Global market turmoil rattles SA stocks and rand

SA stocks and the rand stumbled on Monday, following in the footsteps of a sharp sell-off in major global markets as investors sent a loud message to central banks that the tight monetary policy risked plunging economies into recession.

The JSE all-share index, the broadest measure of SA stock market performance, fell more than 2% in intraday trading, but it was spared the worst of the sell-off as it is not too exposed to major tech companies.

The index closed 1.19% weaker at 79,577 points, pushed lower by metals, with resources, precious and industrial metals down almost 2%.

The rand retreated to its weakest level in almost two months, erasing some of the gains notched up after the May general elections.

At 6.15pm, it had weakened 1.36% to R18.54/$.

SA assets took their cue from a meltdown in global markets on fears that the US Federal Reserve might have left interest rates higher for too long, and might be forced into a series of rapid interest rate cuts to stave off recession in the world’s largest economy.

The global market sentiment about the Fed’s tardiness to respond to signs of a weakening US economy shares a kinship with Investec, which criticised the Reserve Bank’s monetary policy committee for holding the repo rate steady at its July meeting, risking tipping the SA economy into recession down the line.

The latest sign that the world’s largest economy might contract came in the form of July non-farm payrolls on Friday, which came in way weaker than expected while the unemployment rate rose to the highest level since October 2021.

Bad data point

“Although one terrible data does not necessarily show a trend, Friday’s non-farm payrolls report is the first really bad data point we’ve seen,” Sanlam head of fixed-income investment strategy James Turp said. “Therefore the data puts the probability of a recession much higher than before.

“The Fed could have cut rates at last week’s meeting, they have been sitting on higher rates for too long. Now the markets are looking for 50 basis points in September,” Turp said.

“The Fed should have tiptoed with a 25-basis point cut last week, or the very least they should have guided that they are going to cut rates in September to avoid the volatility we are seeing,” he said.

A slowdown in the world’s largest economy could have a ripple effect, affecting trade, investment and economic growth worldwide.

A recession in the US would likely lead to decreased demand for exports from other countries, including SA.

This could result in reduced trade volumes and lower commodity prices, affecting SA’s export-driven economy. The country’s reliance on exports, particularly in the mining and agricultural sectors, makes it vulnerable to fluctuations in global demand.

For individual stocks, higher interest rates are seen as a negative for growth outlooks, which affect companies’ access to credit and weigh on consumer spending.

MyWealth CEO Annatjie van Rooyen said it was too early to make an assumption that the US economy was heading for a recession.

“We don’t know what pushed Friday’s non-farm payrolls data to those low levels and one data point can’t confirm a recession,” Van Rooyen said.

“Also, inflation has been higher than the Fed’s 2% target and the central bank had to act within their mandate.

“Markets are probably over-reacting at the moment and could be a case of a long-awaited correction,” she said.

In global markets, Japan stood out as one of the worst performing equities. The country’s benchmark went into a nosedive, plummeting more than 12%, its largest one-dayfall since October 1987 and exceeding its 1987 “Black Monday” loss, when stocks across the world crashed.

tsobol@businesslive.co.za