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Johannesburg - The strongest indication yet that US interest rates will rise this year pushed the JSE lower on Monday morning, but the effect was surprisingly limited.
By midday on Monday all the major indices were lower, but at that stage the All-share index traded only 0.22% lower at 53 935 points and the Top 40-index was only 0.18% softer at 47 800 points.
Higher interest rates in the US is bad news for South African bonds and shares. This is because it will encourage foreign investors to relocate money from emerging markets, where yields are currently higher than in the developed world, back to US markets where the risk is perceived to be lower.
The prospects for higher rates also lifted the US dollar to the highest level in a month, which is not good for commodities and particularly gold. Bullion investors believe higher US interest rates would dent demand for non-interest paying gold.
The Gold index dropped 1.43% although the gold price was only marginally lower at $1 204 per ounce. Analysts expect the gold price will soon trade below the important psychological level of $1 200/oz.
The Resources index held up remarkably well and at midday was only 0.38% softer. The Financial index lost 0.35% but the Industrial index was only marginally (0.08%) softer. Volumes were low due to public holidays in the US and the UK.
In a speech to a business group Janet Yellen, chairperson of the US Federal Reserve, said she expected the world's largest economy to strengthen after a slowdown due to "transitory factors" in recent months, and noted that some of the weakness might be due to "statistical noise".
Analysts said she gave the clearest indication yet that US interest rates will rise this year.
Indications on Friday that US inflation is on the increase provided further support for higher interest rates.
There was once again a great deal of activity in the health sector with Mediclinic [JSE:MDC], Aspen [JSE:APN] and Discovery [JSE:DSY] again among the widely traded shares. They were all in the top five in terms of value traded.
Mediclinic, which dropped sharply after the market was disappointed in its results last week, recovered strongly on Monday. At midday it was 2.95% higher at R111.04. The share was however still more than 7% lower for the week, as investors were concerned about the group’s profit margins.
Aspen, the local pharmaceutical group which announced the sale of some of its products last week to streamline its company structure, added another 0.25% to R389.03. The stock was however the second busiest in terms of value and shares to the value of R87m changed hands on Monday. It is now more than 10% higher over the past week.
Discovery gave up some of Friday’s gains and traded 0.77% lower at R127.01. The share is more than 4% higher over the past seven days.
MTN [JSE:MTN] was the busiest share on Monday with 1.4 million shares being traded for R3.2m. The share price dropped 1.4% to R322 as the company is experiencing labour problems at its head office.
