Stephen Gunnion
14 January 2009
Johannesburg — FALLING commodity prices, slumping company profits and continuing poor economic news sent markets into a tailspin again yesterday, with the JSE shedding almost 4% at its worst as it followed the lead of falling Asian and European markets. After weakening to R10,19/$, the rand recovered to R9,98/$ yesterday evening.
London Brent crude oil fell below $42/barrel, but recovered later to $43 after Saudi Arabia said it would make deeper supply cuts than those announced by the Organisation of Petroleum Exporting Countries last month . But copper fell 4%, dragging all industrial metals lower, after reports said China was in no hurry to restart its copper buying programme and as demand worries continued.
Falling share prices over the past few days have now wiped out all this year's gains as investors retreat from perceived risky investments. Doug Blatch, head of equities trading at Investec Asset Management, said that, following the rally at the start of the year, the markets had taken a reality check.
"Economic data is generally pretty poor, and corporate data too," Blatch said. He said the market was also concerned about the longer-term costs of the huge stimulus packages being announced globally.
Worse than expected results from Alcoa late on Monday gave investors a glimpse of how badly companies were being affected by the global slowdown, with the US aluminium giant reporting its first quarterly net loss in six years.
Japan's Sony Corporation slumped 9%, dragging the Tokyo market down almost 5%, after it was reported the company would post an operating loss of $1,1bn this year, the first in 14 years. The Wall Street Journal reported that US banking group Citigroup could report a fourth-quarter operating loss of more than $10bn.
"It was quite a big miss from Alcoa," said Kully Samra, an analyst at Charles Schwab. "There is still a lot of uncertainty on commodities and the economy."
Meanwhile, a World Economic Forum study released yesterday said a further collapse in the price of assets -- such as equities and houses -- was the largest risk facing world economies this year. The Global Risks 2009 report said most countries face a "grim" economic outlook, with markets remaining volatile, unemployment rising and consumer and business confidence falling to record lows.
As US president-elect Barack Obama moved to have the remaining $350bn from the financial bail-out package released, Federal Reserve chairman Ben Bernanke said fiscal stimulus alone would not promote a lasting US economic recovery, and further steps to shore up banks may be needed. "Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilise and strengthen the financial system," Bernanke said.
A large quantity of distressed assets on bank balance sheets made it difficult for banks to raise capital and lend, he said.
Meanwhile, Germany presented a stimulus package aimed at saving Europe's largest economy from its worst recession since the Second World War. Germany's € 50bn plan is its second such package in as many months and includes a mixture of investment spending and tax cuts including incentives for new car purchases.
Blatch said resources stocks had weighed heavily on the JSE -- with Anglo American falling 4,3% and Billiton down 2,3%. The platinum index fell 10,7% as the price of the metal dropped to $937/oz.
The all share index ended 2,8% lower at 21 564. In New York, the Dow Jones index was 0,2% weaker , while London's FTSE 100 was down 0,8% and the CAC-40 was 1,6% lower.
With Reuters, AP
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