Johannesburg - 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.
The big news on the JSE however was Moody’s decision to keep South Africa’s credit rating intact, as it feels the worst may be over for the country's economy.
Economists and politicians however warned that South Africa is not out of the woods yet as another rating is yet to come and the country has only bought a little time to get its house in order.
The share prices of the four big banks were all higher. FirstRand [JSE:FSR], which was again the busiest share on the JSE in terms of volume, gained 2.51% to R43.23 and Standard Bank [JSE:SBK] was 2.58% stronger at R119.50.
Barclays Africa [JSE:BGA] traded 1.87% higher at R136.00 amid continuing speculation that Bob Diamond, former chief executive of Barclays Plc, wants to gain control of the South African banking group.
Diamond said over the weekend that Atlas Mara, the African finance company co-founded by him, is close to buying another bank on the continent. “We’re building an African bank. The plan is to create the premier financial services business across Africa, operating in 10 to 15 key countries,” he said.
Nedbank [JSE:NED], which dropped sharply last week after disappointing results by its African subsidiary Ecobank, recovered strongly on Monday morning and by mid-morning was 3.58% higher at R173.50. Its holding company Old Mutual [JSE:OML] traded 1.90% stronger at R38.11. Sanlam [JSE:SLM] was 2.24% up at R65.79.
Most of the big resources shares were lower, with Anglo American [JSE:AGL] losing 3.66% to R132.55 and BHP Billiton [JSE:BIL] trading 0.82% softer at R177.87. Sappi was however the star performer, and the share traded 13,2% higher at R69.97.
The paper and pulp producer increased its profit for the second quarter to $100m compared to $56m in the second quarter of the previous year, due to higher prices. Earnings per share, excluding special items, were 16 US cents compared to 11c a year ago.
Investors were also impressed that Sappi’s net debt of $1 652m was $264m lower than a year ago.
ArcelorMittal [JSE:ACL] was 9.49% higher at R9.69 after a strong operational report for the three months ending March 2016, with good news about the group’s future viability after it said its Saldanha plant will no longer be closed.
One of the most encouraging aspects of the update was the increase in prices for hot rolled coil, which rose by an average of $86 per tonne between December 2015 and March 2016. The International Trade Administration Commission has now recommended the imposition of a 10% tariff on these products, which will increase prices even more.
Hot rolled coil costs fell by 4% in rand terms and 29% in dollar terms at ArcelorMittal's Vanderbijlpark works, following a string of cost-cutting initiatives.
In the industrial sector, Naspers [JSE:NPN] gained 2.24% to R1944.31 and Sasol [JSE:SOL] was 2.51% higher at R454.06.