The rand strengthened to a two-month high on Wednesday and the JSE firmed after finance minister Enoch Godongwana delivered a medium-term budget policy statement (MTBPS) that presented a “pragmatic outlook”, according to one analyst.
Old Mutual Group chief economist Johann Els said in the face of a multitude of pessimistic revisions, the medium-term budget “acknowledged the current circumstances, underscored potential risks, and placed a strong emphasis on the imperative for fiscal consolidation”.
Chief among a variety of measures to rein in government expenses was Godongwana’s announcement that Treasury plans to cut R213bn of expenditure over the next four years, including 2023/24.
He added that the fiscal strategy outlined in his address aims to narrow the budget deficit, stabilise debt and ensure fiscal sustainability via the spending cuts, revenue measures and additional borrowing.
According to Chantal Marx, head of investment research at FNB Wealth, much of what Godongwana announced was already priced in the market. “However, the guidance provided in terms of possible policy changes to come in the 2024/25 budget in February will be weighed by investors,” she said.
“For now, bond and equity investors will be encouraged by additional external financing of infrastructure projects [mentioned in the MTBPS address] as it will reduce the government’s finance burden and boost economic growth if implemented effectively,” Marx added.
“New tax measures to raise additional revenue will be regarded as more bond positive (higher government income) but will be equity negative (either lower consumer discretionary income or lower corporate profitability, or both) although the sum mentioned should not have too big an impact against an already cheap SA Inc basket.”
At 5.51pm, the rand was little changed at R18.6337/$ after reaching an intraday best of R18.524/$ — the strongest level in two months. It strengthened against the euro and pound, by 0.29% to R19.6407/€ and 0.12% to R22.6148/£.
“Local bond yields fell across the curve, while JSE ticked up, driven by SA Inc shares — largely explained by the rand and bond yield movements,” said Marx.
The JSE all share gained 0.12% to 69,740.3 points — with major indices mixed — while the top 40 was little changed.
In the US, investors are watching out for the conclusion of the Federal Reserve policy meeting, where the federal open market committee is widely expected to hold its benchmark interest rate at 5.25%-5.5%.
At 6.44pm the Dow Jones industrial average was little changed at 33,063.27 points, while the S&P 500 was up 0.27%.
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