Stephen Gunnion
22 October 2008
Johannesburg — SA's markets largely shrugged off the medium-term expenditure framework unveiled by Finance Minister Trevor Manuel yesterday, focusing instead on volatile global markets.
However, some analysts suggested the treasury's shift from running a budget surplus to a budget deficit for the next few years may have contributed to rand weakness.
The rand sank 4,5% against a buoyant dollar to R10,68, and was also softer against the euro and the pound. Other emerging market currencies were also weaker.
Alan Chown, head of RMB's inflation desk, said the changes in the inflation measures used for monetary policy were expected.
So too was the shift to a budget deficit and increased borrowing due to the economy slowing. "The major impact on the (bond) market at the moment is still the rand," Chown said.
"No serious issues came out of the budget."
JSE share prices followed the lead of those on stronger Asian and European markets after France said it would invest € 14bn in banks, and the US moved towards a second stimulus package for the economy.
The Federal Reserve said yesterday that it would be lending up to $540bn to five mutual funds to buy certificates of deposit, bank notes and commercial paper from money market mutual funds.
However, share-price gains were limited as the US opened weaker after investors moved on news of disappointing earnings from several large companies to take profits from the market after Monday's rally.
Markets commentator David Shapiro of Sasfin Securities said that despite the confidence Manuel instilled in the markets they had still taken their lead from global markets.
"I thought the fact that he stuck to his policies might have given the rand some support," said Shapiro.
"But the credit crisis and the move away from emerging markets is still very real, and no matter what he said I don't think it would have any impact at all," Shapiro said.
He said the JSE's gains had been driven by some of the big industrial groups.
The JSE's all share index gained as much as 3,7% before closing 2,7% firmer at 21267. The industrial index added 5,9%, while gold shares closed 4,2% stronger, helped by the weaker rand.
After strong gains in the morning, the Cac-40 index in Paris also retraced some of its gains to close 0,8% higher while London's FTSE 100 index shed 1,2%.
On Wall Street, the Dow Jones index was trading 2% lower in early evening trade on anxiety about the outlook for earnings as the US economic slowdown sapped business and consumer demand.
Technology group Texas Instruments and chemical company DuPont issued warnings and lowered their profit forecasts.
Texas Instruments' share price fell 9%, and DuPont shed more than 3%. However, 3M Company's share price rose after the diversified manufacturer posted earnings that were better than expected.
"We are entering a very difficult period for earnings," said Trevor Greetham, a director at Fidelity International.
"We will enter a period where earnings expectations and actual numbers will come down sharply."
The US Federal Reserve's new programme, called the Money Market Investor Funding Facility, will be used to support a private sector initiative to provide liquidity, or cash, to money market investors. It will back purchases of short-term debt, including certificates of deposit and commercial paper that expire in three months or less.
"The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests," the US central bank said.
Concern about global recession pushed oil prices lower. The Organisation of Petroleum Exporting Countries (Opec) oil ministers are expected to announce output cuts when they meet on Friday, but lower demand for oil due to recession may limit the effect of cuts.
US light crude for November delivery was down $3,85 at $70,40 a barrel yesterday afternoon. London Brent crude was $3,56 down at $68,47 a barrel.
With Reuters, AP
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