JSE down by over 2% as global markets slide

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JSE All-Share index followed global markets to fall by over 2% in mid-morning trade on Friday, with the rand compounding its losses from Thursday. 

On Thursday the Department of Health confirmed the first reported case of coronavirus. The rand on Thursday subsequently fell 2% against the dollar

In a market update on Friday morning, Andre Botha, senior dealer at TreasuryONE, said that the knock on the rand was exacerbated by a weak opening on Wall Street and a general weakness in emerging market currencies and risky assets.

The local unit opened at R15.62 on Friday morning, before falling nearly a percentage to trade at R15.74 against the greenback just after noon. 

Botha said the rand could be expected to remain on the backfoot due to uncertainty.

Tenterhooks

He emphasised that other emerging market currencies were bleeding too. "It seems that the whole world is on tenterhooks."

"The fallout regarding the arrival of COVID-19 in South Africa could see the rand come under further pressure, depending on the spread of the virus and the response by government," Bianca Botes, treasury partner at Peregrine Treasury Solutions noted in a market update on Friday.

"The rand is rapidly depreciating on the back of the fallout in the coronavirus. So, even though we have seen only one case being confirmed in South Africa, there is speculation that there are numerous cases which either have not yet been diagnosed or which have not yet been confirmed," Botes explained to Fin24 in an emailed response to questions.

"Many people are questioning government's ability to deal efficiently with an outbreak, which could see the virus having a detrimental effect on an already struggling economy," Botes added.

Botes commented that there is de-risking in the global market across a broad base, with most markets under pressure including US futures.

"The coronavirus is impacting negatively on sentiment as a whole globally at the moment and emerging markets are unfortunately bearing the brunt of the de-risking," she said.

This comes as the Asian Development Bank warned in a new brief that coronavirus would dent both Asian and global economic growth. The bank warned in a new brief that global GDP could be cut by between 0.1% to 0.4% to the impact of the virus.

Wall Streets 3 major indices were down over 3.0% and Asian stocks are followed suit on Friday morning, according to TreasuryONE.

The JSE All-Share, which closed 0.02% firmer on Thursday, had lost more than 2% by noon. Resource and industrial indices were not far off. The financial index was down over 3%.

Only the JSE gold mining index was up, with investors viewing it as a safe haven.  

Gold rallies

Gold had made gains on coronavirus fears, speculation of central bank easing, global growth concerns and a weakening dollar, Lukman Otunuga, senior research analyst at FXTM said. "The general uncertainty and current risk aversion should support the precious metal due to its safe-haven nature. Going forward, with the Dollar set to weaken on Fed rate cut bets, prices could re-test $1700 if $1681 is breached," Otunuga added.

Bloomberg on Friday reported that gold was heading for its biggest weekly gain since 2011, up 5.8% since Monday.

Oil, in contrast, slipped to $49.42 on global demand concerns, ahead of OPEC meetings. "A sense of uncertainty over whether Russia will commit to OPEC’s proposal for deeper production cuts is weighing on oil prices this morning," said Otunuga.

"OPEC ministers agreed that oil production should be cut by 1.5 million barrels per day (bbl/d), with OPEC members cutting one million bbl/d and non-OPEC allies, led by Russia, cutting half a million bbl/d.

"However, Russia has yet to make a decision, which could make things very interesting when crunch talks with non-OPEC members kick-off later today," Otunuga said.

If both sides agree to deeper cuts, it will bode well for oil prices in the short term. "However the medium to longer term outlook will remain heavily influenced by coronavirus fears and the negative impacts it will have on fuel demand," Otunuga added.

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