Shares stumble before US inflation, JSE bleeds
J– fin24 OHANNESBURG – Caution gripped share markets yesterday, as investors braced for a United States (US) inflation report that could force another super-sized hike in interest rates and the start of an earnings season in which profits will be under pressure.
An upbeat US June payrolls report already has the market wagering heavily on a rise of 75 basis points from the Federal Reserve, sending bond yields and the Dollar higher.
Underlining the global nature of the inflation challenge, central banks in Canada and New Zealand are expected to tighten further this week.
Market
While Wall Street did eke out some gains last week, the market mood will be tested by earnings from JPMorgan and Morgan Stanley on Thursday, with Citigroup and Wells Fargo the day after.
“Consensus expects 2Q S&P 500
EPS (earnings per share) growth of just +6 per cent year/year,” said Goldman Sachs Analyst David J. Kostin.
“While firms will likely clear this low bar, we expect cautious commentary will prompt cuts to forward estimates.”
If the economy does manage to dodge recession, Kostin sees EPS growth of 8 per cent in 2022 and 6 per cent in 2023, with the S&P 500 index rising to 4 300. In a moderate recession, EPS could fall by 11 per cent.
Yesterday, S&P 500 futures were down 0.7 per cent and Nasdaq futures off 0.9 per cent. EUROSTOXX 50 futures fell 1.3 per cent and FTSE futures 1.0 per cent.
Chinese blue chips lost 1.9 per cent after Shanghai discovered a COVID-19 case involving a new subvariant, Omicron BA.5.2.1.
Slipped
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.7 per cent and South Korea 0.1 per cent. Going the other way, Japan’s Nikkei added 1.2 per cent.
Japan’s conservative coalition government was projected to have increased its majority in upper house elections on Sunday, two days after the assassination of former Prime Minister Shinzo Abe.
A major hurdle will be tomorrow’s US consumer price report, in which markets see headline inflation accelerating further to 8.8 per cent, but a slight slowdown in the core measure to 5.8 per cent.