The JSE reversed earlier gains on Friday afternoon, while the rand eased from its best levels as investors digested comments from US Federal Reserve chair Jerome Powell at the Jackson Hole Economic Policy Symposium.
In his highly anticipated speech, Powell said inflation is still above the level at which policymakers are comfortable and the continued strength of the US economy could require further interest rate increases.
Investors were waiting for Powell’s address for clues about the path of US interest rates. While acknowledging that progress has been made in bringing inflation down from last year’s peak, he said the economy has been growing faster than expected and consumers have kept spending rapidly — trends that could keep inflationary pressures high. He reiterated the Fed’s determination to keep its key rate elevated until price increases are reduced to the central bank’s 2% target.
Powell however noted that policymakers will remain flexible as they contemplate further moves and will be data- dependent, highlighting the uncertain nature of the economic outlook.
The Fed has already hiked its main interest rate to the highest level since 2001 in its drive to grind down high inflation. The threat of rates staying higher for longer sent stocks tumbling in August, reported Bloomberg.
“Jerome Powell has spoken and I don’t think we can be too surprised at what has been said, but we have had some volatility in markets,” said Oanda senior market analyst Craig Erlam. “While another rate hike in the cycle is still far from certain — I’m still of the view they’re done — traders are increasingly accepting that they will likely stay there longer than they’ve expected at any point in the tightening cycle.”
“That message was clear from Powell’s comments, as was his insistence that if necessary they would hike again. And in referencing the strength of the labour market and the economy, I suspect he currently believes another will be needed,” said Erlam. “While this has triggered some volatility in the markets, I don’t think it really deviates from what’s been said previously.”
The JSE all share index lost 0.63% to 73.836.01 points and the top 40 was down 0.69%.
At 6.07pm, the Dow Jones Industrial Average was up 0.46% , while stocks gave back some of their gains in Europe.
The rand was off its best levels, after earlier firming almost 1% to an intraday best of R18.525/$. At 5.54pm, the rand had strengthened 0.55% to R18.6579/$, 0.96% to R20.1259/€ and 0.87% to R23.4532/£. The euro was 0.26% weaker at $1.07787.
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