JSE slips as global stocks slump on growth concerns
SHARES slid worldwide on Tuesday as supply chain woes and surging costs hurt corporate earnings and slowed manufacturing output, while Treasury yields dipped as the weakness in equities revived a safe-haven bid for US government debt.
US and euro zone business activity slowed in May, with S&P Global attributing the decline in its U.S. Composite PMI Output to “elevated inflationary pressures, a further deterioration in supplier delivery times and weaker demand growth.”
Higher costs from surging freight and raw material prices led Abercrombie & Fitch Co to say it will continue facing headwinds until at least year-end, a day after Snapchat parent Snap Inc said the U.S. economy had worsened faster than expected in April.
A two-day relief rally in equities was snuffed out as investors took note of sliding corporate profits on persistent supply chain issues, worsened by the Ukraine war, and soaring inflation that has forced consumers to cut discretionary spending.
The US economy likely faces a sharp slowdown as the Federal Reserve hikes interest rates to stamp out inflation, according to David Petrosinelli, a senior trader at InspereX.
“It's really all about a hard landing and the Fed really being boxed in the corner with only demand-side tools to help,” Petrosinelli said. “They really need to squash demand.
“This is going to have a ripple effect for the economy, which is why you're seeing the price action in stocks and bonds,” he said.
MSCI's gauge of stocks across the globe shed 1.69 percent while the pan-European STOXX 600 index lost 0.99 percent.
On Wall Street, the Dow Jones Industrial Average fell 1.37 percent the Nasdaq Composite dropped 3.33 percent and the S&P 500 lost 2.16 percent as it again headed toward a bear market.
Shares of Snap plummeted 41.1 percent, dragging down several social media and internet stocks, while Abercrombie fell 29 percent.
The JSE's All-Share fell a percent, with Barloworld down 9 percent following its results. Naspers and Prosus lost more than 6 percent.
In Europe, utilities and commodity-linked stocks led declines but banking shares rose.
European Central Bank Chief Christine Lagarde said she saw the ECB's deposit rate at zero or “slightly above” by the end of September, implying an increase of at least 50 basis points from its current level.
The comments came a day after Lagarde accelerated a policy turnaround that has seen her go from all but ruling out a move this year to penciling in several hikes.
“It has raised jitters in global markets about the possibility at least of a more aggressive move by the ECB,” said Phil Shaw, chief economist at Investec in London.
“There were reports overnight that some hawks on the governing council thought her comments yesterday seemed to rule out a 50-basis-point hike, but her remarks today appeared to leave that on the table,” he said.
Germany's 10-year Bund yield fell 7.3 basis points to 0.951 percent.
Treasury yields fell to one-month lows as those on benchmark 10-year Treasury notes fell 13 basis points to 2.729 percent
The dollar index fell 0.343 percent, with the euro up 0.38 percent to $1.073.
Lagarde's comments in a blog post on Monday and a swing that drove the U.S. currency to two-decade highs reinforced tactical weakness in the dollar, said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets.
“The broader macro backdrop still supports the risk-off take,” Rai said. “The dollar still has more room to run over the medium term.”
Disappointing data
Markets took some comfort from US President Joe Biden's comment on Monday that he was considering easing tariffs on China, and from Beijing's continuing promises of stimulus.
Unfortunately, China's zero-COVID-19 policy and its lockdowns have already done considerable economic damage.
JPMorgan cut its forecast for second-quarter Chinese gross domestic product to -5.4 percent from a prior -1.5 percent after disappointing data in April.
On an annualized basis, its global forecast for the quarter is 0.6 percent the weakest since the great financial crisis outside of 2020.
US crude oil recently fell 0.05 percent to $110.23 per barrel and Brent was at $113.76, up 0.3 percent on the day.
Spot gold added 0.8 percent to $1,867.57 an ounce.
Shrinking global economies stirs recession fears
There's some relief for investors, with U.S. stocks ending higher on Monday, following Wall Street's longest streak of weekly declines. Markets have been the victim of persistently high inflation and attempts by the Federal Reserve to rein it in. — Reuters.