The JSE was little changed on Friday as the momentum around the interest rate cuts by the SA Reserve Bank and Federal Reserve ran out of steam.
For the week, the all share ended more than 2% firmer after the Fed slashed interest rates by 50 basis points (bps), its first cut in four years. The significant policy move is seen by some analysts as an aggressive start to a monetary-easing cycle in the world’s largest economy.
The Fed’s move was followed by the Bank’s 25bps cut on Thursday, lowering the country's repo rate to 8%. This comes after data this week showed SA inflation rate is trending downward, reaching 4.4% in August, below the 4.5% midpoint of the Bank’s target range.
Both interest rate cuts have big implications for financial markets, signalling a supportive monetary policy environment that could drive economic growth and boost investor confidence.
The rate cuts are expected to particularly benefit interest rate-sensitive sectors, including financials, property, retail and construction.
Bloomberg reported that the rally was losing steam due to concerns about potential growth risks on the horizon. Investors are questioning whether the Fed is lagging behind in keeping the economy on track for a “soft landing”, which refers to a gentle slowdown without triggering a recession.
This uncertainty is fueled by the fact that traders are expecting more aggressive interest rate cuts this year than what policymakers have projected, reported Bloomberg.
Analysts are sill divided on the odds of the world's biggest economy achieving a soft landing, with the debate surrounding the timing and depth of rate cuts ongoing. Some analysts are predicting a sluggish growth environment for the rest of this year.
The JSE all share was little changed at 83,829 points — with major indices mixed, while the top 40 was also muted.
At 5.30pm, the Dow Jones industrial average was 0.26% weaker at 41,916 points, while markets in Europe were weaker.
Meanwhile, the Bank of Japan (BoJ) took a cautious stance and kept rates unchanged as expected, despite inflation being at a 10-month high. The BoJ said it expected inflation to rise further and for the economy to grow steadily, opening the way for rates to rise fairly soon. The People’s Bank of China also kept rates unchanged despite the ailing economy.
The rand made small gains and small losses during the session, having touched its best level in 19 months on Thursday.
Analysts from RMB said the reluctance by the People’s Bank of China to cut short-term policy rates despite the Fed’s surprise move and lacklustre Chinese economic activity could dampen sentiment toward the rand in the short-term.
At 5.20pm, the rand was little changed at R17.5286/$ and R19.5227/€, while it had weakened 0.26% to R23.2622/£. The euro was 0.2% weaker at $1.1138.
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