Double Whammy of Higher Inflation and Interest Rates Drags JSE

  • Market Overview

The FTSE/JSE All Share Index (ALSI) lost more than 1% on Thursday amid general risk aversion, as the impact of elevated price pressures on corporate earnings in the US and the likelihood of more aggressive monetary policy tightening anchored global market sentiment. Technology stocks led to the decline of the local bourse following disappointing results by Tencent (HK: 0700 ). On the economic front, the South African Reserve Bank ( SARB ) raised its benchmark repo rate by 50 bps to 4.75%, in line with market expectations. Policymakers also revised inflation forecasts higher for 2022 and 2023 and lowered growth forecasts for 2022 on the back of rolling power cuts and devasting flooding in parts of the country.

US stocks remained in negative territory on Thursday as concerns about an aggressive monetary policy tightening cycle and slowing growth jitters continued to weigh on market sentiment. The only reprieve came from the tech-heavy Nasdaq, whose 0.50% gain stemmed from investors taking advantage of lower valuations for tech stocks.

European shares fell 1.50% on Thursday, as disappointing earnings from heavyweight US retailers underscored the knock from elevated consumer prices on the world's biggest economy. On the economic front, the Eurozone inflation rate was downwardly revised to 7.40% in April 2022, while the current account surplus narrowed to €8.7 billion in March 2022 from €39.7 billion in the corresponding month of the previous year. "The STOXX 600 is down 12% for the year as China's Covid-19 worries added to global recession fears. But as cases drop, hopes of recovery have offered some respite to investors," Reuters added.

The Shanghai Composite rose 0.36%, while the Shenzhen gained 0.37% on Thursday after a deputy mayor said, "Shanghai will start to allow more businesses in zero-Covid areas to resume normal operations from the beginning of June, as the city looks forward to the end of lockdown," Reuters reported. The session's success also came on the back of a global equity selloff prompted by fears that the economic downturn would be more uncomfortable than investors initially thought. The Chinese yuan strengthened against the dollar as hopes for a relaxation of China's strict zero-Covid policy offset disappointing Chinese economic data.

Oil prices wobbled around $110 per barrel on Thursday as investors mulled over subdued economic growth prospects and supply and demand uncertainties. Trading Economics added that "recent weak earnings results rekindled fears over the impact of inflation on growth, unleashing concerns over weakening consumption and fuel demand, just as hopes over a recovery in China were growing." Although bullion rose to $1 820 an ounce in midday trade, concerns over sluggish global growth and prospects of more aggressive rate hikes capped gains.

PSG Wealth Daily Investment Update, 20 May 2022

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