Anthea Gardner, Founder and Managing Partner at Cartesian Capital

It’s not often we see a day like the Monday we’ve just experienced. In fact, some markets have not seen such a huge negative move since Black Monday in October 1987 (and what followed was the first of the modern global financial crises) – we’ll talk in a minute about the catalyst, but I do need to point out that the Japanese Nikkei ended a shocking 12.4% lower on the day.

This was as a result of the compounding of Friday’s disappointing non-Farm payrolls, a very slightly higher unemployment number in the US (if only we had the problem of 4.3% unemployment in South Africa instead of the 33% we are currently experiencing), indications of a US recession and general risk-off sentiment.

If I may, let me remind you that the official definition of a recession is 2 consecutive negative quarters of GDP growth. The US’s last GDP print was 2.8% – again, we, in South Africa, can only dream…

Back to Japan, how did a one day negative 12.4% move on the Nikkei happen?

While almost every other Central Bank in the world is talking about cutting interest rates, the Bank of Japan (BoJ) raised interest rates for the first time in 17 years in March; but wait, there’s more, last week they raised interest rates again! Here’s a clue to why the Nikkei fell an astonishing 12.4% today, money flows to higher yields, in other words, money will flow to the higher interest rate, resulting in a stronger currency; which, in theory, sounds like a great idea. But when you’re Japan, and higher interest rates hurt your exporting companies (goods now cost more for foreigners, and inevitably, those foreigners will prefer to buy cheaper goods from other countries – maybe like China or South Africa if we were ahead of the manufacturing game) – your future does not look at all rosy.

That’s Japan in a nutshell, but the US?

Are things so bad that a trillion dollars (yes, that’s $1,000,000,000,000) was wiped off the value of the magnificent seven in the first hour of trading in the US? In case you’re as old as me, and in your mind the Magnificent Seven is a cowboy movie starring Yul Bryner, Steve McQueen and Charles Bronson, let me tell you that the modern day magnificent seven are seven tech stocks (Alphabet (nee Google), Amazon, Apple, Meta (the old Facebook), Microsoft, Nvidia and Tesla) that climbed a collective 75.5% last year, while the S&P500 was up a decent 24%; and 60% of that 24% climb was thanx to the magnificent seven; the same magnificent seven that lost a trillion dollars in value in the first hour of trading today.

I’m tempted to say “bulls and bears, who cares”; but our local market fell 2%, our bonds came under significant pressure, and our Rand, which traded at 18.15 to the US dollar on Friday, traded all the way to 18.66 on Monday – and we are not Japan. Because we are a net importing country, a weaker Rand really does hurt us by having an inflationary impact on goods. We’ve just spent more than two years fighting the inflation monster with higher interest rates, and I do not have to tell you how much more your grocery basket costs, and how about that debt (mortgage, store cards, credit cards, car payments)? It’s eye watering, to say the least.

And the upside of the US worrying about a recession… rate cuts (because possibly that could be what it takes to keep their economy out of recession). For us, this could mean a stronger Rand, or that our South Africa Reserve Bank’s Monetary Policy Committee could feel that they have the leeway to also cut rates (I can almost hear that collective consumer sigh of relief as you read this). Lower interest rates also means that our indebted companies can perform better, and you and I can afford that little weekend treat, or pay down our debt.

I feel that every article needs a conclusion – but you tell me… is this a hurricane of recessionary fears, a storm in a teacup – or lower interest rates combined with improved electricity supply, an improved Transnet and an accountable government… South Africa’s Goldilocks Moment?

ENDS