MARKET WRAP: JSE closes lower despite upbeat global trade

The JSE ended Wednesday lower as investors digested the increased likelihood that the Reserve Bank will eventually have to hike interest rates.

Reserve Bank deputy governor Daniel Mminele warned on Tuesday that consumer inflation could overshoot the 6% upper limit of its target band. “Given the volatile environment, the risk of an overshoot of the target, given the balance of risks, should not be under-estimated,” he said in New York on Tuesday, in a speech posted on the Bank’s website.

This will affect local economic growth negatively with the World Bank downgrading growth for 2018 to 1% from 1.4% on Wednesday.

Losses on the JSE on Wednesday were fairly broad-based, with banks faring worst on a weaker rand. Resources showed some resilience but faltered towards the close despite Brent crude jumping above $85 a barrel again.

Naspers lost 1% to R2,970, its first close below R3,000 since April 26.

SA is undergoing a very slow and volatile recovery to low potential growth of about 2% against offshore and onshore headwinds, said Intellidex capital markets researcher Peter Attard Montalto. “The recently announced stimulus package will ensure we get there but does not lift potential growth in our view.”

Earlier, the Reserve Bank said the knock-on effects from recent fuel hikes on inflation should not be under-estimated.

European markets gained amid hopes that Italy’s budget deficit could be lowered, but concerns about the country’s debt and budget plan remain.

British Prime Minister Theresa May’s arch rival Boris Johnson laid down a challenge to her leadership, touting his credentials to become the UK’s next leader amid a deep rift within the Conservative Party over the government’s approach to Brexit.

The Dow was 0.6% higher at the JSE’s close, placing it in record territory. The FTSE 100 had added 0.52%. Positive comments from US Federal Reserve chief Jerome Powell bolstered sentiment, with the combination of low inflation and low unemployment creating an economic sweet spot, analysts said.