Rand gains fade as investors left on edge over Fed

The rand was flat on Thursday, as a boost from lower-than-expected local inflation was overshadowed by worries that further US Federal Reserve easing might take longer than expected.

At 1547 GMT, the rand was 0.07% lower at R15.20, after firming compared to its overnight close in New York in early trading, while stocks also closed lower.

Stock markets slipped worldwide on Thursday following the release of minutes from the Fed’s July meeting, which revealed a rift between members over its 0.25% rate cut in July.

With a large number reluctant to loosen policy, markets were seen to have gone too far in pricing in expectations of deeper cuts.

Economists are also divided over whether easing inflation will push the South African Reserve Bank to cut rates again at its September meeting, following a 25 basis point reduction in July.

Headline consumer price inflation slowed to 4.0% year-on-year in July, according to data from Statistics South Africa showed on Wednesday, the lowest since January and below a consensus forecast of 4.2%.

Lower inflation against relatively high interest rates marginally supports the rand’s carry yield attraction, but gains based on such data tend to be quickly overtaken by other factors such as high levels of local credit risk and diminishing chances of lower US benchmark rates.

Stocks also declined. Johannesburg’s All-share index fell 0.82% to 54,188 points, while the Top 40 index fell 0.82% to 48,435 points.

At the bottom of both was budget retailer Mr Price, which fell 13.70% to R156.44 – prices last seen almost two years ago – after sales came in worse than expected.

“The slowdown in Mr Price was really led by a weak macro (economic) environment. In a challenging macro environment, you’ve got a lack of wage growth. It’s a lack of pricing power among the retailers,” said Ayan Ghosh, investments strategist at Avior Capital.

Grocery chain SPAR was also down 5.44% to R173.43 alongside other retailers such as Shoprite, which fell 3.6% to R120.65 rand, its lowest in 8 years. Food and clothing retailer Woolworths slipped 3.27% to R51.75.

The yield on the benchmark 10-year government bond fell 0.5 basis points to 8.27%.