MARKET WRAP: Rand hedges support JSE after shock GDP report

Miners and other companies with predominantly offshore earnings helped the JSE close higher on Tuesday, as the rand weakened in the wake of data showing the economy contracted in the first quarter the most since the worst of the financial crisis a decade ago.

These gains helped offset losses in banks on a weaker rand.

GDP contracted 3.2% in the first quarter from the last three months of 2018, twice the rate expected in the Bloomberg consensus, underscoring the fragility of SA’s expected economic recovery.

The ANC added fuel to the fire, announcing after its national executive committee (NEC) meeting that it had resolved to expand the Reserve Bank’s mandate to include job creation, raising the spectre of political interference in monetary policy.

The rand slumped as much as 2.1% against the dollar in intra-day trade, settling at R14.7104/$, or 1.85% weaker, as the JSE closed.

The all share gained 0.38% to 56,500 points and the top 40 0.48%. Gold miners added 3.6% and the resources index 2.19%. Banks slumped 3.83% and financials 2.11%.

Economists said on Tuesday that SA is now likely to grow by between 0.5% and 0.7% in 2019, adding to the gloom for domestic equities, which continue to grapple with the fallout from the US-China trade war.

SA is likely to only grow at a rate of 0.5% in 2019, said Capital Economist senior emerging-market economist John Ashbourne, although activity should pick up in 2020 and 2021. It should also prompt a 25-basis-point cut from the Reserve Bank in July.

Global markets were mixed on Tuesday, with those in Asia closing lower, while US and European markets pushed higher.

Shortly after the JSE closed, the Dow was up 1.4% at 25,168.86 points, while in Europe the FTSE 100 was up 0.11%, the CAC 40 0.43%, and the DAX 30 1.42%.

Diversified miner Glencore gained 3.34% to R48.62 and Anglo American 2.68% to R359.01.

Rand hedge Richemont jumped 5.57% to R112.74, AB InBev 4.22% to R1,226.88, and British American Tobacco 3.89% to R526.62.

Novus added 0.26% to R3.88 after the company said it expected its headline earnings per share (HEPS) for the year ended March to be 41% lower — at least 42c — compared to the previous period.

RCL Foods fell 1.48% to R13.99. It said earlier it expected HEPS to fall by at least 20%, due to pressure on its sugar and chicken businesses.

Standard Bank and Absa both slumped 4.21% to R193.97 and R165.99, respectively.

The focus on Tuesday evening is on a speech by US Federal Reserve chair Jerome Powell, while Wednesday is busy in terms of local events. The Standard Bank whole-economy purchasing managers’ index for May is due at 9.15am, while the SA Chamber of Commerce and Industry business confidence index for the same month is due at 11.30am.

Shortly after the JSE closed, Brent crude had risen 1.32% to $61.54 a barrel. Gold was down 0.3% at $1,320.61/oz and platinum 0.72% to $818.28. Sasol added 1.84% to R373.27.

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