could influence the Fed’s interest rate position next week.

The GDP readings “are likely to show a slowdown” from quarter one’s 3.1% annualised growth rate, Investec economist Kamilla Kaplan said on Monday.

Another 145 S&P 500 companies reported earnings this week, according to Investec.

“But we see nothing upsetting our view that the Federal Open Market Committee will cut the Fed funds target range by 25 basis points” on July 31, Kaplan said.

The rand, meanwhile, remained on the back foot following the ECB’s announcement and a report from Moody’s Investors Service which confirmed that the SA government’s plan to give additional funding to Eskom is “credit negative”.

The local currency was trading at R14.09/$, R17.54/£ and R15.71/€.

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