JSE faces Asian market pressure on Thursday as economic warning lights flash

The JSE looks set to contend with significant pressure on Asian markets on Thursday morning, with investors digesting earnings reports that point to a deteriorating global economy.

This includes worrying earnings reports from US retail giants Walmart and Target, which are battling with inflation, while in early trade, Chinese media giant Tencent was down almost 7%, after reporting that earnings to the end of March had almost halved.

The tech-heavy Nasdaq lost 4.7% on Wednesday and the S&P 500 4%, losses similar to those seen in early 2020 when much of the world was reacting to the emergence of Covid-19.

“Contagion from bellwether consumer earnings prints is sending stagflationary shock waves through the market, and equities suffered another massive bout of indigestion after yesterday’s Alka-Seltzer moment,” said SPI Asset Management MD Stephen Innes in a note.

Naspers and Prosus had lost almost 5% on Wednesday, and Tencent’s results had been released before the JSE close.

In morning trade, the Hang Seng was down 2.25% and Japan’s Nikkei 1.95%, while the Shanghai Composite was flat, with restrictions in Shanghai beginning to ease as a Covid-19 outbreak there recedes.

Gold was flat at $1,815.64/oz, while platinum had fallen 0.64% to $928.50. Brent crude was up 1.27% to $110.58 a barrel.

The rand was 0.54% firmer at R15.97/$, having weakened 1% on Wednesday.

Domestic focus on Thursday is squarely on the Reserve Bank policy announcement later, amid expectations that a 50-basis-point hike may be on its way. SA’s inflation for April had remained steady at 5.9% year on year, towards the top end of the Bank’s target range.

Capital Economics expects only a 25-basis-point hike, with senior emerging market economist Jason Tuvey saying in a note that given a slow and bumpy SA recovery, rates will be raised more slowly than investors expect over 2022-2024.

“Even after the disruption caused by recent flooding in KwaZulu-Natal dissipates, ongoing fiscal austerity and worsening power outages mean that the economy will probably struggle to regain momentum,” he said.

Investec is due to release its results for the year to end-March later, saying in a recent trading update that headline earnings per share could almost double, reporting increased funds under management, higher average loans, and that it had picked up new clients.

gernetzkyk@businesslive.co.za