US bond rate hits EMS stocks, currencies

Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York

INTERNATIONAL – The slow but steady increase in the US long bond rate to 3.1percent last Friday had far reaching effects on emerging markets (EMS).

The Turkish Lira weakened to a new record low and EMS currencies headed for the biggest fall against most developed market currencies since November 2016.

Together with the Middle East crisis after the opening of the US embassy in Jerusalem as well as the clashes between Palestian and the Israeli defence forces, oil prices soared with the Brent breaching the $80 (about R1000) a barrel.

US stocks once again had a volatile week. The Dow Jones industrial index traded last Wednesday on 24899 points, or 0.7percent, higher than the previous Friday close, but fell to 24706 points (-0.8percent) on Thursday and at the close of the JSE on Friday traded at 24707 points, or 0.2percent, down for the week.

The stronger dollar, together with the long bond woes had put pressure on South Africa’s share markets. At the close on Friday the all share index traded on 57804 points. Despite the strong recovery on Thursday by 1.1percent, the index still ended the week down by 0.33percent.

The weaker rand also saw listed property shares trade lower by 2.5percent over the week.

The rand, like other EMS currencies, took a knock last week. The currency traded the previous Friday on R12.24 to the dollar, and last Friday afternoon had weakened by 50cents, or 4percent, to R12.74.

Against the euro, the rand had depreciated by 37c to R15.01 and against the pound had lost 58c and traded on R17.17.

The sharp increase in the oil price and a weaker rand contributed to the sharp increase in the under recovering levels of fuel prices since the last announcement on petrol and diesel prices on April25.

Not taking into account the sharp depreciation of the rand last Friday, diesel was under recovered by 82c a litre and petrol by 76c a litre.

Meanwhile, Reuters reports that political uncertainty in Italy weighed on the country’s stocks and bonds as well as the euro on Friday, while trade concerns and tepid corporate earnings kept Wall Street in check.