Stephen Gunnion
12 January 2009
Johannesburg — WORLD markets sagged on Friday after a US employment report and poor European manufacturing data signalled the global economic slump was deepening.
After marking time for most of the day, European shares sank as the US market opened weaker in response to the US labour department report that 524000 people lost their jobs last month, bringing the total number of US job losses last year to almost 2,6-million.
This drove the unemployment rate to 7,2%, its highest level in almost 16 years. Although the figures were in line with expectations - leading to an initial rally in equities - investors beat a hasty retreat as they digested the data.
The JSE closed flat, and the rand weakened to R9,82/$.
Stanlib economist Kevin Lings said the job losses would worsen troubled housing and credit markets. "Overall, the payroll data, which is typically a lagging economic indicator, is now consistent with a severe recession in the US."
Rising US unemployment is expected to crush consumer demand, one of the economy's mainstays. "You've got an incredible strain being put on the consumer in a pretty direct way," said Michael Mullaney at Fiduciary Trust Company.
Germany, Britain, France and Spain reported slumping industrial output on Friday, among them the worst figures in many years. Germany had its biggest annual fall since 1993 with a downturn among manufacturers threatening to cause the worst recession since the Second World War.
British manufacturing output slumped much more than expected in November, official figures showed. This is likely to reinforce expectations that interest rates - cut to a historic low of 1,5% by the Bank of England last week - will fall to near zero in coming months.
French industrial output kept falling in November, sliding a larger than expected 2,4% month on month on further car industry woes. The picture was worse in Spain, with industrial output down a record 15,1% year on year in November. Analysts said pressure was building on the European Central Bank to cut rates again.
On Thursday, SA posted a 4,4% fall in manufacturing output, the biggest annual fall in more than nine years, adding to evidence that the economy's second-biggest sector is in recession. In October, output fell 1,8% year on year.
The JSE's all share index closed 21 points lower at 22221 as strong gains on the banking index countered weaker gold and industrial shares. Earlier in the day, the all share traded 1,5% higher.
BoE Private Clients derivatives trader Andrew Todd said there was little follow-through from the rally, which probably sparked profit-taking and uncertainty. Volume would probably improve this week as more players returned to their desks.
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