MARKET WRAP: JSE weaker as buoyant dollar weighs on commodities

The JSE ended lower in another volatile session on Wednesday as a strong dollar weighed heavily on commodity prices and associated mining companies.

The all share ended 0.5% weaker at 79,471.76 points, led by resources, which tumbled more than 3%, the most since mid-December. Precious metals and mining stocks were down 4.1%, the biggest drop since November.

The losses were partly offset by healthcare providers and telecom companies, which rose 4.46% and just under 1%, respectively. Life Healthcare was the day’s biggest winner after announcing it had appointed Barclays and Goldman Sachs to evaluate unsolicited offers to buy its diagnostic imaging services subsidiary Alliance Medical Group.

Markets in Europe were mixed while Wall Street was lower, with the Dow Jones industrial average and the S&P 500 down more than 0.3% at 7.06pm. 

“I think the market participants are adjusting for the reality of higher interest rates as well as the realisation that the US Federal Reserve would not be quick to adjust their policy by dramatically slowing the pace or even cutting rates,” said Lester Davids, analyst at Unum Capital.

That put the dollar on the front foot and weighed on commodities, many of which are priced in dollars and therefore become more expensive for buyers holding other currencies.

Gold fell 1% to $1,835.50/oz, the lowest since early January, while oil prices slipped after Russia indicated it was withdrawing some troops from exercises near Ukraine and President Vladimir Putin said he saw room for further discussion with the West.

Weak trading updates from several mining companies — including AngloGold Ashanti, which forecast a drop of as much as a 13% year-on-year headline earnings — added to the cautious mood on the JSE.

On balance, though, SA incorporated stocks have been relatively resilient so far this year despite the gloomy outlook for the local economy that has been further darkened by persistent daily power cuts.

The headline consumer inflation reading for January provided a sliver of good news, decelerating to an eight-month low of 6.9% year on year in January from 7.2% in December. Still, economist have warned that rising food inflation and rand weakness remain upside risks to the Reserve Bank’s outlook for inflation.

“We forecast one more interest rate hike of 25 bps in March, which will take the prime lending rate to a peak of 11%. We do not expect any rate cuts this year due to the upside risks to the inflation outlook,” Nedbank economists said in a note.

mahlangua@businesslive.co.za