Employees watch monitors displaying Japan's Nikkei share average, which has had a record breaking-drop in the closing price, at Nagoya Stock Exchange in Nagoya, Japan, August 5, 2024, in this photo taken by Kyodo. Photo: Kyodo/via REUTERS
Nicola Mawson
Local markets weakened yesterday amid a market bloodbath after a global sell-off that was triggered after worse-than-expected US jobs data spiked fear of a recession.
Shares across board from Asia, to Europe to the US were in bear territory.
Japanese shares plunged to its lowest level since the Black Monday crash in 1987. The Nikkei index plunged 12.4% lower - its second-largest decline on record.
US jobs data out late on Friday showed that the unemployment rate rose to 4.3%, when analysts had expected it to remain unchanged at 4.1%. Wages were also weaker than expected, with the year-on-year rate sliding to 3.6% from 3.8%.
Goldman Sachs Group economists increased the probability of a US recession in the next year to 25% from 15%, but said there are several reasons not to fear a slump even after unemployment jumped.
“We continue to see recession risk as limited,” the Goldman economists led by Jan Hatzius said in a report to clients on Sunday.
Local shares ended the day relatively unscathed versus their global peers with the JSE All Share index ending the day 1.19% lower at 79 578 points. Financials (J580) tumbled 4.88% ending at 46 687 points.
Resources shares took a hiding with Impala Platinum ending 5.78% lower at R83.01, Sibanye-Stillwater 4.27% lower at R18.63, Anglo American Platinum 2.36% down at R639.68, DRDGold down 5.05% at R16.91, among others.
The rand weakened to R18.67 against the dollar today, marking its weakest level in a month.
At 2.06pm, the rand traded at R18.5825 against the dollar, about 1.7% weaker than its previous close and near a two-month low, Reuters reported.
Harry Scherzer, the CEO at Future Forex, said, “Investors are moving away from emerging market (EM) currencies such as the rand.”
Annabel Bishop, the chief economist at Investec, said fears over US economic weakness saw the rand fall sharply.
“After strengthening last week towards R18.00 against the dollar, the rand has pulled back to R18.69/$ on investor concerns that Friday’s weak US labour market data risked the soft landing for the US economy that has been factored into market expectations.
She said risk aversion rose markedly, causing weakness in equities markets, EM currencies and EM portfolio assets. Concerns about the possibility of a recession had risen again in some quarters, with risk-off permeating markets and the rand weakening.
"The rand remains a highly volatile currency, subject to significant fluctuations on changes in global financial market risk sentiment, with further weakness a risk as markets fret ahead of services data from the US this afternoon,“ Bishop added.
Brent crude oil futures plummeted to under $75.2 (R1 392) per barrel on Monday, approaching levels not seen since December.
Even safe haven gold fell to around $2430 (R45, 198) per ounce.
Local economists said investors must not panic as it was the market correcting itself.
Izak Odendaal, Old Mutual chief investment strategist, said a correction had been in the offing, especially in the US where a handful of technology stocks had been running white hot. “And after the incredibly strong run they’ve had, no one should be surprised that there has been a pull-back, though the timing can be quite surprising.”
Andre Botha, the head of Execution Dealing at TreasuryONE, said the US was not heading for a recession even as it started to struggle. Yet, he said, “this is a cause for concern, and the market will look at upcoming data releases out of the US to see whether the latest data miss is a trend or merely an outlier”.
Botha explained that global markets were “deeply in the red”, but this is to be expected with any sign of trouble in the US, which was “usually met with a big knee jerk”.
The potential positive though, said Botha, was that the fear of a recession in the US could spur central banks to cut rates quicker than expected. The only difference was the number of rate cuts, with Botha expecting two, while Johann Els, Old Mutual chief economist, said he anticipated three cuts starting from when the South African Reserve Bank (SARB) meets in September.
Botha said the rand, as part of the basket of EM currencies, was on the back foot. “This is more a case of the knee jerk reaction, and we will have to wait for a couple of trading sessions to see if the move is sustained or if the first reaction is an overreaction.”
Els noted that rate cuts in the US would help settle markets, which will lead to a softer dollar and a stronger rand. “Rate cuts in the US will then ease the concerns in markets and we will see a risk-on trade.” This, he explained, will see developing markets benefiting.
“I think we are probably into slightly more volatile territory. I don't think this is a crisis at all,” said Els.
BUSINESS REPORT