JSE may extend rally as Fed signals slower policy- tightening pace

The JSE will likely extend its recent rally on Thursday, joining its global counterparts, after US Federal Reserve chair Jerome Powell said the US central bank could slow down the pace of interest-rate increases as soon as this month.

However, Powell’s remarks delivered late on Thursday contained the caveat that higher rates will remain in place until inflation is back down to the Fed’s 2% target range.

The Fed has been aggressive in its stance to tame consumer prices, having tightened its policy rates by 75 basis points (bps) for the fourth time since June. The aggressive policy path elicited criticism that it risked tipping the US economy into recession, with potential spillover effects on the broader world economy.

Powell’s latest comments boosted global risk appetite and undermined the dollar to the benefit of commodity prices.

The tech-heavy Nasdaq, which has been highly sensitive to increases in US rates, shot up 4.4%, while the S&P 500 gained 3% and the Dow Industrial Average 2.18%.

The positive sentiment extended to Asia, with Hong Kong’s Hang Seng rallying 1.46% and Japan’s Nikkei 225 gaining about 1%. Australia’s S&P/ASX was up 0.90%.

In commodity markets, the gold price was up nearly 2% to $1,792.70/oz, boding well for the JSE-listed gold stocks.

“The dollar has lost a fair amount of ground from its peak on the back of the perception that US [consumer price index] CPI inflation may be turning and that Fed rates could also be approaching their highs,” said Jane Foley, head of FX strategy at Rabobank London.

“Now that a lot of heavy long dollar positions have been washed out, however, we see risk that the market will be surprised by the persistence of inflation going forward and the reluctance of the Fed to shy away from a hawkish mindset.”

The rand was, however, steady at R17.08/$, having strengthened 8% in November. The JSE is likely to track global markets higher, though it was vulnerable to pullbacks, having gained 12% in November.

mahlangua@businesslive.co.za