Weekly Markets – 03/08/08 – Markets cannot sustain the short recovery
2007/12/31 Index Name 2008/07/27 2008/08/02 Week % YTD % 12 Month Rolling %
13365.87 Dow Jones IA 11,370.69 11,326.32 -0.39 -15.26 -14.08
2674.46 NASDAQComp 2,310.53 2,310.96 0.02 -13.59 -7.98
1478.49 S&P 500 1,257.76 1,260.31 0.20 -14.76 -12.05
854.78 Russell 3000 735.13 737.56 0.33 -13.71 -11.00
8067.32 Frankfurt DAX 6,436.71 6,396.46 -0.63 -20.71 -13.98
6476.90 London FTSE 5,352.60 5,354.70 0.04 -17.33 -13.97
5627.25 Paris CAC 40 4,377.18 4,314.34 -1.44 -23.33 -22.93
15307.78 Tokyo NIK 225 13,334.76 13,094.59 -1.80 -14.46 -22.88
5261.56 ShanghaiComp 2,865.10 2,801.82 -2.21 -46.75 -38.57
29635.00 Jhb ALSI 26,996.00 26,505.00 -1.82 -10.56 -3.90
838.48 Gold $/oz 929.25 910.80 -1.99 8.63 35.84
94.16 Oil $/barrel 123.72 123.34 -0.31 30.99 64.10
6.82 Rand/US$ 7.58 7.26 4.22 -6.45 -2.54
13.58 Rand/Sterling 15.06 14.30 5.05 -5.30 0.90
10.04 Rand/Euro 11.87 11.25 5.22 -12.05 -15.38
1.993 $/Sterling 1.99 1.98 0.50 0.65 2.94
1.473 $/Euro 1.57 1.56 0.96 -5.57 -12.68
112.420 Yen/$ 107.90 108.23 -0.31 3.73 8.30
1.353 Euro/Sterling 1.27 1.27 0.00 6.13 14.19
The week from a global perspective
Concerns inglobal equity markets over slow growth seem to be dominating the market. Yesterday’s US GDP data showed that the economy expanded 1.9% qoq between March and June. Although, a respectable figure, it was lower than market expectations (2.3% qoq). The main driver of growth, as expected, has been the export sector, while the fiscal stimulus helped personal consumption to increase 1.5% from the previous quarter. In addition, continued weakness in the labour market will still weigh on the economy.
On Wednesday 30th July, President Bush signed into law a sweeping rescue package aimed at resurrecting the US housing market from its worst slump since the Great Depression and stabilizing the two largest mortgage finance companies. The new law launches a $300 billion government initiative to refinance troubled mortgages, and boosts oversight of Fannie Mae and Freddie Mac, which own or guarantee almost half the country’s $12 trillion in home mortgage debt.
The Fed has extended the Primary Dealer Credit Facility, the access it granted investment banks to its discount window emergency cash around the time of the Bear Stearns rescue, until Jan. 30. It has extended another credit, called the Term Securities Lending Facility and which is also designed for investment banks, by the same amount of time. In addition, it is offering to auction options on the TSLF around tricky funding periods like quarter-end, and is introducing an 84-day Term Auction Facility to compliment an existing 28-day TAF, and has increased its swap line with the European Central Bank. All of these liquidity measures announced on Wednesday 30th July continue the process of healing the severely injured global credit markets.
In Europe, the ECB continues to face a dilemma as it deals with a slowing economy and higher inflation. This past week economic confidence, a leading indicator for economic growth, dropped a staggering 5 points in July to levels not seen since 2002. While prices continued to increase in July, even as oil prices stabilized, inflation reached a new high at 4.1%.
The US$ fell slightly from near a five-week high against the Euro this morning as oil prices jumped above $126 a barrel, surrendering some of the gains scored last week after data showed US companies cutting fewer workers than expected.
Crude oil prices rose on renewed tensions over Iran’s nuclear program and strong refiner buying in gasoline.
The week from a South African perspective
The JSE ended deep in the red following similar drops in overseas markets, with miners among the worst causalities on tumbling commodity prices. South African near-dated futures plummeted as a combination of a strong rand, a downturn on Wall Street and a slide in the platinum price conspired to drag the market lower.
Gold traded little changed above $900 in Asia this morning as the US$ held near a one-month high against the Euro and Yen, while crude oil prices rose, boosting demand for haven investments.
Platinum group metals got knocked to their lowest levels in half a year as a massive quarterly loss reported by General Motors added to worries about the auto sector that were already pulling down prices.
The Rand continued to firm against the US$ on Friday, hitting a new 6-month high around the R7.26 level, boosted by a strong performance by emerging market currencies and investor appetite for risk. The likelihood of it maintaining these levels is very low with equity market sentiment turning negative again. As far as the headlines over the weekend about Thabo Mbeki’s involvement in bribes during the arms deal, surely this can only weaken the local currency? That said, foreign investors don’t seem too perturbed about this sort of news, all they seem to act on is news which could lead to them losing their own money.
South African bonds were firmer late afternoon on Friday, buoyed by the firmer Rand and some short covering.
The week ahead
– Johannesburg, NAAMSA releases July new vehicle sales data
– Washington, US Fed holds its one day meeting on interest rates
– Sydney, Reserve Bank of Australia board meeting and interest rate decision
– Johannesburg, COSATU plans a national strike against job cuts related to power shortages & against high fuel and food costs!?
– Pretoria, Stats SA releases June manufacturing data
– Pretoria, SA Reserve Bank releases July reserves data
– London, Bank of England monetary policy committee announces interest rate decision
– Frankfurt, ECB governing council meeting followed by interest rate announcement
– Beijing, The Olympic Games begin (to 24 August)