The JSE closed weaker on Tuesday as US Treasury yields rose once more and the earnings season in the world’s biggest economy gained momentum.
Bond yields reached their highest levels in 16 years after US September retail sales came in hotter than expected. Bonds have pressured the broader market in recent weeks as investors deal with the “higher-for-longer” interest rates narrative by the Federal Reserve.
The conflict in the Middle East has added a further layer of concern as investors consider the potential impact of the Israel-Hamas war on the global economy.
According to Bloomberg Economics, a wider war in the Middle East risks tipping the world economy into recession. That has added another concern to investors’ growing list of worries, including whether the Federal Reserve has finished raising interest rates.
Meanwhile, the US earnings season is gaining momentum with Goldman Sachs, Bank of America and Bank of New York Mellon financial statements coming in better than expected. Reports from other major companies, including Netflix and Tesla, are expected this week.
The latest reports follow a solid start to the season, with JPMorgan Chase and Wells Fargo posting solid results last week.
Still, analysts are warning that the optimism could be derailed by any escalation in the Israel-Hamas war.
“Sentiment is a bit shaky as good news about the economy is once again bad news, since it will keep policymakers on the fence on delivering more tightening,” said Oanda senior market analyst Edward Moya. “Treasury yields are rising after a couple of strong economic releases about consumer spending and increased manufacturing output. It seems the US economy isn’t ready to head into a recession just yet,” he added.
“The big banks are still mostly upbeat. After a round of banking earnings and spending data, the US consumer is still looking healthy,” said Moya. “Despite strong sales and production releases, the Fed won’t be raising rates at the November 1 meeting. At this point, it seems they will need to keep suggesting that they might not be done tightening.”
The JSE all share lost 0.43% to 72,831.80 points and the top 40 eased 0.37%. Retailers lost 1.48%, food producers 1.4%, industrials 1.19% and industrial metals 1.14%, but banks added 1.1%, precious metals 0.87% and financials 0.59%.
At 7.05pm, the Dow Jones industrial average was 0.12% firmer at 34,025.87 points, while markets were mixed in Europe.
The rand was firmer, gaining for the third consecutive session. At 6pm, it had strengthened 0.27% to R18.7374/$ and 0.22% to R22.8669/£, while it was little changed at R19.8423/€.
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