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Lower commodity prices put pressure on the index, CPI crosses 6% -by Ecork

JSE Top 40 Index (SA 40) News & Analysis

  • A softer commodity compound contributes to the decline in the index
  • SA CPI breaks above 6% upside target – currency effects analyzed
  • SA40 key technical levels for consideration

Help resources send SA40 lower

Crude Oil is trading lower today after the big drop in price yesterday which resulted in losses for Sasol (the biggest loser at the time of writing) of around 5%. Mining companies such as Glencore, Impala Platinum Holdings Ltd, Gold Fields and AngloGold Ashanti Ltd followed suit as gold and platinum prices continued to decline.

Source: Refinitiv, prepared by Richard Snow

The only stock trading in positive territory at the time of writing is British American Tobacco, outpacing a 0.2% gain. The index remains subject to the fate of major global equity indices such as the S&P 500 and general risk sentiment as stocks endure the current period of tighter monetary policy – a historically negative for equity indices.

Key inflation target breached and all eyes are on Jerome Powell

Today we saw a big surprise in the inflation data for May, coming in at 6.5% versus the expected figure of 6.2% and the previous reading of 5.9%. The target range for the SARB is between 3-6% which means that if inflation continues above the target, the MPC is likely to move towards further rate hikes. Higher rates tend to see weaker valuations and prices for stocks, and therefore do not bode well for the index in the medium term. In addition, Jerome Powell is scheduled to present his monetary policy report twice a year to the US Senate, and the findings from the two-day session could have repercussions on global stocks, and thus the SA 40 index.

SA40 forecast: Lower commodity prices weigh on the index, CPI breaks 6%

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SA40 main technical levels

While the index is constantly struggling to rise, it also appears to have consolidated somewhat, pausing a long-term downtrend. Recent price action is seen swinging wildly between 60.910 and 58980. The current consolidation breakdown sees support coming in at 58315 which is not too far from the 61.8% Fibonacci level at 58220, followed by 57200. Immediate resistance appears at 60,910, followed by the rising trend line resistance and the level 62,280.

SA40 daily chart

SA40 forecast: Lower commodity prices weigh on the index, CPI breaks 6%

Source: TradingView, prepared by Richard Snow

The weekly chart shows the bigger picture of the indicator. There is still a reasonable distance to go before the key resistance level (55,286) throughout 2020 comes into focus. As with most global stock indices, the trend appears to be supporting the selloff as global monetary policy continues to influence further price hikes – which tend to be negative for stock indices.

SA40 weekly chart

SA40 forecast: Lower commodity prices weigh on the index, CPI breaks 6%

Source: TradingView, prepared by Richard Snow

Written by Richard Snow for DailyFX.com

Connect with Richard and follow him on Twitter: Tweet embednowFX

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