Rand, rates and petrol to be hit by global crisis
Expert says changes will not be good
September 30, 2008
By Tony Munroe
A further global collapse in financial markets that would tip the United States economy into a painful recession is on the cards, threatening to drag the rest of the world down with it.
South African markets took a pounding yesterday, hit by a global stocks fall and a flight from risk, with investors worried about the stability of US and European banks.
The Johannesburg Top-40 index skidded 6.12 percent - its biggest one-day fall in a decade - to 21 007.17 points, the lowest closing level since October 2006, while the broader All-share index fell 5.76 percent to 23 087.67 points.
The rand tumbled against the dollar on risk aversion and despite a surge in the price of gold, a key export.
This morning R8.32 would buy you one dollar.
Recession fears mounted and investors raced for safe havens, after US lawmakers unexpectedly rejected a $700 billion (R5.6 trillion) bail-out plan for the financial industry, but Asian stocks trimmed deep early losses after Wall Street's biggest fall since the crash of 1987.
A week that started badly with the rescue of three banks in Europe and the distressed sale of big US lender Wachovia to Citigroup grew worse after the US Congress was unable to agree on a rescue package.
"It is hard to imagine what will happen. It is kind of scary," said Masayoshi Okamoto, head of dealing at Jujiya Securities in Tokyo.
"In particular, European banks were putting up a front that nothing was wrong, but now they are falling one after another."
Shares in Asia recovered from early lows, but were still down about 3 percent.
Share prices in Australia and New Zealand plunged and Australian Prime Minister, Kevin Rudd, urged US lawmakers to return to negotiations urgently to come up with a deal that would prevent further infection of world markets.
"This is a bad development," Rudd told reporters in Australia's capital, Canberra. Rudd said Australia's banking system was better regulated than the US system and was better prepared for financial shocks, but that the failure was another worrying sign in already tough times.
"The attitude that we will adopt, and I believe other friends and allies of the United States will adopt, is to urge the United States Congress to pass this or a similar measure when it is represented to the Congress later this week," he said.
Iraj Abedian, chief executive officer of Pan-African Capital Holdings, said it was difficult to be dogmatic about what was expected in the near future in South Africa.
He said economists would have to see how matters unfolded in the next four or five days before providing solid comment on how the South African economy would be affected.
Value
"The most important thing right now is to watch the rand value, and as we can see, it has already lost quite a bit of value. That does not go well for inflation. The JSE will also follow suit and there will also be loss of value. This will definitely impact on the currency," he said.
Abedian said as a result of the rejection of the US bailout plan, South Africans should expect some negative impacts on interest rates and petrol prices.
"The changes would not be good," he said.
Uncertainty about what comes next, and whether Washington can come up with compromise legislation to relieve the worst financial crisis since the Great Depression, sent investors into gold and US Treasuries.
Oil fell on fears of further economic slowdown, and the Japanese yen hit a 4-month high. Investors worried that "We do not rule out a US recession being deep and long and having a severe global impact," said Gerard Lyons, chief economist at Standard Chartered in London.
However, Kansas City Federal Reserve Bank president, Thomas Hoenig, said that despite a sense that "the sky is falling", the US economy was resilient and would emerge stronger from the current credit crisis.
US President George Bush was scheduled to make a statement on the rescue package today, after meeting yesterday with economic advisers to consider the administration's next move.
"I was disappointed in the vote that the United States Congress (had) on the economic rescue plan," Bush said in Washington. "Our strategy is to continue to address this economic situation head-on and we will be working to develop a strategy that will enable us to continue to move forward."
Supporters and opponents complained about the way the administration presented the proposal as an urgent demand, accompanied by warnings of potential economic collapse, after years of sky-rocketing Wall Street bonuses, abusive mortgage lending, and regulatory neglect by the administration.
Global central banks scrambled to relieve a severe squeeze in money markets by more than doubling the amount of dollar funding to $620 billion (R5 trillion) as banks hoarded cash, bracing for more trouble ahead in the worsening credit crisis.
In moves to arrest market slides, regulators in South Korea banned short-selling of stocks and Taiwan said it would place tighter limits on short-selling, while Hong Kong said it was ready to take aggressive measures against abusive short sellers. - Reuters
|
|
