Stephen Gunnion
13 November 2008
Johannesburg — MARKETS were rattled yesterday as more companies slashed profit forecasts and economic data continued to point to a long global recession.
However, expectations of more interest rate cuts in the UK and German bank Dresdner Kleinwort saying the peak of the financial crisis had passed helped ease fear.
At home, the rand weakened to R10,56/$ and JSE share prices fell for a second day.
Analysts said investors feared the financial crisis would wreak havoc at the world's biggest companies.
Worries that General Motors could go bust have brought into sharp focus the effect of the global credit crunch on corporate America. In Asia and Europe, there was evidence of the credit squeeze hitting companies.
In London, BGC Partners analyst Howard Wheeldon said: "Make no mistake, it does not matter where you live and work around the world, allowing GM to fail would affect each and every one of us and each and every economy too."
In the US, the world's largest electronics retailer, Best Buy, fell 13% as it cut its profit outlook, underscoring strains confronting consumers.
But the UK market was cushioned by the Bank of England saying it was prepared to cut interest rates again. Better than expected profits at supermarket chain Sainsbury soothed investors after unemployment statistics showed the biggest rise in people with jobless benefits in 16 years.
The government said the nation should prepare for worse as the economy headed for its first full-year contraction since 1991.
Employment Minister Tony McNulty said: "We're not at the bottom of the downturn. We're in tough times."
Oil prices plunged after the Bank of England said Britain was probably in recession and top German experts said Europe's biggest economy would see no growth next year. Germany is expected to admit today it is in recession.
London Brent crude fell $0,82 to $54,89 a barrel.
"Markets are going to remain volatile for the rest of the year," said Royal London Asset Management fund manager Kevin Lilley. "The macro picture continues to deteriorate but much of that is priced into the market already."
Craig Pheiffer, head of investments at Absa Investments, said equity markets were still trying to find a floor. The JSE's bellwether stocks had also been volatile, including counters such as Anglo American, indicating foreign sellers were still active. "There has been fairly indiscriminate selling over the past few weeks and large cap stocks have come under pressure," Pheiffer said.
So far, resources and some industrial shares have been affected the worst by economic turmoil due to their uncertain profit outlook.
It was hard to forecast earnings for resources groups when commodity prices remained volatile.
On the JSE, the all share ended 2,1% weaker at 19671. The rand came off its lows and was at R10,52/$. In New York, the Dow Jones was 3,3% lower in early evening trade, while London's FTSE 100 was down 2,2% and the Paris Cac-40 was 3,2% lower.
With Sapa, Bloomberg
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