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JSE edges lower following gold futures 'flash crash'


26 June.png

JSE edges lower following gold futures 'flash crash'

The local bourse edged lower in trading, dragged down by resource stocks.The firmer rand exaggerated declining resource prices whilst boosting banking shares.

The gold price experienced a minor flash crash when over $2 billion notional gold futures contracts were sold this morning on the Comex.The sale saw gold plunge 1.6% in a matter of seconds to $1236 an ounce before regaining strength. 

With no clear driver for the move, Bloomberg has suggested it may be a "fat-finger" mistake, although many are sceptical and see either algorithm traders or central bank intervention, as the gold plunge coincided with a spike in the US dollar against the Japanese yen. 

The price of gold had recovered from the lows to $1242 by the close of the JSE, as the market adjusted to absorbing the large order.

The rand was marginally stronger and traded at R12.86 at the close.Last week the currency was negatively affected by domestic factors ranging from the release of the new mining charter, to the Public Protectors utterances around changing the mandate of the Reserve bank. 

The blue-chip Top 40 slipped 0.54% lower, followed by the All Share Index which closed 0.42% down.  Markets were affected by the lower gold price which dragged the Gold Mining Index down 1.68%, whilst Industrials closed 0.53% lower. 

Banking stocks were supported by the firmer rand with Standard Bank [JSE:SBK] emerging as the leading Top40 stock, gaining 2.45% and closing at R143.40, followed by Nedbank [JSE:NED] up 1.8%, Barclays Africa [JSE:BGA] 1.3% and Firstrand [JSE:FRN] gaining 0.8%.

Naspers Limited released annual results on the 23rd of June.  The media company posted increased earnings due to their stake in Tencent.  Aside from the Chinese investment, the numbers were disappointing with significant losses attributed to new business ventures. 

The money illusion of rand weakness has boosted Naspers on the JSE but hidden the real underperformance in US dollars. Naspers performance disparity against Tencent sees a widening discount appearing.

According to Mark Ingham, an independent analyst for EasyEquities, the discount to the stake in Tencent appears to have widened to a historical high of 23%. 

Oil prices moved sideways and traded at $45.80/bbl, with concerns over increasing US production capping oil prices. Global demand has slipped recently, however remains faily robust with the latest forecasts from the International Energy Agency (IEA) projecting that demand will grow by at least 1.3 million barrels per day in 2017. Global consumption averaged roughly 97 million barrels per day in 2016, whilst current production figures produced by the IEA suggest output is near 96.7 million barrels per day with OPEC cutting supply. 

Martin Harris | Trading Specialist at GT247.com
Compiled for Fin24

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