Mariam Isa
28 November 2008
analysis
Johannesburg — POLICY makers should take note of the significant slowdown in growth and the prospect of lower inflation when they made decisions, Reserve Bank governor Tito Mboweni said last night.
"Despite an inevitable slowdown in growth, we do not expect recession at this stage," Mboweni told diplomats in Pretoria.
"However, the significant slowing is something that policy makers have to take cognisance of."
Mboweni said the Bank was "hopeful" that news that inflation measured by CPIX fell to 12,4% last month from its peak of 13,6% in August was "the start of a consistent downward trend".
China's fourth quarter growth was seen at a three-year low
Pressure mounted on European Central Bank to cut rates
ArcellorMittal said it would cut 9 000 jobs
India's markets closed after the Mumbai attack
US markets were closed for Thanksgiving holiday
A monthly European Commission survey showed that growing pessimism in the industry and services sectors pulled euro zone economic sentiment down to 74,9 points this month - the lowest reading since 74,2 recorded in August 1993 - from 80,0 in October. With inflation expectations also falling, pressure mounted on the European Central Bank to cut interest rates.
"We envisage a first move next week on a scale of 75 basis points to 2,5%," said Commerzbank economist Christoph Weil.
Meanwhile, China's State Information Centre, a government think-tank, forecast annual growth would slow to 8% this quarter from 9% in the third quarter.
On Wednesday, US share indices closed 3%-5% higher - a fourth day of gains - as Obama named Paul Volcker, a Federal Reserve chairman in the early 1980s, to head a panel created to give the new president "fresh perspective" on the financial crisis". Federal Reserve Bank of New York head Timothy Geithner has already been selected to take over as treasury secretary, while Lawrence Summers, treasury secretary under former president Bill Clinton, also has a senior White House role. The broad-based S&P 500 index has gained 18% in the past week, its biggest four-day surge since 1933. US markets were closed for Thanksgiving yesterday and trade for half a day today.
On the JSE, shares rose for a fifth day as interest rate-sensitive retail and bank stocks helped drive the market higher after producer inflation figures for October pointed to a cut in interest rates sooner rather than later, said Jonathan Fisher, director for private clients at T-Sec. Resources shares surged 11% on hopes that China's interest rate cut would revive flagging demand for commodities.
Fisher said volumes traded on the JSE were reasonable given the holiday in the US.
"The interest in the market is spurring volumes," he said. "It's probably having some kind of relief rally after the carnage we have seen."
Fisher said the market was putting a lot of hope on the ability of Obama's new economic team to turn the US economy around.
Although the rally could have more steam left, some analysts said there was little evidence that the bear market was over.
"From a bottom-up perspective, the equity market offers some excellent companies at truly bargain prices," said Prieur du Plessis, chairman of investment group Plexus Group.
Du Plessis said the market may be set up for "the mother of all bear market rallies."
"Stocks around the world are very cheap, stock markets have been obliterated and are deeply oversold, the fabric for economic healing is developing and the US must be close to maximum bearishness," he said.
With Reuters, Bloomberg
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