JSE muted after wave of rate hikes

The JSE gave up earlier gains at the close on Thursday, while the rand held steady at around R17 to the dollar as the European Central Bank (ECB) and the Bank of England (BOE) followed the Federal Reserve in hiking rates.

As widely expected, the ECB lifted its deposit rate by 50 basis points, taking the lending benchmark to 2.5%, the highest since 2008, but it warned that monetary tightening isn’t done even as energy prices plunge. The BOE raised its Bank rate by 50 bps to 4%, but eased off on some of its previous bleak forecasts and indicated that smaller hikes of 25bps may now be on the cards.

“The ECB and BOE raised rates as expected. But what comes next is the key question in both cases,” said SPI Asset Management managing partner

Stephen Innes. “The BOE is hiking the UK economy into recession but inflation remains stubbornly very high. The ECB, meanwhile, was very late to the party and has some catching up to do, while the economic backdrop looks a little better than it did in December.”

On Wednesday, the Fed hiked its benchmark rate by 25bps as expected, but chair Jerome Powell warned that the central bank expected to deliver a “couple” more interest-rate increases before there could be a pause.

“While Powell was determined not to overplay the shift in the Fed’s views on inflation and interest rates, certain comments were well received by the markets,” said Innes.

“All things considered, I think there was enough to conclude we’re almost at an end on tightening and market expectations of one more 25 basispoint hike and maybe a couple of cuts later in the year look reasonable,” he added. “Of course, there’s plenty of data to come before the next meeting in March, so a lot could change.”

The JSE all share was little changed at 79,802.09 points, while the top 40 was down 0.13%, with the main subindices mixed. At 7.06pm, the Dow Jones industrial average was 0.43% weaker at 33,945.28 points, while the broader S&P 500 was up 1.28%. European markets were stronger.

Traders are awaiting the latest US jobs report on Friday that will give further insight into the labour market. Any signs of cooling could suggest that further rate hikes are off the table.

At 6.36pm, the rand had weakened 0.14% to R17.053/$, while it had strengthened 0.57% to R18.6021/€ and 0.66% to R20.9031/£. The euro was 0.68% weaker at $1.0914.