JSE flat as investors fret over US rate hikes

Johannesburg - Latest jobs data from the US was much better than expected and provided decisive evidence of brisk economic growth in the second half of the year, but the local market did not respond to it much on Friday morning.

It seems that the strong data was mostly discounted before the news was announced and that investors are now worried about how the US Federal Reserve will react to the strongest indicators yet that the US economic recovery is accelerating.

That is why the major indices on the JSE hardly moved on Friday morning, after very strong runs the previous two days which pushed the All-share index above the 52 000 level at one stage.

By midday on Friday the All-Share index was only 0.03% higher at 51 905 points and Top 40 index also only gained 0.06% to 46 921. The two major sectors, the industrial and resources indices, also hardly moved. Industrials were only 0.03 higher and resources lost 0.04%.

It must also be said the American market is closed for a public holiday and the liquidity is less than usual.
On Thursday afternoon the major indices on Wall Street closed on a record for the third consecutive day  and the Dow Jones index reached 17 000 for the first time.

This followed after the US Department of Labour reported on Thursday that the economy had added a healthy 288 000 jobs in June, while the unemployment rate fell to 6.1% from 6.3% in May.

This is much higher than the 215 000 new jobs economists had expected and is the first time in about 20 years that the US economy added 200 000 jobs per month for five consecutive months.

Strong growth in the US is good for South African exports, particularly commodities.

However, some analysts viewed the market's buoyant reaction with concern.

"Investors are growing concerned with the increased bullishness in the market and are wondering if the time is growing close to a correction," said David Levy, portfolio manager at Kenjol Capital Management.

The jobs data also stoked fears that the US Federal Reserve could hike interest rates earlier than expected, which could be devastating news for developing markets such as the JSE which receive big capital flows from investors in developed markets, where interest rates are currently at all-time lows.

Levy said the US market, and markets around the world, could easily retreat in the coming weeks if second-quarter earnings in the US disappoint, or if investors conclude the Federal Reserve is likely to move up its timetable for raising interest rates.

The two biggest hospital groups in South Africa, Mediclinic International [JSE:MDC] and Netcare [JSE:NTCP], were again among the JSE's star performers on Friday morning. Netcare reached a new 52-week high of R29.50, 0.51% higher than Thursday and 30.2% higher than a year year ago.

Investors in Mediclinic were 25.11% better off than a year ago when the share price improved by 0.17% to R84.34 on Friday morning.

Telkom [JSE:TKG] is also continuing with its remarkable recovery on the back of a turnaround in the company’s fortunes. On Friday morning the share price rose by 1.61% to another record of R48.47. In July last year the share traded at R17.25, which means investors have seen capital growth of 174.9% over the last 12 months.  

The busiest share is still Steinhoff [JSE:SHF], which plans a massive rights issue and listing in Frankfurt soon. On Friday morning 12.7 million shares to the value of R708m changed hands in 4 724 transactions. The share price increased by 3.44% to R55.8, 111.8% higher than 12 months ago.

Earlier this week the share priced reached a record of R59.73.
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