Rand surges to two-year high as markets rally on fiscal discipline

South Africa’s currency, equities, and bonds extended their rally on Thursday as investors welcomed signs of fiscal discipline following the government’s medium-term budget policy statement. The rand briefly strengthened beyond the key 17 per US dollar level for the first time since February 2023, touching 16.955 - its firmest level in more than two years. The Top 40 index (.JTOPI) on the local bourse rose by 2.30%, while the yield on the 2035 government bond fell six basis points to 8.60%, its lowest level since early 2021. The rand has gained more than 11% year to date against a weakening dollar, outperforming the broader emerging markets index, which is up just over 6%.

US equities declined on Thursday, with the S&P 500 down 0.90%, the Nasdaq falling 1.40%, and the Dow Jones slipping 0.50% after closing at a record high in the previous session. Optimism surrounding the end of the US government shutdown appeared largely priced in, while the ongoing rotation out of high-valuation technology stocks persisted. At the same time, traders turned more cautious amid uncertainty linked to key economic data delayed by the shutdown. National Economic Council Director Kevin Hassett noted that some October figures may “simply never show up”, as certain agencies were unable to collect data during the closure.

London’s FTSE 100 fell 1.10% on Thursday as disappointing earnings and subdued oil prices weighed on sentiment. Energy majors BP and Shell each declined by more than 1.50% amid renewed concerns over a global supply surplus pressuring crude markets. Stocks trading ex-dividend, including GSK (-0.80%) and Sainsbury’s (-3.80%), also detracted from performance. Private equity firm 3i slumped 17% after reporting slower like-for-like sales growth at Action, while Aviva fell more than 5% despite upgraded targets and stronger profits, as investors focused on weakness in its UK general insurance division and signs of softening rates.

Across the Eurozone, both the STOXX 50 and STOXX 600 reversed early gains to end the session down 0.10% and 0.30%, respectively, retreating from fresh record highs reached earlier in the day. Initial optimism surrounding the reopening of the US government faded, while a series of disappointing corporate updates further weighed on sentiment. Siemens shares dropped more than 5% after the company issued a downbeat profit outlook for next year, and Novo Nordisk slipped 0.80% following reports it plans to issue a bond to finance its acquisition of Akero Therapeutics.

In Asia, Japan’s Nikkei 225 Index rose 0.43% to close at 51 282, while the broader Topix Index gained 0.67% to 3 382 on Thursday, with the latter reaching new record highs after President Donald Trump signed a bill ending the longest US government shutdown in history. Meanwhile, China’s Shanghai Composite Index climbed 0.73% to close at 4 030, and the Shenzhen Component advanced 1.78% to 13 477, with the former hitting a fresh ten-year high amid strong gains in new energy stocks.

WTI crude oil futures traded around $58.80 per barrel on Thursday, following a 4% decline to a three-week low on Wednesday amid mounting concerns over oversupply. Gold prices rose above $4 230 per ounce, reaching a three-week high, as investors turned their attention to the Federal Reserve’s interest rate outlook in the wake of the US government’s reopening.