Rand softer after wider current account deficit, stocks tumble

June 14, 2016 5:03 PM

"The market is looking at the debt situation with a bit of concern that there are a few hurdles that they still need to jump over before doing the rights issue," said Cratos Capital equities trader Greg Davies.

People walk near the reception at the Johannesburg Stock Exchange (JSE) in Sandton, Johannesburg, South Africa December 10, 2015.

South Africa's rand lost ground on Tuesday after the current account widened more than expected in the first quarter, raising the likelihood of more interest rates despite the economy creeping toward a recession.

On the bourse, stocks tumbled to their lowest level in nearly six weeks, with PPC leading the decliners after the cement maker scraped its dividend.

The rand risked weakening further before a rates decision in the United States that has kept emerging currencies on edge.

By 1830 GMT the rand traded 0.96 percent weaker to 15.3500 per dollar, its softest level in more than a week, having slipped as much as 1.5 percent on negative data.

The currency weakened sharply after the South African Reserve Bank (SARB) said the South Africa's current account balance had widened to 5 percent of GDP in the first quarter from a revised shortfall of 4.6 percent.

Economists surveyed by Reuters had expected a 4.25 percent gap for the first quarter.

The trade gap narrowed slightly, to 38 billion rand from a 41 billion rand deficit in the previous quarter.

The deficits subdued demand for the rand, prompting analysts to predict the SARB would resume its monetary tightening cycle despite tepid economic growth, which contracted 1.2 percent in the first quarter.

Government bonds were also weaker, with the yield on the benchmark paper due in 2026 adding 8.5 basis points to 9.2 percent.

On the stock exchange, shares in PPC closed 7.22 percent lower at 9 rand after South Africa's biggest cement maker scrapped its dividend for the first time in over a century, seeking to conserve capital to repay debt.

PPC said it also plans to raise capital to repay debt by issuing shares through a rights issue.

The All-Share index, in the red for a fifth consecutive session, was down 2.13 percent to 51,394 points, while the benchmark Top-40 index was 2.23 percent weaker at 45,397 points.

Trade was below par with around 267 million shares changing hands, compared with last year's daily average of 296 million, according to preliminary bourse data.