Rand stronger, stocks rebound after mass sell-offs on coronavirus fears

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The rand gained over 1% in early trade on Monday before losing some steam, as global markets appeared to taking a "breather" from the coronavirus-inspired sell-offs of last week, says Bianca Botes, Treasury Partner at Peregrine Treasury Solutions.

The local unit opened at R15.80 on Monday morning, it reached a high of R15.45 at 08:00. By 15:40 it was trading around R15.68 to the greenback.

"Commodities as well as US futures are also all reflecting stronger trade this morning. A commitment by central banks to assist with stimulating the global economy contributed to the respite in the market rout," said Botes. 

While the South African stock market plunged last week in a mass sell-off sparked by coronavirus fears, on Monday major indices started to rebound.

By midday the JSE All-Share Index was up 2.89%, although it lost some ground into the early afternoon. Financials, industrials and resources were all faring better.

At the close of markets last Friday, however, the JSE Top-40 index had closed 4.25% lower and the All-Share index lost 4.24%. 

Commodities told a similar story on Monday, with gold up 1.68%, palladium up 4.17% and platinum up 2.93% in the afternoon. This contrasts with Friday's performance where the commodities bled. Gold lost 1.72%, platinum was 1.72% lower and palladium was down 7.89%, said Musa Makoni, a trading specialist at the Purple Group.

Speaking to Fin24 by phone on Monday, Makoni described the market movements on Monday as a "relief bounce". "The coronavirus story is still a big issue," he added.

He said it was too early to say whether markets were out of the woods. It might take another trading session or two to properly gauge whether the rand has performed at its worst.

Fears of recession

In a market update issued on Monday morning, Wichard Cilliers, head of dealing at TreasuryONE, said that markets tumble on Friday was based on fears that the coronavirus could push the global economy into recession.

At the time, the US equity markets were down 3%. US Fed chair Jerome Powell then released a statement indicating that the central bank would be "closely monitoring" the situation and that it would act appropriately to support the economy. The move saw US equity markets turn, with the Nasdaq closing up 0.01%, Cilliers noted. "The DOW and S&P 500 still ended in the red."

Further ashore, China's Manufacturing Purchasing Managers' Index for February fell to its lowest on record at 35.7 points – this was beneath the 45 points expected, Cilliers commented.

However, equity markets in China and the rest of Asia were trading "in the green" on Monday morning, Cilliers said.

"We will need to closely monitor the coronavirus and the news surrounding the spread," said Cilliers. So far Italy, which has been the worst hit among European countries, has announced a €3.6 billion (about R63 billion) stimulus package to tackle the spread of the virus, he added. "Everyone will certainly watch the US with bated breath. For now the ZAR will continue on its rollercoaster ride as we get beaten around in this time of uncertainty," said Cilliers.

Speaking to journalists at a post-budget briefing on Friday, FNB Wealth and Investments head of investments Renzi Thirumalai said the severe reaction by markets was based on uncertainty.

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