Markets Editor GLOBAL markets continued to rally yesterday ahead of last night’s widely expected cut in US interest rates while the rand extended its recovery, trading below R10/$ for the first time in more than a week. JSE share prices surged 7% at one point after strong rises in Japan and Europe and Tuesday’s 11% surge in US stocks. Last night, the Federal Reserve cut US interest rates by a hefty half-percentage point, and left the door open to more cuts. The Fed’s unanimous decision takes its target for overnight bank lending to 1%, the lowest since June 2004. Earlier, interest rate cuts in Norway and China supported the improvement in mood as easing lending rates between banks spurred a rally in financial shares. Rising commodity prices lifted oil and resources shares. The London interbank offered rate, or Libor, which banks charge each other for three-month dollar loans, fell five basis points to 3,42%, its 13th successive drop. It has fallen 140 points since October 10. Charles Mackinnon of Thurleigh Investment in London said the drop in money-market rates showed the system was starting to “unclog”, which would “eventually lead to less volatility in markets, and that will bring us out of this slump”. After Tuesday’s strong gains, US investors took profits from the market, leading to volatile trade on Wall Street. By early evening, the Dow Jones index was trading 0,6% higher. The JSE’s all share closed 6,7% up at 19794, with resources, gold and platinum shares driving the index. London’s FTSE 100 was up 7% and the CAC 40 in Paris rose 8,4%. Despite the JSE rally, analysts warned there could be more sharp falls ahead. Jeremy Gardiner, a director at Investec Asset Management, said the focus would shift from the markets to the global economy, which was likely to remain under pressure for the next 12-18 months. He said the length of the slowdown would depend on measures the authorities took. “People mustn’t think that once the markets stabilise it’s over.” Any recovery would not be “V-shaped”, and more downside was likely. “There are great opportunities starting to emerge out there, but there is no need to rush in,” Gardiner said. By early evening, the rand had continued strengthening and was trading at R9,71/$, R12,60/€ and R15,96/£. Paul Kamp, senior rand trader at Standard Chartered in London, said there had been rallies in many emerging market currencies, including those of Mexico, Turkey and eastern Europe. “The move to the topside was overdone in the rand by a long way. It was an overdue correction.” Kamp said exporters holding off on converting dollars back to rands while they waited for better levels entered the market once they realised they had missed the boat. There had been stop-loss selling as the rand crossed through the R10,20 and R10 support levels, he said. Kamp said the cut in US interest rates would be good for stock markets, and in turn for emerging market currencies, which had largely followed equities. Meanwhile, US figures on orders for durable goods, which exclude cars and aircraft, showed a drop in September as the credit freeze and a slump in sales led businesses to cut back on investment. The slump in manufacturing worsened this month as financing dried up, according to regional factory surveys. That suggests declines in investment spending will contribute to contraction in the US economy for the second quarter running. Economists estimate a government report today will show gross domestic product shrank in the three months to September. “We see businesses that have changed gears in reaction to the financial markets, worries about credit availability and worries about consumers,” said Stephen Gallagher, chief US economist at Société Générale in New York. “It should lead to more decisive negative readings on capital spending in upcoming quarters.” With Bloomberg, Reuters

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