WATCH: Animal Spirits

August saw a major reversal of fortunes for the markets after July’s bounceback. A larger majority of investors now believe the global economy is likely to tip into recession within 12 months, according to the latest Bank of America global fund managers’ survey.

A net 58% of respondents believe recession is likely, up from a net 47% a month earlier. The net figure, which represents positive answers less negative ones, is the highest reading since May 2020.

The JSE all share index logged its biggest one-day gain in three weeks on Friday after investors reacted favourably to the closely watched US nonfarm payrolls report. The world’s largest economy created 315,000 jobs in August, versus 290,000 jobs that the economists had forecast. Global equities markets had been jittery in the days leading up to the release of the jobs report, which is seen as one of the more reliable gauges for the outlook on inflation that is hovering at a 40-year high in the US.

The sustainability of near-term gains will, however, be tested as we edge closer towards the Federal Resrve’s rates decision later in September. Sadly, the US market faded late on Friday and that soured sentiment heading into the new week, with European futures down and the euro taking a fresh spill on Monday morning after Russia shut a major gas pipeline to Europe, leading some governments there to announce emergency measures to ease the pain of soaring energy prices.

US markets are closed for the Labour Day holiday so liquidity will be lighter than normal, while the effect of Europe’s energy crisis on global financial markets cannot be ignored. Opec+ is meeting today and is likely to keep oil output quotas unchanged for October, although some sources would not rule out a small production cut to bolster prices that have slid due to fears of an economic slowdown.

Let’s find out what the animal spirits are telling us with Chris Holdsworth, chief investment strategist at Investec Wealth and Investment.

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