MARKET WRAP: Rand and JSE weaken as Mboweni comes clean on challenges

The JSE and rand weakened on finance minister Tito Mboweni’s first medium-term budget policy statement (MTBPS), as analysts said ratings agencies might not look kindly on the prospects of lower GDP growth and a higher budget deficit.

“This will make it more difficult for Moody’s not to downgrade,” ETM Analytics analyst George Glynos said. Moody’s is the only agency to still have SA one notch above junk.

“Mboweni sent the right message but the numbers are distressing,” Sasfin Securities analyst David Shapiro tweeted.

The rand came under even more pressure in a stronger dollar environment with the euro weakening to $1.1392 from $1.1471 after the European Commission rejected Italy’s budget.

When Mboweni started his speech the rand was at R14.2794 to the dollar. About 10 minutes later, it hit R14.3944, before weakening further to R14.4483, 1.3% lower than when the minister started speaking. At the conclusion, it had recovered marginally to R14.3896 before weakening sharply in later trade to R14.5142.

The all share ended the day 0.57% lower at 50,877.30 points and the top 40 lost 0.75%. Platinums shed 1.63%, the gold index 1.45%, industrials 1.17% and resources 0.61%. Banks rose 1.44%, food and drug retailers 1.11%, and general retailers 1.04%.

British American Tobacco rose 1.59% to R660.32.

FirstRand climbed 1.7% to R60.85 and Absa 1.76% to R142.97.

Quilter dropped 0.37% to R21.50. The group said in a trading update for the third quarter that gross flows into its investors division rose 10% to £4.3bn.

Shoprite gained 0.57% to R187.50.

Naspers slumped another 3.96% to R2,575.

The budget deficit is first expected to rise to 4.2% of GDP in 2019-2020 from 3.6% before marginally improving to 4% in 2021-2022. The GDP growth forecast has been slashed from 1.5% in February to 0.7%, with debt-servicing costs rising to R7.9bn in 2020-2021, above initial estimates.

Initial market reaction was not all that negative as Mboweni’s message was one of commitment to the “goals of stabilising and bringing down the debt-to-GDP ratio”.

Capital Economics analysts said the market was disappointed that Mboweni did not announce measures to cut expenditure to keep the budget deficit at its previous target. Growth was placed ahead of fiscal targets. “His decision to keep the cash flowing seems to have surprised the markets, as the rand lost 1% against the dollar and yields on South African 10-year bonds rose a touch at first,” they said.

Although the benchmark R186 initially remained unmoved at 9.14%, even moving stronger to 9.12% at one point, yields shot up after the JSE’s close with the R186 yield rising to 9.32% from 9.155%. The R207 was at 6.88% from 6.8%.

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Source: businesslive.co.za