Rand and JSE gain as market welcomes state’s spending restraint

The rand and the JSE added to earlier gains on Thursday, while SA's benchmark 10-year bond firmed, after finance minister Enoch Godongwana unveiled a spending plan for the state that would see it sticking to its path of fiscal consolidation.

The local currency had already been staging a partial recovery from its worst day in almost nine months in the previous session, and at 5pm it had gained 1.1% to R15.2396/$, 1.2% to R17.4792/$ and 1.02% to R20.4203/£.

Shortly before Godongwana began speaking the rand was 0.82% firmer at R15.2819/$, 0.92% stronger at R17.5275/€ and 0.4% firmer at R20.4782/£. The local currency had slumped 2.6% on Wednesday, its worst performance since February 25, as investors digested higher-than-expected US consumer inflation numbers for October, which stoked concerns that the US Federal Reserve will need to up the pace of monetary policy tightening.

“Fiscal consolidation seemingly remains the order of the day,” said RMB chief economist Etienne le Roux, who also welcomed a budget that avoided tax increases, and had realistic revenue expectations.

“Given slowing global growth, a likely temporary commodity price boom, domestic interests rates that have bottomed and an ever-unstable energy supply, the National Treasury is wise to remain cautions on the economic front,” he said.

SA’s benchmark 10-year bond strengthened, with its yield eight basis points lower at 9.365%, having been eight basis points higher before the budget announcement. Bond yields move inversely to their prices.

The JSE all share also extended earlier gains, closing 1.25% higher, from a 1.12% gain at 2pm.

Anchor Capital analyst Casey Delport said markets would be relieved at the policy continuity and a strong intent of becoming more pro-growth via collaboration with the private sector through public-private partnerships.

“Nonetheless, the fiscal risks remain elevated, with plenty of execution risk. The repeatedly announced growth initiatives are still lacking in detail and, overall, debt stabilisation remains distant,” she said.

The risks to this budget remain high in the years ahead because of potential expenditure demands from civil service wages and state-owned enterprises, commodity prices turning around, further waves of Covid-19 and the economy disappointing relative to expectations, said Sanlam Investments economist Patrick Buthelezi.

“Importantly, a lower government budget deficit provides space for the private sector to utilise domestic savings for investment,” he said.

gernetzkyk@businesslive.co.za