Bloomberg News

Rand Slumps to 4-Month Low on Europe Debt, JPMorgan Loss

May 11, 2012

The rand slumped to its lowest level in almost four months, set for its worst weekly decline this year, as political turmoil in Greece and a $2 billion trading loss at JPMorgan Chase & Co. roiled financial markets.

South Africa’s currency fell as much as 1.4 percent to 8.1272 per dollar, the weakest since Jan. 16. It traded 1.1 percent down at 8.1071 as of 3:34 p.m. in Johannesburg, bringing its retreat this week to 3.6 percent. The yield on the nation’s 6.75 percent bonds due 2021 rose three basis points, or 0.03 percentage points, to 7.73 percent.

Greek political leaders enter a fifth day of talks to form a government as the European Commission said the euro-region economy will likely contract 0.3 percent this year. The 17- nation group buys 22 percent of South Africa’s exports. Stocks and commodities tumbled after JPMorgan said “grievous mistakes” and “sloppiness” caused the surprise loss on synthetic credit securities, underscoring risks to global financial markets.

“With risk aversion in the air, the traditional rush to safe havens has lifted the dollar and seen the rand weaken to more than 8 per dollar,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “The prevailing uncertainty will continue to weigh on the euro and other risky assets, while continuing to lend support to the dollar. Therefore, the rand’s weakening bias will persist into the weekend.”

Commodities Slide

The Standard & Poor’s GSCI Index of raw materials fell for an eighth day and the MSCI index of emerging-market stocks dropped to the lowest level since January 18.

South Africa’s benchmark stock index declined as commodity producers including Anglo American Plc and BHP Billiton Ltd. slumped. Metals and other raw materials account for 45 percent of South Africa’s exports.

Greece’s political impasse has raised the possibility another election will have to be held as early as next month, threatening the implementation of austerity pledges. The standoff has reignited European concerns over Greece’s ability to hold to the terms of its two bailouts negotiated since May 2010 and sparked speculation about the country leaving the euro.

JPMorgan’s Chief Executive Officer Jamie Dimon said the $2 billion loss came after an “egregious” failure in its chief investment office. Global stocks extended losses after industrial production in China missed analysts’ estimates in April, while data showed India’s production at factories, utilities and mines declined in March.

“Markets look under pressure,” John Cairns and Josina Solomons, analysts at Johannesburg-based Rand Merchant Bank, said in e-mailed comments. The Greek turmoil and JPMorgan’s losses are both “negatives for the rand”, they added.

The rand’s three-month implied volatility against the dollar rose to 15.5 percent today, the highest since April 18, as options traders anticipate wider swings in the currency in coming weeks.

The cost of insuring the nation’s dollar-denominated sovereign debt against default climbed 2.5 basis points to 161.5 basis points, the most since April 24, according to data compiled by Bloomberg.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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