Global inflation, negative economic growth rates and interest hikes by central banks have had a devastating effect on share markets and continue to do so, writes Chris Harmse.
AS WAS reported in the four previous weekly market reports, global inflation, negative economic growth rates and interest hikes by central banks had a devastating effect on share markets and continue to do so.
In the US, the final (third) estimate of the gross domestic product growth for the second quarter 2022 released last week, confirmed that the US is now in a technical recession as its economic growth rate decreased by – 0.6%. This followed a contraction of -1.6% recorded for quarter one 2022.
Most global stock indices once again reached record low levels for the year to date at the close on Friday. On Wall Street the Dow Jones lost a further 2.9% during last week alone. For the month, the index was down by -8.8%, and for the year-to-date by -21.14%.
The S&P500 had the same woes as the index also lost -2.9% past week, -13.2% for the month and is now down by -25.24% for the year-to- date. The tech rich Nasdaq index was down -2.7% for the week, -14.64% for the month and lost -33.2% since the beginning of the year.
Stocks in the US traded down heavily on Friday in reaction to US Federal Reserve vice-chair Lael Brainard comment that although the Fed needs to monitor closely the impact that rising US and other developed market countries borrowing cost could have on global market stability, Brainard warned that central banks are due to keep rates higher for a prolonged period.
On the JSE most indices also followed the same bearish pattern. On the JSE, equity prices slowly started to recover past week as rand hedging shares and resources rebound as well as a much better than expected producer price inflation rate.
The all share index last week gained 0.6%. However, due to the sharp increases in domestic and global interest rates, the all share index lost 5.2% in September and trades 14.5% down for the year-to-date.
The Top 40 index had won 0.53% last week but was down by -7.18% during September and lost -15.11% since the beginning of the year. The Industrial 25 index on the other hand lost -5.6% last week, traded down by -6% during September and is now -18.1% lower for the year-to-date. Financial shares continue to feel the brunt of higher interest rates and the weaker rand the most.
The FIN15 index lost -1.3% last week, tumbled by -7.2% during September, and now trades -6.8% lower since the beginning of the year. The producer price inflation (PPI) came down in August to 16.6% from 18.0% in July and was much lower than expectations of 17.2%.
This coming week the release of the Absa manufacturing Purchasing Managers’ Index (PMI) for September and total new vehicle sales today will be important. On Wednesday South Africa’s S&P Global PMI for September will be published. On Global markets investors’ attention will turn to the release of the US non-farm payrolls data that will be released on Friday.
The number of new jobs created in September will be important. In August more than 500,000 new jobs were added and analysts felt that job scarcity is pushing up wages that will lead to higher inflation. It is expected that the US job market had created 250,000 new jobs last month.
Most developed countries will announce various PMIs during the week as well as their balance of trade numbers, like Germany, Canada, the US, and Australia. The publishing of the Eurozone’s retail sales for August also will draw attention.
* Chris Harmse is an economist at CH Economics and a lecturer at the School of Commerce at Stadio University.
– BUSINESS REPORT
