MARKET WRAP: JSE ends lower as oil falls on production recovery reports

The JSE closed in negative territory on Tuesday as investors remained cautious ahead of the US Federal Reserve’s (Fed’s) decision on interest rates.

Brent crude prices slumped late on Tuesday following reports that Saudi Arabia is close to restoring 70% of the 5.7-million barrels per day (bpd) of oil production it lost after a drone attack at state-owned Aramco’s oil facilities at the weekend. The attack more than halved the country’s oil production capabilities. Reuters reported on Tuesday, however, that Saudi Arabia will restore full production in the next two to three weeks.

The price of Brent crude dropped more than 5% in intraday trade on Tuesday, after shooting up 13.1% on Monday, as markets assessed the effect the attack will have on global oil supply and, consequently, inflation.

The Fed is expected to announce its interest rate decision, after SA markets have closed, on Wednesday.

Senior market analyst at Oanda Craig Erlam said expectations that the Fed will cut by as much as 50 basis points have diminished with markets now pricing in at least a 30% chance the Fed will keep rates unchanged. “There have been a variety of explanations for the change in expectations, be it stronger data last week, improved risk appetite, trade war optimism and even higher inflation potential following the oil price spike.”

The SA Reserve Bank began its three-day monetary policy committee meeting on Tuesday ahead of its repo rate announcement on Thursday. Eighteen economists polled by Bloomberg are expecting the Bank to hold the repo rate at 6.5%. 

Statistics SA is due to release the consumer price index (CPI) for August on Wednesday. The Bloomberg consensus is for consumer inflation to have accelerated to 4.2% year on year from 4% in July.

Shortly after the JSE closed, the Dow was flat at 27,051.28 points. In Europe, the FTSE 100 was down 0.26% and Germany’s DAX 30 0.12%, while France’s CAC 40 was up 0.15%. Earlier, the Shanghai Composite fell 1.74% and Hong Kong’s Hang Seng 1.23%, while Japan’s Nikkei 225 was flat.

At 5.18pm, the rand was the second-worst-performing emerging market currency, weakening 0.55% to R14.7453/$, 1.02% to R16.301/€ and 1.05% to R18.4148/£. The euro had firmed 0.48% to $1.1056.

Gold was up 0.32% to $1,502.80/oz and platinum 0.42% to $940.81. Brent crude dropped 3.89% to $65.2 a barrel.

The JSE all share fell 1.66% to 56,895.20 points and the top 40 1.79%. Banks dropped 3.41%, while gold miners climbed 3.11%. 

Blue Label Telecoms lost 1.04% to R2.85. The JSE said on Tuesday that the company is facing suspension for failing to release its financial results for the year to end-May. It is now expected to release the results on September 26.

Sappi dropped 7.01% to R43.80 after the company fell out of the JSE’s top 40 index on Monday, due to the listing of Naspers subsidiary Prosus.

Comair gained 2.9% to R3.55. The company said on Tuesday that its headline earnings per share increased 184% to 197.2c in the year to end-June. 

Sasfin dropped 6.38% to R32.28, despite the financial services group saying on Tuesday that its headline earnings jumped 32.05% to R161.3m in the year to end-June.

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