JOHANNESBURG: South African stocks and the rand sank in early trade on Monday as global investor sentiment soured towards riskier assets due to growing fears that the United States could be heading for recession.
At 0723 GMT, the rand traded at 18.50 against the dollar , more than 1.2% weaker than its previous close.
On Johannesburg Stock Exchange, the Top-40 index was down about 2.5% in early trade, mirroring a sell-off on global stock markets.
“Weakness (is) being driven by a sell-off in equities as concerns begin to grow around a slowdown in the U.S. economy,” Rand Merchant Bank analysts said in a research note, referring to the rand’s weakness.
Markets have been hit by Friday’s weak U.S. July payrolls report, which showed the unemployment rate had risen to 4.3%, driving concerns that the world’s biggest economy could be heading for a recession.
“Bets are now mounting that the Fed will need to be more aggressive with its rate cuts than previously anticipated to stave off a recession,” the Rand Merchant Bank research note added.
South African rand gains on domestic economy while dollar dips
Traders are pricing in a more than 70% chance that the Federal Reserve will cut interest rates by a full 50 basis points in September to rescue growth, compared with an 11.5% chance a week earlier, according to the CME FedWatch tool.
Like other risk-sensitive currencies, the rand often takes cues from global drivers such as U.S. economic data and monetary policy in addition to local factors.
South Africa’s benchmark 2030 government bond was also weaker in early deals, as the yield gained 9 basis points to 9.34%.
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