Market and economic wrap - Is a global recession around the corner?
Last week global stock markets bounced back, with all major indices ending the week on a positive note. Equities rallied following the release of the Federal Open Market Committee (FOMC) minutes which highlighted the Fed's commitment to bring down multi-decade high inflation. In the US, the NASDAQ and S&P 500 gained 4.6% and 1.9%, respectively. A similar trend was seen across European stocks, with the French CAC and German Dax up 1.7% and 1.6%, while the FTSE 100 gained a softer 0.4% from the previous week's close. On a year-to-date basis, all major equities remain deeply in the red, with the NASDAQ shedding the most in the US and the German Dax recording the most significant loss in European markets.
In the currency markets, the euro fell to a 20-year low against the US dollar amid rising concerns that Russia could cut off gas supplies to the region and drive the Eurozone into a recession. Despite the resignation of Britain's Prime Minister and several other cabinet members, the British pound ended the week slightly stronger as investors remained hopeful that new government officials would foster better growth policies.
Meanwhile, the Japanese yen ended the week 0.7% lower against the dollar as the assassination of the former Prime Minister negatively impacted the currency. Since the start of the year, the Japanese currency has lost more than 15% against the dollar amid diverging monetary policy positions between the Bank of Japan and other major central banks.
The benchmark Brent crude oil price fell for the fourth consecutive week as global recession fears and the resurgence of Covid-19 cases in China and India outweighed concerns over tight oil supply. Oil prices lost 0.1% over the week and are now 11.7% lower over the past four weeks.
Last week the rand weakened to its lowest level against the dollar since September 2020 after a stronger-than-expected jobs report in the US backed expectations that the Federal Reserve (Fed) would maintain its aggressive monetary policy stance. The Rand lost 2.2% against the dollar and also shed a significant 2.4% against the British pound. Concerns also persisted over intense power outages and protests in certain parts of the country over rising fuel costs. Over the past four weeks, the Rand is trading 6% weaker against the major currencies.
In the domestic equity market, the JSE all-share index (ALSI) tracked global equities higher. The ALSI gained a substantial 4.1% over the week, propped up by solid gains in the industrial and basic material stocks. Basic material stocks ended the week 5.8% higher, while industrial stocks gained almost 4% from a week earlier.
Fitch Ratings affirmed its long-term foreign currency rating at BB- with a stable outlook. The rating agency expects the general government debt stock to rise to 75.9% in FY2024/25 and increase further after that. Eskom's debt remains the key risk to the debt trajectory, with Fitch expecting bailouts for Eskom to total R150 billion over the coming years, although it was uncertain about the exact timing.
The National Planning Commission urged that load shedding be ended within two years by constructing 10 000 MW of new generation capacity and 5 000MW of storage capacity. They proposed scrapping the 100MW embedded generation ceiling and providing a temporary exemption from local content requirements for construction and commissioning of new energy projects due within the next 36 months.
We caution investors to stick to their long-term investment plans, even as markets are volatile over the shorter term.
Stay safe and stay healthy. Till next time.