Rand steadies as factory slump deepens and Wall Street tech stocks retreat

South Africa's rand remained relatively stable against the US dollar on Thursday despite a sharp contraction in domestic manufacturing output, while international markets ended a volatile trading session with technology shares under pressure and oil prices remaining elevated.

The latest developments leave investors facing a difficult combination of weak industrial activity, rising energy costs and uncertainty over US interest rates.

Reuters reported that the rand was trading at approximately R16.61 to the dollar at 16:10 South African time on Thursday, little changed from its previous close.

The currency's resilience came despite Statistics South Africa reporting that manufacturing production contracted by 4.3% year on year in August, reversing July's 1.1% increase.

The decline was substantially worse than the 0.6% growth anticipated by economists surveyed by Reuters.

Nedbank economists warned that the manufacturing sector continued to face pressure from high production costs, electricity expenses, fuel price increases, supply constraints and international trade barriers.

The disappointing industrial figures highlight the vulnerability of South Africa's manufacturing base at a time when businesses are already absorbing substantial increases in petrol and diesel prices.

On the JSE, the Top 40 Index was approximately 0.3% higher during Thursday afternoon trading, while the benchmark 2035 government bond weakened, with its yield increasing by two basis points to 8.855%.

American equities ended Thursday's session mixed, with major technology stocks dragging the Nasdaq and S&P 500 lower.

The S&P 500 declined 0.47% to 7,765.36 points, recording a second consecutive daily loss after reaching record territory earlier in the week.

The technology-heavy Nasdaq Composite fell 1.25% to 27,193.34, while the Dow Jones Industrial Average managed a marginal 0.10% gain to 51,231.64. The sell-off was concentrated in shares associated with artificial intelligence and semiconductor production.

Nvidia declined 2.9%, Broadcom lost 4.3% and Micron Technology fell 4.8%, reflecting growing investor concerns about elevated valuations in the technology sector.

PepsiCo provided some support to the broader market, advancing 3.7% after reporting stronger-than-expected quarterly earnings and revenue. Photo: Supplied

US government bonds also experienced considerable volatility. The yield on the benchmark 30-year Treasury bond initially climbed before retreating to approximately 5.60%, following stronger demand at a government bond auction.

The movements reflect investor concerns about the sustainability of American government borrowing, with the federal deficit approaching $2 trillion for the financial year ended 30 September.

Energy markets remained unsettled as geopolitical tensions continued to threaten supplies from the Middle East.

Brent crude settled at approximately $104.28 a barrel on Thursday, while US West Texas Intermediate closed near $91.49.

The rise in international oil prices presents a particular risk for South Africa, which depends heavily on imported petroleum products and has already experienced substantial domestic fuel price increases this month.

Gold futures for December delivery were trading around $4,158 an ounce late on Thursday, supported by continuing demand for defensive assets amid uncertainty in global financial markets.

Asian equities opened Friday on an uneven footing, providing little clear direction for South African investors.

Japan's Nikkei 225 declined approximately 0.8% to 68,512 points in early trading, while China's Shanghai Composite fell 1.4%.

Hong Kong's Hang Seng gained 1.1%, however, and Australia's ASX 200 advanced 0.6%. Markets in South Korea and Taiwan were closed for holidays.

Oil prices eased from Thursday's highs during early Asian trading, providing some relief after the previous session's sharp increase.

For South African investors, Friday's trading is likely to be influenced by movements in the rand, international commodity prices and global appetite for emerging-market assets. The sharp contraction in manufacturing production also places renewed attention on the domestic economic outlook, particularly the ability of industrial businesses to absorb rising costs while maintaining employment and competitiveness.

Sources: Reuters, Statistics South Africa, Nedbank, Associated Press, The Edge Research.