MARKET WRAP: JSE remains lower but rand recovers a little

The JSE remained lower on Monday as pressures mount over intensifying tension in the Middle East following the US-ordered assassination of Iranian general Qassem Soleimani.

On Sunday, Iraq’s parliament recommended that all foreign troops be ordered out of the country following the US drone attack which killed Soleimani. US president Donald Trump threatened sanctions on Iraq, the second-largest producing member of oil cartel Opec, if US troops are forced to withdraw from the country. He also threatened to strike back if Iran attacked any American person or target.

The escalation in US-Iran tension has had a large effect on markets since the news broke on Friday, leaving investors uncertain as to how Iran may retaliate to the US attack.

“Gold is the obvious beneficiary of these kinds of events, although there are others — treasuries, the yen and Swiss franc among them. Gold flew through last year’s highs in early trade and now finds itself at near-six year highs and pushing $1,600/oz,” said Oanda senior market analyst Craig Erlam.

“A weaker dollar was already creating a decent bullish case for the yellow metal but conflict in the Middle East has finished the job. Safe havens are back in vogue and the yellow metal is leading the way,” Erlam said.

The JSE all share closed the day down 1.06% at 57,195.3 points and the top 40 fell 1.04%. The platinum index lost 0.67%, resources 0.33%, banks 2.61%. Gold miners were little changed.

The gold price was up 0.85% at $1,565.31/oz, while platinum was down 2.17% to $959.84. Brent crude was 0.38% higher at $68.86 a barrel.

The tension in the Middle East has pushed the price of Brent crude to its highest level in more than seven months, with markets fearing that global oil supply might be affected, as the region is responsible for almost 50% of global output.

After having been weaker earlier on Monday the rand recovered some of its losses later following an easing in risk aversion, with investors slowly returning to perceived riskier assets later in the day. 

According to Bloomberg data, the rand has been the worst performing among emerging-market currencies over the past five days. It ended last week down almost 2% as emerging markets took a knock on the US-Middle East tension.

The relative calm in markets later on Monday suggests investors are still more focused on any progress in the US-China trade talks and the continued stimulus by global central banks. With a Chinese delegation slated to visit Washington in mid-January to sign a preliminary deal, there’s an incentive for traders to hold off on any large-scale selling unless there’s an imminent threat of military conflict, reported Bloomberg.

At 6.31pm the rand had recovered 0.61% to R14.2237/$ and 0.4% to R15.9127/€. It was little changed at R18.7271/£.

Analysts believe that although geopolitical tension has taken centre stage over the past few days, with power utility Eskom returning to rolling blackouts on Saturday, its effect on the economy is bound to make headlines throughout the rest of a week.

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