MARKET WRAP: JSE and rand pummelled on worse-than-expected US inflation
Investors are all but convinced the Fed will raise interest rates by 75 basis points and some are even betting on a 100 basis-point hike
13 September 2022 - 20:26
byAndries Mahlangu
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The JSE sank more than 2% on Tuesday, the most since mid-July, after US inflation data came in worse than expected. The news also hammered the rand, which plummeted almost 2% in value against the dollar.
While US headline inflation slowed to 8.3% year on year in August from 8.5% in July, core inflation — which excludes volatile energy and food and is the Federal Reserve’s preferred measure of prices — accelerated to 6.3% from 5.9%.
US stocks slumped on the news, with technology shares taking the biggest hit, as investors bet that the central bank was almost certain to hike rates by 75 basis points at its September 20-21 policy meeting.
Money markets are now pricing in at least a 75 bps increase in rates, with a 23% chance of a 100 bps hike, while expecting rates to peak at about 4.28% in March 2023.
“Until we get inflation prints, not just one, but two, three, maybe four, moving downward steadily, that’s when we can call a trend and the Fed may feel some comfort in at least taking a pause,” said Mona Mahajan, senior investment strategist at Edward Jones.
The JSE all share fell 2.15% to close at 68,273.71 points, led by banks, financials and resources stocks, while the top 40 dropped 2.3%.
In the US, the tech-heavy Nasdaq was down 3.6% at 7.70pm SA time, while the Dow Jones and S&P 500 were 2.52% and 2.83 lower, respectively. European markets were similarly downbeat, with London’s FTSE 100 falling 1.2%, ending a three-session gaining streak and Germany’s DAX down 1.59%.
Commodity markets also came in for a pummelling as the dollar regained its lustre. Palladium tumbled 7.4% in its biggest one-day drop since April 25, to $2,096.02 while Brent crude slid 2.7% to $91.66 a barrel.
Even traditional safe-haven gold was 1.13% lower at $1,704.22/oz.
By 7.19pm the rand was 1.47% weaker at R17.3852/$, little changed at R20.0403/£ and 0.35% softer at R17.3808/€.
The global mood had been cautiously positive in the lead-up to release of the inflation data, with the JSE gaining almost 3.55% over the past two sessions before unravelling on Tuesday.
“The velocity of [Tuesday’s] move has been breathtaking, however the market has recovered substantially off of recent lows. That this 4,000 level is still holding for the S&P 500 does reveal that markets are bothered, but markets are not panicking,” said Jeff Kilburg, founder and CEO of KKM Financial.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
MARKET WRAP: JSE and rand pummelled on worse-than-expected US inflation
Investors are all but convinced the Fed will raise interest rates by 75 basis points and some are even betting on a 100 basis-point hike
The JSE sank more than 2% on Tuesday, the most since mid-July, after US inflation data came in worse than expected. The news also hammered the rand, which plummeted almost 2% in value against the dollar.
While US headline inflation slowed to 8.3% year on year in August from 8.5% in July, core inflation — which excludes volatile energy and food and is the Federal Reserve’s preferred measure of prices — accelerated to 6.3% from 5.9%.
US stocks slumped on the news, with technology shares taking the biggest hit, as investors bet that the central bank was almost certain to hike rates by 75 basis points at its September 20-21 policy meeting.
Money markets are now pricing in at least a 75 bps increase in rates, with a 23% chance of a 100 bps hike, while expecting rates to peak at about 4.28% in March 2023.
“Until we get inflation prints, not just one, but two, three, maybe four, moving downward steadily, that’s when we can call a trend and the Fed may feel some comfort in at least taking a pause,” said Mona Mahajan, senior investment strategist at Edward Jones.
The JSE all share fell 2.15% to close at 68,273.71 points, led by banks, financials and resources stocks, while the top 40 dropped 2.3%.
In the US, the tech-heavy Nasdaq was down 3.6% at 7.70pm SA time, while the Dow Jones and S&P 500 were 2.52% and 2.83 lower, respectively. European markets were similarly downbeat, with London’s FTSE 100 falling 1.2%, ending a three-session gaining streak and Germany’s DAX down 1.59%.
Commodity markets also came in for a pummelling as the dollar regained its lustre. Palladium tumbled 7.4% in its biggest one-day drop since April 25, to $2,096.02 while Brent crude slid 2.7% to $91.66 a barrel.
Even traditional safe-haven gold was 1.13% lower at $1,704.22/oz.
By 7.19pm the rand was 1.47% weaker at R17.3852/$, little changed at R20.0403/£ and 0.35% softer at R17.3808/€.
The global mood had been cautiously positive in the lead-up to release of the inflation data, with the JSE gaining almost 3.55% over the past two sessions before unravelling on Tuesday.
“The velocity of [Tuesday’s] move has been breathtaking, however the market has recovered substantially off of recent lows. That this 4,000 level is still holding for the S&P 500 does reveal that markets are bothered, but markets are not panicking,” said Jeff Kilburg, founder and CEO of KKM Financial.
mahlangua@businesslive.co.za
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