Financial shares on the JSE, which lost more than 8% over the previous seven days, made a welcome recovery on Monday morning, despite more bad news about the global economy which pushed most Asian markets lower earlier in the day.
Financial shares received a boost over the weekend after ratings agency Moody’s announced late on Friday that it would keep South Africa’s credit rating unchanged at two levels above junk status. The prospect of another downgrade had been weighing heavily on the sector’s prospects.
Weaker than expected jobs data in the US on Friday means US interest rates may stay longer at current levels. This could relieve pressure on the rand and encourage an inflow into emerging markets by investors seeking higher yields.
By mid-morning the Financial index was already 2.28% up, which also pulled the All-share index higher. At that stage the index was 1.08% stronger at 51 971 points, while the Top 40 index traded 1.14% higher at 45 614 points.
Resources shares were however lower on concerns about the prospects of the world’s two biggest economies, after the disappointing US jobs report was followed by data over the weekend showing Chinese exports and imports fell more than expected in April.
In earlier trade the Resources index was almost 1% down, but it was pulled back by Sappi [JSE:SAP] which gained more than 13% on good second-quarter results. By mid-morning resources were only 0.29% lower, but the Gold index lost 2.93% as the gold price fell further to $1 278 per ounce. Resources were also hit by a stronger dollar and lower commodity prices, with copper reaching its lowest level in a month.
US non-farm payrolls increased by 160 000 in April, the smallest gain since September, and below the 200 000 economists had expected. It prompted some economists to lower their expectations of an interest rate hike for this year.
The dollar initially fell in reaction to the lacklustre jobs report on Friday, but bounced back after New York Federal Reserve president William Dudley said two rate hikes this year are still a “reasonable expectation”.
The rand also strengthened on weak jobs data, but lost ground again on Monday and at mid-morning trading at R14.90 to the dollar.