Stephen Gunnion
8 January 2009
Johannesburg — WARNINGS of more severe job losses put the brakes on the New Year stock market rally yesterday as the bleak outlook for global economic growth and company earnings eclipsed a raft of stimulus packages and interest rate cuts around the world.
After strong gains over the past two weeks, the JSE fell as much as 1,5%, following the lead of mostly weaker Asian and European markets. The rand weakened to R9,49/$.
Asian markets were mixed, with Japan adding 1,7%, but Hong Kong sliding 3,4%.
In India, the Bombay Stock Exchange's Sensex tumbled 7,3% after software developer Satyam Computer Services said profits had been inflated for years, heightening concern about corporate governance in that country.
Satyam's share price plunged 78%.
European share prices were also softer, while the US opened more than 1% weaker after a private report revealed job losses last month were worse than expected.
Although some traders described the fall as a "healthy correction" after the recent rise in equity prices, there were predictions that stock markets could fall sharply once again, retesting last year's lows.
"The fourth-quarter reporting season will bring a huge wave of bad news flow," said Bernd Meyer, head of European equity strategy at Deutsche Bank.
"A sustained upswing in the equity market is not likely in the shorter term of the next two or three months."
With economic turmoil taking its toll on corporate profits, more companies responded by reducing their workforces:
Two days before the US releases employment data, ADP Employer Services revealed that companies made almost 700000 workers redundant last month as the recession plaguing the US headed into its second year. In Germany, unemployment rose for the first time in three years, by 114000 to about 3,1-million.
US aluminium producer Alcoa and British retailer Marks & Spencer were the latest of a growing number of big groups to slash jobs due to falling demand in the face of the global economic downturn.
Alcoa said it planned to slash more than 15000 jobs, halve capital spending and sell four businesses as it reduced aluminium production. Aluminium is used extensively in vehicle production, and a slump in car sales globally has reduced demand for the metal.
Marks & Spencer said it would cut more than 1000 jobs in a bid to save money in a tough trading environment.
As unemployment rose around the world, British Prime Minister Gordon Brown announced plans to spend £140m to create an extra 35000 apprenticeships.
On Sunday, Brown pledged to ease the pain of recession by creating about 100000 jobs through a public works scheme.
China announced measures to help millions of recent graduates find work with the jobs outlook grim and the global crisis exacting a heavy toll.
US president-elect Barack Obama plans to spend as much as $775bn on tax relief and public works programmes to spur the US economy and replace some of the 2-million jobs lost in the past year.
On the JSE, the all share index closed 0,9% lower at 22719, with only gold and platinum stocks ending higher.
In New York, the Dow Jones index was 2% weaker in early evening trade, as earnings concerns at Time Warner and Intel added to employment worries.
London's FTSE 100 was 3,4% lower and the Paris CAC-40 was down 2,2%.
Hennie Fourie, a trader at PSG Konsult, said he was not concerned about the fall. "We've had a good start to the new year. I think it was a bit of profit-taking, that's all," Fourie said.
Volumes had started to improve as investors returned from their holidays, with more than R6bn in shares traded by 4pm, Fourie said.
Although markets could still fall from current levels as the full extent of how the economic downturn was affecting company profits became clear, Fourie said they were unlikely to return to the lows hit in October and November.
"The worst is definitely over, although there might be one or two more surprises," he said.
Gold and platinum shares had bucked the negative trend on the JSE, rising as the price of gold and platinum benefited from a slightly weaker dollar, Fourie said.
With Reuters, Bloomberg
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