Traders said South African markets may be under pressure on Tuesday as credit worries persist, but the upcoming United States interest rate decision will be the main focus.
At 6.35am GMT, the rand stood at 7,23 to the dollar, softer than its New York close of 7,22 on Monday. It was trading at 9,98 to the euro. Traders said the rand will probably trade in a $7,17 to $7,27/range, and be under pressure as investors reduce their risk ahead of the US Federal Open Market Committee (FOMC) decision later in the day.
South African government bonds opened weaker, with yields on the most-active 2010 bond up 3,5 basis points to 9,26%, while those on the 2015 bond were up three basis points to 8,585%.
The domestic equity markets might also open in negative territory as credit squeeze problems continue to be a worry, sending global stocks weaker, dealers said.
”The effects of the Northern Rock are still weighing heavily on some of the equity markets, so they’ve performed quite negatively. I think in general risky assets are under a bit of pressure,” Duncan Howes, a dealer at Absa said.
Thousands of depositors pulled money from United Kingdom lender Northern Rock, sending uncertainty in financial markets.
The blue chip Top-40 September futures contract was 0,8% weaker ahead of the 7am GMT market open.
Howes said markets will also be watching the third quarter results from major US investment banks this week, to see the extent to which the credit squeeze has hurt them.
The market expects the Fed to lower the benchmark fed funds rate by at least 25 basis points from 5,25% to help cushion the US economy from the effects of the credit crisis.
”There’s still some uncertainty about what kind of effect [the cut] will have on the market. If it does not help with liquidity, we could be in for some really tough times ahead,” Howes said.
Since the global market volatility started, the rand reached 7,60/dollar in mid-August, versus 6,79 in mid-July. The broader all-share index at the local bourse, flirted with an all-time high of 30 000 in late July, and is now around 28 500.
Analysts are unsure when calm will return to the markets, but said high-risk assets such as South Africa’s currency and stocks, will remain under pressure. – Reuters