JSE softens on stronger rand, while strong retail data surprises

The JSE edged lower on Wednesday in line with global markets as investors awaited clarity on the Federal Reserve’s open market committee meeting to conclude.  The FOMC are expected to announce their interest rate decision this evening at 8pm.

Financials edged higher as the rand strengthened 1.20% and traded at R12.62 against the dollar on the back of weak inflation data from the United States.  The US dollar slipped as CPI data came in lower than expected, missing estimates of 2.0% with a preliminary 1.9% year-on-year reading.     

The rand was aided by retail sales growth data for April which surprised to the upside.  Annual retail sales growth accelerated to 1.5%, higher than the market’s expectation of 0.6%. The rise was driven by strong growth in ‘general dealer’ and ‘food, beverages and tobacco in specialised stores’ categories. 

The stronger data improved the standing of the rand, and led to positive moves on food retailers with Shoprite [JSE:SHP] gaining 3.12% and closing at R201.11.

All the other retail categories recorded contractions, with the ‘textiles, clothing, footwear and leather goods’ down for the fourth consecutive month. 

The implication of a stronger rand is encouraging for local consumption, as general conditions in domestic spending have been weak.  A stronger rand relieves inflationary pressure on prices, easing the interest rate outlook by the South African Reserve Bank. 

The stronger rand does not suit the many dual-listed shares on the JSE, and the blue-chip Top 40 fell 0.40%, followed by the JSE All Share which dropped 0.26%.  Financials gained 0.37% while Industrials fell 0.18%, and resources slipped 1.33%.

The U.S. bond market's gauges on inflation expectations fell on Wednesday to their lowest since November as data on consumer prices unexpectedly fell in May, feeding concerns that inflation would fall short of the Federal Reserve's 2 percent goal for longer than previously thought.

Gold gained 0.83% and traded at $1275/Oz at the close of local markets.  The strength was due to the lower inflation data in the US, which highlights uncertainty about the trajectory of the US economy given low wage growth and subdued GDP figures this year.

Brent Crude fell off sharply, with a 3.72% drop to $46.91/bbl on Wednesday following U.S. data showing an unexpectedly large weekly build in gasoline inventories and International Energy Agency (IEA) data projecting an increase in non-OPEC production. It is expected that the United States, Canada, Brazil and a host of other oil producers will out supply the cuts enforced by OPEC – further exacerbating the global oil glut.