Reserve Bank unexpectedly cuts rates, equities close higher

The South African Reserve Bank unexpectedly cut rates by 25 basis points for the first time in 5 years in a move that caught most analysts by surprise.

23 out of 25 analysts panelled by Bloomberg had forecasted that the repo rate would be kept unchanged. CPI year-on-year data released yesterday came in lower than expected at 5.1%, which is well within the Reserve Bank’s upper target of 6%. The key highlight from this afternoon’s MPC press conference was the decrease in the short-term inflation outlook and the need for economic growth stimulus. As a result of the rate cut, the Rand weakened back above R13 to the US Dollar and when the JSE closed it was trading at R13.01/$.

The rate cut did not deter the earlier momentum on the JSE as the local bourse closed the day firmer. The JSE All-Share Index closed up 0.36%, whilst the Top-40 Index closed up 0.34%. Financial and retail stocks had a good day with stocks such as Truworths and Standard Bank gaining 4.06% & 1.15% respectively. The Financials Index managed to close up 0.66%, whilst the Industrials Index closed up 0.65%. The Resources Index closed down 0.66% as weaker commodity prices dragged down JSE listed miners.

The US Dollar slid further this afternoon after the European Central Bank’s press conference. Mario Draghi indicated that the bank was looking to change its position on its asset purchase programme. This was after the ECB kept rates unchanged at 0.00% sending most European equities lower. The Euro broke above 1.16 to the US Dollar as the carnage on the greenback ensued.

Gold gained considerable momentum towards the close of the JSE mainly as a result of US Dollar weakness. There was more weakness in the US Dollar after Bloomberg reported that the special investigations team at the FBI, would investigate Trump’s business ties with Russia alongside its investigations into the election hacking allegations. Gold managed to reach an intra-day high of $1247.44 per ounce, and when the JSE closed it was trading at $1246.06 per ounce.

Palladium traded weaker today and failed to gain any positive momentum despite the weaker US Dollar. It managed to reach an intra-day low of $838.02 per ounce, and when the JSE closed it was trading at $849.02 per ounce. Platinum was trading in the green today and it managed to reach an intra-day high of $927.19 per ounce. When the JSE closed it was trading at $925.76 per ounce.

Brent Crude briefly broke above $50 per barrel in today’s session. US Crude Inventories recorded a larger draw than expected yesterday and the commodity was trading in the green for most of the day. Brent Crude was trading at $49.89 per barrel at the time of writing.