Stocks on the JSE hit an all-time high yesterday as investors were buoyed by continued optimism about potential interest rate cuts this half by the US Federal Reserve (Fed).
The JSE All-Share Index rose 0.9% to 81 456 points yesterday, reaching record-levels, as the Federal Open Market Committee (FOMC) minutes on Wednesday night showed Fed officials sticking to their cautious outlook with only one rate cut this year.
Markets, however, are betting on more cuts given recent data showing both a cooling economy and a slowing labour market in the US.
AdvTECH and Vodacom led the charge yesterday, both rising 4.3% followed by Equited, Karoo, and Impala Platinum gaining 3.6%, 3.5%, and 3.3% by 5pm, respectively.
Investec chief economist Annabel Bishop said there was now 100% certainty of the first interest rate cut of 25 basis points in the US in November.
Bishop said members of the FOMC emphasised they did not expect that it would be appropriate to lower the target range for the federal funds rate “until additional information had emerged to give them greater confidence” that inflation was moving sustainably towards the Committee’s 2% objective.
“This currently viewed slow approach to easing interest rates in the US had already been factored in by financial markets, and consequently resulted in little market reaction, with another (-25bp) cut only seen with 100% certainty in January 2025,” Bishop said.
“The possibility of a second interest rate cut occurring in December in the US, instead of only in January next year has risen modestly, but was already above 75%, and markets are clustering expectations later in the year with no move seen in July.”
If the Fed does cut interest rates in the US, it could give impetus to the SA Reserve Bank to follow suit as the Monetary Policy Committee has kept the repurchase rate unchanged at a 14-year high of 8.25% since May, 2023.
Locally, South Africa’s Government of National Unity (GNU) remained in the spotlight as investors are waiting to see what measures the new administration will take to remove structural constraints and speed up economic growth.
Over the past four weeks, the SA composite stock market index gained 5.88%, and in the past 12 months it increased 7.17%.
Absa Group investment strategist Simphiwe Letlojane said the 80 000 point-mark in the JSE All-Share Index has been a resistance-level for the markets over the past two to three years.
Letlojane said markets do tend to fail to sustain prices above that level, and this was in the absence of earnings to support prices higher.
“And really what will need to be a key catalyst for us to see our local markets reaching that level of sustainably would be improvements in local macro-economic activity, improvements in consumer and business confidence and spending-levels,” Letlojane said.
“And then of course when it comes to resources, they are still facing a bit of a depressed commodity price environment, but any improvements in commodity prices should bode well for that,” he added.
The ANC on Wednesday announced the formation of the government of provincial unity in Gauteng without the DA, detracting from the Statement of Intent and agreements signed by the two parties in participating in the GNU.
This has left market speculators uncertain about the stability of government in the country’s richest province which contributes about a third of South Africa’s economic growth.
Letlojane said stable governance needed a bit of continuity with regard to the appointments and the members of the GNU had to be on the same page in terms of what needs to happen.
“It’s quite important to have political stability as it affects investor confidence-levels and the government’s ability to carry through the initiatives from a policy perspective, as those tend to be long term in nature and do take a bit of time to bear fruit,” he said.
“I think one of the key positives is that from a national-level, we did see some continuity there when we’re looking at the Finance Ministry. So that’s still sticking to the fiscal reform that the country is on and also trying to make some structural reform overall. Hopefully that could also filter through to the rest of the provinces as well,” Letlojane said.
BUSINESS REPORT