MARKET WRAP: Hawkish Fed and Russia sanctions fray investors’ nerves

The rand and the JSE weakened on Thursday as a hawkish Federal Reserve and additional sanctions on Russia kept investors on edge.

Fed officials laid out a long-awaited plan to shrink the central bank’s balance sheet by more than $1-trillion a year while raising interest rates “expeditiously” to counter the hottest inflation in four decades. 

The plan to reduce assets bought during the Covid-19 pandemic was spelt out on Wednesday in minutes of their March meeting, which show that policymakers were contemplating a 50 basis-point hike at their meeting in March, but the uncertainty stemming from the war in Ukraine stayed their hand.

The rand, which strengthened to R14.51/$ earlier this week, weakened along with the emerging market currencies to an intraday low of R14.8118/$ — a level last seen two weeks ago.

At 6.09pm, it was 0.89% weaker at R14.797/$, 0.96% to R16.1149/€ and 0.96% to R19.3168/£. The euro was little changed at $1.0891.

“The rand weakened in reaction to the hawkish tone from the Fed, underscored particularly in the [FOMC] minutes, and the recent softening of a number of commodity prices, including coal, SA’s top commodity export,” said Investec chief economist Annabel Bishop.

Local bond prices firmed, with the yield on the R2030 falling three basis points to 9.55%. Bond prices move inversely to the securities’ yields.

Equities markets are now reacting to interest rates after “steadfastly ignoring the reality of tighter monetary policy and the end of 0% interest rates, and central bank backstopping of the party,” said Oanda senior market analyst Jeffrey Halley.

Analysts noted that the more stringent sanctions against Russia and China’s continued grappling with Covid-19 as evidenced by the extension of a lockdowns in Shanghai, were adding to concerns.

“The backdrop remains little changed, as the narrative continues along the lines of inflation, interest rates and the war,” said Citadel Global director Bianca Botes.

“The [US] central bank’s plan to trim its near $9-trillion balance sheet could pose risks to US economic growth and introduce further volatility into the market. Some investors are also concerned that a recession is inevitable.”

The JSE all share fell for the fourth consecutive session, closing 0.47% lower at 74,008.07 points, while the top 40 slid 0.45%. 

At 6.43pm, the Dow Jones industrial average was 0.45% weaker at 34,341.43 points. European and Asian markets were also weaker.

Gold and platinum both firmed 0.31%, with the former at $1,931.52/oz and the latter at $959.50. Brent crude fell 2.83% to $98.64 a barrel.

tsobol@businesslive.co.za