Fed hike rattles Wall Street, but rand finds support from metals

Global markets were unsettled over the past 24 hours after the US Federal Reserve raised interest rates by 25 basis points - its first increase since 2023 - and signalled that further tightening could follow.

The move pushed the dollar higher and sent US equities lower, while South African assets were supported by firmer precious-metal prices.

The rand strengthened to around R16.30/$ in early Thursday trading, about 0.6% firmer than its previous close. The currency was helped by gains in South Africa's key export metals, which partly offset the pressure normally associated with a more hawkish Federal Reserve.

The JSE All Share Index closed 0.41% lower at 113,551 on Wednesday, with the Top 40 down 0.48%. Technology stocks were among the weaker performers, falling 1.81%, while the resources index edged 0.15% higher.

By Thursday morning, the Top 40 had recovered about 0.6%. South African government bonds also firmed, with the benchmark 2035 bond yield falling three basis points to 8.71%.

Wall Street

US equities sold off after the Fed decision.

• Dow Jones: -1.21% to 51,461.78
• S&P 500: -0.44% to 7,552.14
• Nasdaq: -0.01% to 25,978.43

The Dow fell more than 630 points. Energy shares were particularly weak as crude prices retreated, while technology stocks were comparatively resilient.

The Fed lifted its benchmark rate by 25 basis points and indicated that policymakers expect another increase this year. The decision came against a backdrop of persistent inflation and sharply higher energy costs linked to the Middle East conflict.

Bonds and the dollar

The US 10-year Treasury yield moved above 5%, while shorter-dated yields rose following the Fed's decision. The resulting flattening of the yield curve reflects increased expectations that US interest rates could remain higher for longer.

The US dollar strengthened, reaching its highest level since late July against a basket of major currencies. That normally creates additional headwinds for emerging-market currencies, making the rand's early Thursday resilience notable.

Commodities

Precious metals moved higher on Thursday morning:

• Gold: about $4,311/oz, up 1.1%
• Platinum: about $1,786/oz, up 2.4%
• Silver: about $63.82/oz, up 1.4%

The gains have provided support for the rand and South African mining counters. Oil moved in the opposite direction. Brent crude was around $104 a barrel, down about 1.5% in Thursday morning trading. Brent had settled 2.7% lower in New York trading on Wednesday, while WTI fell 3.2%, as additional Saudi crude supplies helped ease immediate concerns about disruption.

Europe and Asia

European markets were firmer on Thursday, with the Stoxx 600 up about 0.55%, while the FTSE 100, DAX and CAC 40 also gained. Asian trading was mixed, although Japan's Nikkei was higher.

Market focus today

The key themes for investors remain the Fed's higher-for-longer interest-rate signal, US Treasury yields, oil prices and the geopolitical risk premium. For South Africa, the rand's direction is likely to remain closely tied to the interaction between US rates and precious-metal prices, with the South African Reserve Bank's policy meeting next week also coming into focus.

The immediate picture is one of conflicting forces - tighter US monetary policy is negative for risk assets and emerging-market currencies, while exceptionally strong precious-metal prices are providing South Africa with an important counterweight.