JSE set to open to mixed Asian markets on Wednesday amid stagflation fears

The JSE, which had its best day in almost two months on Wednesday, faces struggling Asian markets on Thursday morning, with investors still digesting the implications of price pressures in the US.

US inflation had risen 8.3% year on year in April, a moderation from 8.5% the previous month, but it is still near a four-decade high and above consensus expectations.

This put US markets under pressure overnight, with the tech-heavy Nasdaq giving back more than 3%, and there are concerns the ongoing war in Ukraine and Covid-19 in China will mean inflationary pressures will continue to persist.

The deterioration in the inflation outlook will likely be reflected in an upward revision to the Reserve Bank’s medium-term inflation forecasts, possibly breaching the 6% upper target level for 2022, from its current 5.8% forecast, independent economist Elize Kruger said in a note on Wednesday.

With global interest rates also on the rise on a broad basis, and the rand’s 10% depreciation since the Bank’s previous meeting, it is likely to hike rates by 50 basis points next week, she said.

“Already stagflation is the talk in town,” said Kruger.

The rand was 0.78% weaker at R16.19/$, having firmed 0.39% on Wednesday. The local currency has still lost about 10.6% against the dollar on a one-month basis.

In morning trade, the Shanghai Composite was up 0.17%, while the Hang Seng was down 1.08% and Japan’s Nikkei 1.05%.

Tencent, of which the Naspers group is the single biggest shareholder, had slipped 0.46%.

Gold was flat at $1,853.25/oz, while platinum had fallen 0.45% to $993. Brent crude was 0.65% weaker at $106.25 a barrel, and had jumped 5.79% on Wednesday, having fallen more than 10% over the previous two sessions.

Locally, mining and manufacturing numbers for March are due later and are expected to paint a mixed picture. Mining is expected to register another fall amid base effects and continued difficulties with rail transport and electricity supply.

Manufacturing activity is expected to have picked up during the month, with Investec economist Lara Hodes last week citing in a note advanced indications provided by the Absa purchasing managers index. That index had jumped in March to a record high, driven by an increase in new sales orders and business activity.

Paper and packaging group Sappi is due to release its results for the half-year ending March later, and should give an update on how flooding in KwaZulu-Natal is affecting its operations. The group has said previously there was no material damage to its plants, but it has faced supply chain disruptions, while exports are under threat due to issues at the Port of Durban.

gernetzkyk@businesslive.co.za