Bears savage horribly rattled global markets
JSE down 6% this year already
Global equity markets are bracing for more volatility as bourses remain on the back foot following the Dow’s biggest ever daily fall on February 5.
The Dow’s recovery one day later, when the Dow rose 2.33%, proved to be short-lived as markets remain on tenterhooks about the effects of a more aggressive hiking of interest rates by the US Federal Reserve later in the year.
The Fed might pencil in four to five increases this year on the growing US economy, from three previously.
The Dow was flat in early trade on Friday, but European and Asian markets were again sharply lower on the day. The JSE closed 1.29% lower at 55,902.6 points on Friday, ending the week 4.7% lower.
The FTSE fell to the lowest level in more than 12 months, after the Bank of England expressed a hawkish forward view, as UK consumer inflation hit 3%.
US bond yields continued to rise on Friday, with the 10-year treasury bid at 2.8548 from 2.8257%. (Bond prices fall as yields rise.)
Rand Merchant Bank analyst Isaah Mhlanga said the big question now was if the market setbacks represented a sustained market correction.
The VIX volatility index has been a useful indicator in the past as a rise usually precipitates further market weakness. The VIX index spiked 37% to 49 points on February 5 but has since fallen. However on Friday it was in a rising trend again, hitting 33 points.
“This must have sparked a flight to safe-haven assets but, so far, the index does not reflect any panic,” Mhlanga said.
Investors across the globe are finding it difficult to decide whether to buy the recent dips or remain on the sidelines until the dust settles, said FXTM analyst Hussein Sayed.
Fixed income markets have started to look attractive and, if the surge in bond yields resumes, there will be more incentives to pull out from stocks to bonds, he said.
The Dow is now more than 3% lower in 2018 and the JSE has lost 6.05%.