Oil prices, inflation woes devastating for equities in September
|Published
SOUTH African and global share prices remained under pressure for the fourth consecutive week.
The sharp rise in oil prices during the month had led to warnings by central banks that higher inflation rates are on the horizon and they remain hawkish towards higher interest rates.
Brent oil had increased by $11.20 from $84.44 per barrel on August 29 to $95.64 per barrel on Friday.
Oil is up by more than 20% in the third quarter. OPEC, Saudi Arabia, and Russia, in a joint effort imposes cuts of 1.3 million barrels per day through the end of the year. This is fueling fears of a wider market deficit in the fourth quarter.
US crude inventories continued to decline by another 2.4 million barrels last week and now stands on 416.3 million barrels, the lowest total since December 2022, and are 4% below the five-year average.
All attention is now on the OPEC meeting on Wednesday October 4 for more direction on production sentiment.
US non-farm payrolls, due to be released this coming Friday, also contribute towards heightened global economic uncertainties risk that are likely to fuel the hawkish outlook by the Fed at their meeting at the end of the month (October 31 – November).
South African petrol prices are likely to increase by between 83 cents per litre for petrol and 164 cents per litre for diesel on Wednesday.
On the JSE, share prices continue to remain bearish. The ALSI lost 1.40% last week, trading lower for September by 3.04% and is now also in the red for the year to date by 0.4%.
The industrial shares continue to decline steadily each month. The IND25 index traded lower by 1.3% last week, lost 5.0% during September but still trades more than 8.0% up since the beginning of the year.
Resources also remain under pressure with the RES10 board lower by 2.3% last week but managed to grow by 1.7% last month.
The index is, however, down 18.5% down for the year-to-date. The rand exchange rate was quite volatile last week and at one stage was back to its high of the middle of last month on R19.17/$.
The currency improved strongly on Friday to close at R18.92/$, the same level as the previous Friday.
US stock markets traded down for the fourth consecutive week. The Dow Jones industrial index ended -1.34% and contracted September by -3.2%.
The index is now for the year-to-date only 1.1% higher. The S&P500 lost -0.7% last week, is down by 5.04% for September, but trades higher by 11.0% since the beginning of the year.
The NASDAQ composite index ended last week flat gaining 0.5%, but lost -5.7% over the last month, and is still 26,3% up for the year-to-date.
This Motor Industry Federation will release the new vehicle sales for September today. Various Purchases Managers Indices (PMI) locally and globally will be released this week.
Apart from the US non-farm payrolls that will be released on Friday, markets also are interested in the US crude oil stock change that will be released on Wednesday.
It is expected that the stock decreased further by 2.75 million barrels and just like last week, can place pressure on oil prices. The markets will be the most interested in how much jobs the US added last month (expected to be 163 000 against the 187 000 in August), the US unemployment rate (expected to be on 3.8%, the same as the previous month) and the hourly wage rate to be higher by 0.3% in September.
The higher wage rate can confirm the hawkish mood of the FED and points to yet another interest rate hike in November. In Europe, the European Central Bank chairlady Lagarde will deliver her speech on monetary policy and interest rates on Wednesday.
Chris Harmse is the consulting economist of Sequoia Capital Management.
BUSINESS REPORT