MARKET WRAP: JSE boosted by rate cut and US-China deal

The JSE had its sixth consecutive session of gains on Friday, boosted during the week by a partial US-China trade deal and the Reserve Bank’s unexpected interest rate cut.

The JSE’s gains for the week reached 3.28%, and rose to 3.97% for the month. 

On Thursday, the Reserve Bank cut the repo rate by 25 basis points, its first cut since July, signaling that a second cut is likely later in 2020, citing SA’s subdued inflation.

While lower interest rates could stimulate economic activity, they would make SA bonds less attractive to investors on the hunt for higher-yielding investments. Bond yields move inversely to their prices.

Judging by the sanguine reaction of markets, investors were anticipating the cuts more than the analysts’ projections suggested, said Monex Europe forex market analyst Simon Harvey in a note.

“The pre-emptive strike by the Reserve Bank is deemed sufficient by forex markets that are arguably more forgiving under a much improved risk climate,” said Harvey. “That may not last, however, as global cutting cycles begin to slow and a period of rate stagnation lingers in developed economies.” 

The rand erased gains on the announcement by the Bank, bringing losses to 1.68% for the week. Shortly after the JSE closed, the rand had weakened 0.28% to R14.4476/$ and was little changed at R18.8138/£. It had weakened 0.13% to R16.0286/€.

Global markets have been boosted this week by the US and China signing the first phase of a trade deal on Wednesday, which analysts said reduces the chances of further friction between the world’s two largest economies. 

Easing trade tension has made manufacturers more optimistic about the business outlook, though analysts believe that many of the tit-for-tat tariffs both sides imposed during the trade war will remain in place.

Earlier data showed that China, the world’s second-largest economy, ended 2019 on a slightly positive note as a result of a trade truce with the US. Progress in the economically damaging conflict is seen to have restored business confidence and the economic growth potential of the country.

“Chinese overnight data offered some cause for optimism, with industrial production, retail sales and fixed-asset investment all comfortably beating market expectations”, said Oanda senior market analyst Craig Erlam.

“The phase-one trade deal with the US has partially lifted the cloud of uncertainty hanging over the economy, although numerous tariffs remain in place,” Erlam said. “If these numbers are anything to go by, 2020 could be a far more productive year for China.” 

Earlier Hong Kong’s Hang Seng rose 0.60% and Japan’s Nikkei 225 0.45%.

The Dow was last seen up 0.12% to 29,331.68. In Europe, the FTSE 100 was up 0.88%, France’s CAC 40 1.04% and Germany’s DAX 30 0.71%.

At 5.05pm, the JSE all share was up 1.38% to 59,022.26 points and the top 40 was 1.52% higher. Banks were down 2.02% and financials 0.83%. Gold miners were up 2.07% and the platinum index 4.16%.

State-focused Delta Property Fund rose 1.47% to 69c. It said earlier that it has sold R104.4m of its shares in Grit Real Estate, and will use the proceeds to reduce debt and supplement its capital expenditure.

The company has sold about 6.5-million shares in Grit for R16.06 per share in an off-market transaction, with the move reducing its shareholding in that property counter to 5.7%, from 7.8% previously. Grit was down 1.47% to R16.75.

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