Recession fears stalk the markets

Clear signs that the global economy is slowing and that major economies may be headed towards recession put pressure on risk assets on Wednesday, with the JSE slipping to its worst level since February.

On a day of weak economic data, beginning with news that Chinese industrial output growth was at its slowest pace in 17 years in July, UK inflation came in higher than expected, German GDP shrank 0.1% in the second quarter and eurozone industrial output fell more than twice as fast as the market expected, down 2.6% year on year in June.

US bond markets also flashed a recession warning, with the yield on the 30-year US treasury, which moves inversely to its price, falling to a record low as investors sought safety in longer-dated debt.

The JSE tracked global markets weaker, losing 2.11% to 54,029.4 points after earlier dropping as much as 2.3%. The top 40 fell 2.37%.

Industrials relinquished 2.67% and banks 2.45%. Gold miners jumped 5.77%, partially recovering from Tuesday’s 8.98% plunge.

Shortly after the JSE closed, the Dow was down 2.09% to 25,730.57 points, while in Europe, the FTSE 100 had lost 1.58%, the CAC 40 2.35% and the DAX 30 2.15%.

Gold was up 1.06% to $1,517.28/oz while platinum had fallen 0.68% to $849.18. Brent crude was 3.14% lower at $59 a barrel.

The rand was 1.9% weaker at R15.4206/$.

Local economic data was a little more upbeat, with retail sales growing 2.4% year on year in June, a little faster than the expected 2.2%.

SA should avoid a recession in the second quarter, but the more upbeat data and a weaker rand were reducing chances of the Reserve Bank giving SA a second interest rate cut in 2019, Capital Economics senior emergingmarkets economist John Ashbourne said in a note.

Forward rate agreements now point to the Bank delaying another interest rate cut until early 2020, Ashbourne said. However, he held the nonconsensus view SA would still see another cut in September.

Naspers slumped 3.96% to R3,354.10, despite a 1.8% rise in HongKong listed subsidiary Tencent earlier. Tencent, of which Naspers holds 31%, reported a better-than-expected 35% rise in quarterly net profit to end-June.

Car component manufacturer Metair was flat at R22.47, having said earlier that revenue rose 19% in the six months to end-June.

Aspen Pharmacare gave back 6.66% to R69.55. It said it had settled with UK competition authorities on an £8m payment related to alleged anticompetitive conduct related to corticosteriod drug supply in the UK.

Kumba Iron Ore plunged 8.54% to close at R414.96.