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Johannesburg - After Thursday’s initial euphoria on the JSE, sparked by stronger markets worldwide, the sentiment changed drastically overnight.
On Friday morning the major indices on the JSE dropped dramatically and it seems there is a bigger sense of realism among investors that the economy is in dire trouble, and that a rally based on cheap money from abroad seeking higher yields is unsustainable.
Wall Street was also down on Thursday night and the Standard & Poor’s index posted its largest percentage decline in six months, on concerns about the strength of the global economy and its effect on corporate earnings. The slide dragged the benchmark to below its 150-day moving average for the first time since November 2012.
The JSE followed and by midday on Friday the All-share index was 1.77% lower at 47 279 points and the Top 40 index fell 1.79% to 42 143 points, plunging through support levels and approaching another critical point which must be held for the market to rebound.
Thursday’s rally was sparked by the minutes of the September meeting of the Federal Reserve, interpreted by the market as an indication that US interest rates will stay low for a long time. This means investors will seek higher yields in stock markets, including emerging markets, to earn higher yields than the record low interest rates in the developed world.
But on Thursday that enthusiasm was dampened by comments from a Fed official who suggested investors had unrealistic expectations about the bank's eventual rate increase.
St Louis Federal Reserve Bank president James Bullard said he was concerned by the market's view of the Fed's rate increase path and the central bank's own view. “The markets are making a mistake,” he said.
At the same time the latest data indicated that Europe’s biggest economy, Germany, is also slowing down drastically. German exports in August experienced their biggest tumble since January 2009, and reports earlier in the week showed steep drops in industrial orders and output.
It drew investors' attention back to the state of the world economy, which was highlighted earlier this week when the International Monetary Fund drastically downgraded its growth forecasts for the world’s top economies.
Ths sparked renewed investor concerned over about company earnings in a depressed economy and the influence the stronger dollar will have on US companies' earnings abroad.
Imara SP Reid said in its daily Market Snapshot that the negative lead provided by Wall Street on Thursday, coupled with selling pressure in Asia, created a negative backdrop for local equities and further selling pressure is likely to materialise.
The local market started losing steam on Thursday afternoon and the inability of the Top 40 index to hold at the first support level of 42 960 strengthened the possibility that the index will drop down towards 41 800. By midday the Top 40 index was firmly on its way to that critical level.
It seems that Thursday morning’s rally was the ideal opportunity for investors to take profits, which pushed prices further down.
Imara SP Reid said the market is now entering a period of volatility that creates trading opportunities, but a great deal of circumspection is now necessary.
All the indices were sharply lower with the Resources index 2.91% weaker than on Thursday. The Industrial index lost 1.39% and the Financial index 1.65%. The volatile Gold index was 3% lower after gaining 5% on Thursday.
In the resources sector double-listed shares traded lower. Anglo American [JSE:AGL] lost 2.84% to R234.75 and BHP Billiton [JSE:BHP] was 2.67% softer at R289.17.
In the industrial sector Naspers [JSE:NPN] lost 1.64% to R1 216.75 and SABMiller [JSE:SAB] 0.43% to R588.56.
- Fin24
On Friday morning the major indices on the JSE dropped dramatically and it seems there is a bigger sense of realism among investors that the economy is in dire trouble, and that a rally based on cheap money from abroad seeking higher yields is unsustainable.
Wall Street was also down on Thursday night and the Standard & Poor’s index posted its largest percentage decline in six months, on concerns about the strength of the global economy and its effect on corporate earnings. The slide dragged the benchmark to below its 150-day moving average for the first time since November 2012.
The JSE followed and by midday on Friday the All-share index was 1.77% lower at 47 279 points and the Top 40 index fell 1.79% to 42 143 points, plunging through support levels and approaching another critical point which must be held for the market to rebound.
Thursday’s rally was sparked by the minutes of the September meeting of the Federal Reserve, interpreted by the market as an indication that US interest rates will stay low for a long time. This means investors will seek higher yields in stock markets, including emerging markets, to earn higher yields than the record low interest rates in the developed world.
But on Thursday that enthusiasm was dampened by comments from a Fed official who suggested investors had unrealistic expectations about the bank's eventual rate increase.
St Louis Federal Reserve Bank president James Bullard said he was concerned by the market's view of the Fed's rate increase path and the central bank's own view. “The markets are making a mistake,” he said.
At the same time the latest data indicated that Europe’s biggest economy, Germany, is also slowing down drastically. German exports in August experienced their biggest tumble since January 2009, and reports earlier in the week showed steep drops in industrial orders and output.
It drew investors' attention back to the state of the world economy, which was highlighted earlier this week when the International Monetary Fund drastically downgraded its growth forecasts for the world’s top economies.
Ths sparked renewed investor concerned over about company earnings in a depressed economy and the influence the stronger dollar will have on US companies' earnings abroad.
Imara SP Reid said in its daily Market Snapshot that the negative lead provided by Wall Street on Thursday, coupled with selling pressure in Asia, created a negative backdrop for local equities and further selling pressure is likely to materialise.
The local market started losing steam on Thursday afternoon and the inability of the Top 40 index to hold at the first support level of 42 960 strengthened the possibility that the index will drop down towards 41 800. By midday the Top 40 index was firmly on its way to that critical level.
It seems that Thursday morning’s rally was the ideal opportunity for investors to take profits, which pushed prices further down.
Imara SP Reid said the market is now entering a period of volatility that creates trading opportunities, but a great deal of circumspection is now necessary.
All the indices were sharply lower with the Resources index 2.91% weaker than on Thursday. The Industrial index lost 1.39% and the Financial index 1.65%. The volatile Gold index was 3% lower after gaining 5% on Thursday.
In the resources sector double-listed shares traded lower. Anglo American [JSE:AGL] lost 2.84% to R234.75 and BHP Billiton [JSE:BHP] was 2.67% softer at R289.17.
In the industrial sector Naspers [JSE:NPN] lost 1.64% to R1 216.75 and SABMiller [JSE:SAB] 0.43% to R588.56.
- Fin24
