JSE faces trail of destruction left by US markets

The JSE is facing an uphill battle on Wednesday as Asian markets followed the trail of destruction left by US markets, which had its worst day in over two years after inflation numbers came in higher than expected.

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%.

This means the Fed is likely to raise interest rates as it tries to tame inflation, with money markets now pricing in at least a 75 basis point (bps) increase in rates.

“Rising expectations in the build-up to last night’s US CPI inflation figures that not just headline but underlie inflation will, if not now then very soon, be heading back down, have proved to be a figment of the market’s imagination,” National Australia Bank (NAB) analyst Ray Attrill said in a note on Wednesday.

“What is perhaps most disconcerting in all this is that the strength in core inflation is very much service-sector led (items such as vehicle repairs, dental and hospital services), categories which are primarily driven by wage inflation. There will therefore be as, or almost as much, focus on incoming Average Hourly Earnings (and the unemployment rate) in forthcoming US employment reports as there will in the next [sets] of CPI figures,” he added.

In Asian markets, Hong Kong’s Hang Seng, Japan’s Nikkei and the Shanghai Composite in mainland China were all down. The Hang Seng suffered the most as it fell by 2.55%, then the Nikkei by 2.47% and the Shanghai Composite by 1.02%.

The Hang Seng is down to its lowest level in six months. In Japan, core machinery orders beating expectations could not hold the impact of the US inflation numbers at bay. Meanwhile, the Shanghai Composite grapples with the latest figures from the US, continues to face global macroeconomic challenges and investors remain concerned about its zero-Covid policy.

Tencent, which influences the JSE via Naspers, fell by 1.44%.

On home soil, the JSE sank more than 2% on Tuesday, the most since mid-July, after the US inflation data. The news also hammered the rand, which plummeted almost 2% in value against the dollar on Tuesday. On Wednesday morning, the dollar was flat against the rand, trading at $17.44.

Platinum gained 0.34% to $881.50, while gold was level at $1,700.49/oz and Brent crude dipped by 0.81% to $92.42 a barrel.

Growthpoint Properties and Momentum will release their annual results on Wednesday.

In terms of economic numbers, the BankservAfrica Economic Transactions Index (BETI) for August will be published. Stats SA will release the retail trade sales numbers for July at 1pm, which is expected to rise 2% year on year after declining 2.5% by the same measure in June.

gousn@businesslive.co.za