JSE falls to lowest level in almost a year

JSE falls amid fears over the US economy after Wall Street suffered its worst selloff in two years

Friday,Aug05, 2011
By RON DERBY


South African stocks slumped over 3% in early morning trade to its lowest level since September last year, following global stocks lower as investors worry about prospects for the global economy and talks grow of the US entering another recession.

"Investors are pricing in a slowdown in growth and sovereign debt problems as equities drop across the board," Manoj Ladwa, senior trader at London-based ETX Capital, said today.

Globally, shares dropped for an eighth day, the longest losing streak since January 2010 and commodities fell. More than $4.5 trillion has been wiped off equity market values worldwide since July 26, according to Bloomberg.

Locally, the sell-off was wide spread with only seven stocks in the 164-member JSE All Share Index in positive territory. The index reversed early losses to trade 1,8% weaker at 10:10 a.m. local time. Diversified miners, BHP Billiton was 3,8% weaker to its lowest level in close to 11 months. Smaller rival, Anglo American was 2,4% weaker to levels last seen in October.

After dropping as much as 3,3% yesterday, the rand was relatively stable at R6,93/$1.

The most anticipated economic data today is the release of the US payroll and employment numbers, with markets expecting them to come in weak.

The data is undoubtedly the most important statistical release in the world, Rand Merchant Bank foreign exchange analysts, John Cairns and Nema Ramkhelawan-Bhana, said in research note. "Its importance increases under current circumstances; if US employment growth holds up, then this could prove to be only a "soft patch" in global economic activity. If not … then our fears will start playing out."

Macroeconomic indicators - Tsunami likely to affect global economy

Monday, 14 Mar 2011

Observers said that the earthquake and tsunami that ravaged Japan will likely have a short term effect on the global economy, shutting down Japanese factories, ports and oil refineries, but it won't derail the economic recovery.

The 8.9 magnitude quake in Japan, the world's third largest oil consuming country, forced the closure of all of the country's ports and five of its large steel mills. Car companies such as Nissan said they were closing factories until Sunday and airlines canceled flights to the country.

Ms Diane Swonk, chief economist at Mesirow Financial, said that it may seem that world events such as the turmoil in the Middle East and the Japanese tsunami are conspiring to offset the economic recovery, but the reality is that the recovery is slow because businesses are not redeploying profits rapidly. Continuing cuts to local and state governments in the US are further adding to uncertainty.

She said that "The reality is, if the economy was growing 8% to 9%, these things would be little more than noise, but they get magnified in a recovery that is very uneven. When you're on thin ice, you don't need any extra headwinds."

Still, there will be some short-term implications. Airlines have canceled flights to Japan. Production was halted at two Honda plants and at two Toyota plants, and Nissan Motor Co halted production at five plants.

Damage to steel mills might last longer. If the steel mills remain closed, demand for iron ore will drop by 20 million tons, said Jeffrey Landsberg, managing director of Commodore Research & Consultancy in New York. That will primarily affect the Australian iron ore industry and the miners there. It could also create demand for more steel from China.

Further, shipping companies might redirect their vessels as they wait to see if aftershocks and further tsunamis come after Friday's quake. In addition, if Japan's nuclear plants are shut for an extended period of time, the country will need to consume more coal, a commodity that is already at historically high prices.

Still, Mr Landsberg said, these events are relatively small in a global perspective. He said that "This is more than anything, a temporary event. I don't think it’s that long lasting impact on global recovery." (sourced:LaTimes)