OVER the past week global and domestic equity markets took a hiding. This despite the initial positive sentiment last week on the remarks by the US Federal Reserve that its Federal Open Market Committee (FOMC) is expecting to lower its interest rate at its next meeting in September.
The continuous fear of worse-than-expected earnings from the top companies in the US and the news of the sudden sharp increase in the US unemployment rate led to a big sell-off in equities on Wall Street and washed over to countries across the world.
Recession fears on the back of the non-farm payrolls that were released on Friday bulldozed share prices. The unemployment rate in July suddenly increased sharply from 4.1% in June to 4.3% as the US non-farm economy could only add 114 000 new jobs against the expectation of 176 000. Average hourly earnings also came in lower than expected at 0.3% month on month. These worse-than-expected numbers broaden fear to markets that the US consumer is under pressure, despite a possible interest rate cut.
On the tech enriched US Nasdaq board fears of a downward correction emerged among analysts and investors last week. A correction implies that equities either increase (positive correction) or slump quickly (negative correction) by at least 10%.
The Nasdaq index lost 3.4% last week and is trading now 8.63% lower than the last month. Negative sentiment on prospective earnings on Wall Street also pushed the S&P500 index down by 2.4% last week, trading 4.3% lower over the last month. The Dow Jones industrial index lost 900 points alone last Thursday and Friday as it experienced the biggest sell-off in one day since May 2024 on Thursday.
The sell-off on US markets, especially on Thursday and Friday, rubbed off on the JSE. After the sharp increase in equity prices on Wednesday, where the All Share index increased by 1 567 points to a new record close of 82 765 points, the sell-off on Wall Street contributed to a sharp decline in the index of 2 227 points, or -2.7%, during Thursday and Friday. As a result, the All Share index ended the week -0.7% in the red. Most of the other indices ended the week flat.
Although the rand lost some ground on Wednesday after the bullish tone of the Fed, trading at R18.454 against the dollar, the currency improved on Thursday and Friday to R18.26/$ - the same level as the previous Friday. Against the pound the rand improved by 14 cents to close Friday at R23.38/£ and against the Euro the rand lost 7c over the week, trading at R19.93/€.
The Minister of Energy and Electricity will announce the fuel prices on Wednesday. It is expected that the price for 95 octane petrol will be lowered by 13c a litre, that of 93 octane petrol by nine cents a litre and the price for 0.05% diesel by 26c a litre. The price for illuminated paraffin should cost 20c a litre less.
Despite the negative sentiment on the US economy that is expected to continue this week, domestic markets will await the release of South Africa’s level of gold and foreign reserves by the Reserve Bank on Wednesday and the manufacturing production data for June by Statistics SA on Thursday.
Movements on global markets this week will be dominated by the release of the US jobless claims numbers on Thursday, after the worse than expected non- farm payrolls for July announced last Friday. The publishing of China’s inflation rate for July on Friday will also be of note, especially for emerging market economies.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
BUSINESS REPORT