JSE, rand and commodity prices tank on Fed taper talk, Delta fears

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JSE's building in Sandton. Photo: Elvira Wood
JSE's building in Sandton. Photo: Elvira Wood

Oil prices tanked Thursday and global stocks mostly sank after the US Federal Reserve signalled it could rein in vast stimulus measures this year.

The JSE's All-Share Index slumped 2.6% to 66 113 points.

Sasol, Implats, Northam and Kumba all lost more than 7%. The rand was 2% lower at R15.19/$.

Sentiment was hammered also by the rapid global spread of the coronavirus Delta variant, signs of Chinese economic weakness and the Taliban's takeover of Afghanistan.

"Investors are spooked by the virus once more, compounded by news that the Federal Reserve in the US may be on the brink of reducing its economic support for the US economy," said analysts at Hargreaves Lansdown.

The Frankfurt and London indices slumped, mirroring Asia's weak performance.

Wall Street opened the day lower despite data showing new jobless claims fell last week to a pandemic-era low. The blue-chip Dow remained lower while the Nasdaq Composite turned positive and the S&P 500 wobbled around.

Minutes from the Fed's most recent July gathering showed most board members agree on tapering monetary policy in the next few months, sending shockwaves reverberating across trading floors.

Stronger dollar 

The dollar strengthened against most key rival currencies on talk of tapering being followed by higher US interest rates, according to analysts.

The rising US unit weighed on dollar-priced oil, which slumped more than 3.0 percent as weaker demand expectations amid rising virus fears, notably in commodities-hungry China, also pushed prices lower.

"Concerns about dampening demand expectations as a result of an increase in coronavirus cases worldwide have contributed to the drop" in oil, said AvaTrade analyst Naeem Aslam.

"The rise in the dollar... has added to the downside pressure."

And after chalking up record highs on numerous occasions in recent weeks, New York's main stocks indices ended in the red again Wednesday after most Fed members agreed on tapering, or reducing, its asset purchases in the next few months.

The purchases of bonds by the Fed helps lower borrowing rates, giving a boost to economic activity, as well as encouraging investment in stocks.

The shift in sentiment by Fed policymakers comes as a string of data shows the world's top economy well on the road to recovery.

"Nerves are clearly rising around the Delta variant and the timing of the Fed's taper, but I don't think we learned anything from the minutes on Wednesday that warrants" the big sell-offs, said Oanda analyst Craig Erlam, adding they simply confirmed market expectations.

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