MARKET WRAP: Miners leap while banks and financials slump on budget news
The rand plummeted during Tito Mboweni’s medium-term budget, which laid bare the country’s dire economic position
The JSE ended a little higher on Wednesday, while the rand plunged after finance minister Tito Mboweni’s medium-term budget policy statement (MTBPS) laid bare the country’s dire economic situation.
Delivering the medium-term budget in parliament, Mboweni said the government’s budget deficit is set to be two percentage points higher, on average, over the next three years than forecast when the budget was tabled just eight months ago.
North West University Business School economist, professor Raymond Parsons, said: “Given the domestic and global headwinds facing the SA economy, the MTBPS strongly shifts the narrative towards recognising the grim nature of the fiscal crisis that has to be addressed in SA.”
Mboweni confirmed that “unless progress is made in reducing the cost-drivers of government as well as state-owned enterprises (SOEs) such as Eskom, SA is in danger of falling into a debt trap”, Parsons said.
He added that as long as government spending isn’t better controlled, the negative debt ratios will continue to rise. “It therefore remains a matter of concern that, despite the agenda of remedies proposed in the medium-term budget, they fall short of preventing strongly escalating public debt up to 2022/2023.”
The rand plummeted through R15/$ during the speech, while the JSE rose marginally, boosted by miners. These gains were kept in check, however, by falls in financials and banks.
The JSE all share closed 0.29% higher and the top 40 added 0.31%. Banks led the losses, down 2.54%, while financials relinquished 1.6%. Resources gained 1.11%, platinum miners 3.23% and the gold index 6.23%.
Iron ore and coal shares did particularly well, with Kumba gaining 3.41% to R373.12, Assore 5.34% to R256.67, and Exxaro 3.09% to R126.80.
Sibanye-Stillwater led gains in the gold sector, surging 8.11% to R28, while Anglo American Platinum leapt 3.8% to R1,100, its highest close in more than two weeks and its biggest gain in nearly four weeks.
Absa fell 3.2% to R155.69, Standard Bank 2.78% to R174.60, Nedbank 2.7% to R229.29, and FirstRand 2.57% to R66.
Discovery slumped 4.74% to R118.47, Sanlam 2.7% to R78.89, and Old Mutual 2.27% to R19.35.
Retailers also had a bad day, with Massmart falling 4.29% to R44.40, TFG 2.98% to R171.62, and Mr Price 1.67% to R160.25.
At 5.20pm, the rand had plunged 2.46% to R14.9807/$ — after earlier breaking through R15, 2.55% to R16.6605/€, and 2.44% to R19.2855/£. The euro had firmed 0.11% to $1.1124.
The generic 10-year government bond also suffered, with the yield rising 21 basis points to 9.121%. Bond yields move inversely to their prices.
“An extreme ramp-up in debt to GDP projections makes a Moody’s credit-rating downgrade substantially more likely, and a revision to a negative outlook a certainty,” said Investec chief economist Annabel Bishop following Mboweni’s speech.
Moody’s Investors Service, the only major ratings agency to hold SA at investment grade, is set to release the findings of its latest review of the country’s creditworthiness on Friday.
The US Federal Reserve will announce its latest decision on interest rates on Wednesday evening. Market expectations are for the central bank to cut rates for a third time in 2019. Should this happen, rand weakness may be tempered as emerging-market currencies usually gain when the Fed cuts.
At 6.30pm, the Dow was up 0.08% to 27,092.25 points, while in Europe, the FTSE 100 had gained 0.27% and France’s CAC 40 0.23%; Germany’s DAX 30 was down 0.29%.
Earlier, the Shanghai Composite fell 0.5%, Hong Kong’s Hang Seng 0.44%, and Japan’s Nikkei 225 0.57%.
Gold gained 0.44% to $1,494.28/oz and platinum 0.37% to $923.87. Brent crude was down 1.07% to $60.90 a barrel.