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The JSE is likely to trade lower on Wednesday, reflecting investor angst about higher consumer inflation and possible interest rates increases.

Runaway consumer prices have gripped developed markets in particular, heaping pressure on policymakers to act when the global economy is still recovering from the Covid-19 pandemic.

The yields on the US 10-year paper hit their highest level in two year at about 1.88% in early trade, boosting the value of the dollar to the detriment of the rand and other currencies.

The rand changed hands to the dollar at R15.52, down 0.16% on the day and backing away from its two-month high R15.29/$ reached last week.

The key area of focus for the markets is no longer if, but by how much, the US Federal Reserve will increase rates to counter inflation, which reached a 42-year high on an annual basis in December.

Driven in part by supply chain bottlenecks and higher oil prices, inflation has been running consistently above the Fed’s 2% target for months, though its chair, Jerome Powell, has said that it is likely to peak in June.

Higher interest rates in the US and developed markets more broadly could destabilise the rand via capital outflows.

Asian markets were weaker on Wednesday, with Japan’s Nikkei 225 index shedding 2%, after a weaker session on Wall Street, where tech stocks in particular came under intense selling pressure.

“Companies that have high debt will have to pay more on their interest bill and this will affect earnings,” said Gregory Katzenellenbogen, senior portfolio manager at Sanlam Private Wealth.

Brent crude was at highest level in seven years at about $88.32 a barrel.



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