South African markets turned to the negative yesterday as Eskom extended rotational power cuts until Sunday night while headline inflation quickened more than expected to a i-year high in May.
Stocks at the JSE joined a global sell-off, tracking a more negative sentiment across international markets as investors turned nervous again about global growth prospects ahead of the US Federal Reserve chairperson Jerome Powell’s testimony before Congress.
Investors fear that should Powell adopt a pronounced tilt towards hawkishness, clearing the way for another 75 basis points rate hike in July, such action would be likely to trigger further dollar strength and rises in treasury yields, resulting in downside for gold.
The All Share index slipped 1.5 percent to 65 785 points, with most losses recorded in commodity-linked and resources stocks.
Montauk Renewables fell 11.8 percent to R192.10 per share while Sasol and Glencore slipped 6.9 percent to R370 and 5.6 percent to R88.70 per share, respectively.
The struggling power utility Eskom extended Stage 2 load-shedding until Sunday night, after four more of its generation units broke down, contributing to the capacity constraints.
Eskom had 3 630MW on planned maintenance, while another 15 277MW of capacity was unavailable due to breakdowns.
As the shortage of generation capacity persists, the system will continue to be constrained with an elevated risk of load shedding over the coming weeks.
Investec economist Lara Hodes said Eskom’s rotational power cuts, together with lack of structural reforms, were contributing factors to sluggish domestic economic growth forecasts.
“We expect 2022’s economic growth outcome to be higher than anticipated at 2 percent,” Hodes said.
“However, a number of risks remain including heightened load shedding and the slow implementation of key reforms.”
Meanwhile, South Africa's headline inflation quickened more than expected to 6.5 percent in May.
Inflation breached the upper limit of the SA Reserve Bank’s 3-6 percent target range for the first time in over five years.
Statistics South Africa said most of the recent pressure on inflation had been from food and fuel prices, worsened by the war in Ukraine.
The fuel price is now almost 27 percent higher than in May 2021.
Abigail Moyo, spokesperson of the trade union Uasa, said urgent action was required to reduce levies and fuel taxes and create sustainable decent employment.
“Fuel prices are expected to again increase in July, increasing upward pressure on food inflation and basic services. Workers are struggling. Disposable salaries are shrinking day by day,” Moyo said.
“Uasa believes that government can and must do something to remedy the harsh circumstances that our people are subjected to.”