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Weekly Commentary - 11 February 2021

Weekly Market Commentary    

Romancing the Vial

What Made The Headlines ...

 

On the 1st of February, a hopeful country welcomed a plane loaded with 1 million doses of vaccines produced by AstraZeneca and Oxford University.  A week later, the rollout of the vaccine was paused. A limited study said the vaccine provided only "minimal protection" against contracting mild to moderate infections of a new coronavirus variant that is widespread in South Africa, where it was first detected. The variant has since been found in at least 30 countries.

 

As Minister Mkhize woos Johnson & Johnson and Pfizer for an alternative, he said the government might sell or swap its doses of the AstraZeneca Covid-19 vaccine.

Meanwhile, the World Bank commits $12bn for vaccinations in Africa.  The cost of vaccinating 60% of Africa's 1.3bn people would be between $10bn and $15bn.

 

Donald Trump's second impeachment trial opened Tuesday with Democrats showing harrowing video footage of his supporters' the 6th of January assault on the U.S. Capitol, where they smashed down doors, broke into the Senate chamber and led riots that left five people dead. Trump faces a single charge of inciting the insurrection after he told enraged Republican supporters near the White House to "fight like hell."  Securing a conviction is highly unlikely, as the Democrats would need 17 Republican senators to vote with them to make a two-thirds majority.

 

Telkom Business yesterday launched unlimited voice plans for a limited time as a lifeline for small business owners amid Covid-19 financial distress that would help its subscribers to save on calls by almost 30%.

 

"For a limited time, small business customers will receive unlimited voice call plans at just R199 per month. This offering includes monthly line rentals as well as usage, saving the average customer about 30% of their average rental and usage costs," Telkom Business said.

 

 

Global Weekly Commentary

 

South Africa

 

Taxes will be the main focal point when Finance Minister Tito Mboweni delivers the 2021/22 Budget as the government needs to fund the Covid19 vaccine programme amid muted economic growth.  The government estimates that the Covid-19 vaccination programme could cost at least R20bn as more than 40 million citizens need to be vaccinated to achieve herd immunity.  This expenditure could push the government's borrowing levels even higher, and closer to 95.3% of GDP forecast for 2025, from the current 81.8% of GDP.

 

Anglogold Ashanti, the world's third-largest gold producer, forecast a two-fold increase in headline earnings for the year ended December 2020 on the strong bullion price despite the lower output following the sale of its South African assets and the impact of Covid-19 on its operations.  The group flagged headline earnings of between $962mn (R14.2bn) and $1.037bn, compared with $379m a year earlier, and said it expected headline earnings a share to be between U.S. 229c and U.S. 247c compared to U.S. 91c in 2019.  Total basic earnings from continuing operations were likely to be between $910m and $982m, up from $364m a year earlier, resulting in total basic earnings per share from continuing operations of between U.S. 216c and U.S. 233c from U.S. 87c in 2019, said AngloGold.  AngloGold sold its sole remaining South African operations, Mponeng, the world's deepest, and Mine Waste Solutions, to Harmony for $300m in efforts to streamline its portfolio.

 

Yesterday, Africa's biggest mobile operator MTN announced that it had sold its 20% stake in Belgacom International Carrier Services (BICS) for R1.8bn to Belgian digital services provider Proximus as part of a process to dispose of non-core assets.  MTN, whose net debt stood at R70.9bn at the end of June last year, said that the transaction proceeds would go towards paying down U.S. dollar debt and general corporate purposes.  BICS is one of the world's biggest providers of roaming services and has been MTN's preferred provider for international voice and messaging services to and from the rest of the world for years.

 

BNP Paribas forecast that South Africa's main budget deficit could narrow by two percentage points due to a more favourable base for revenues.  In a research note, BNP senior economist Jeff Schultz said that revenue overshoots and expenditure cuts would help shore up the fiscus. "That said, the National Treasury's ambitious non-interest expenditure cuts targeted could dent some of the credibility of the improved consolidation trajectory, given our view that a new public sector wage agreement is unlikely to be finalised until the second half of 2021."

 

South Africa's main budget deficit is expected to be R707.8bn, or 14.6% of gross domestic product (GDP) in the 2020.21 financial year, due to gross loan debt of R3.97tn, or 81.8% of GDP.  Recent predictions have shown that South Africa may experience a revenue overrun of more than R100bn in 2020/21.  Revenue rose to R176.4bn despite a depressed economic climate.  Last month the Treasury had R378bn in cash, R43bn more than expected due to government bonds' overissuance in recent months.

 

According to a local commerce group, South Africa should speed up its coronavirus vaccination program and implement economic reforms to avoid further damage after virus restrictions pushed business confidence to a 35-year low in 2020.  An index compiled by the South African Chamber of Commerce and Industry showed average business confidence declined to 86.5 last year from 92.6 in 2019.  That's the lowest annual number since 1985, when the United Nations Security Council called on members to introduce more far-reaching economic sanctions against South Africa over its apartheid policies.

 

 

United Kingdom

 

The Bank of England's threat of negative interest rates will encourage market-wise investors to increase their exposure to U.K. stocks.  The prediction comes as the U.K.'s Central Bank committed to leaving interest rates unchanged at 0.1% and maintaining its quantitative easing agenda (Q.E.) – the BoE's programme buying government bonds and corporate bonds.

 

Should the BoE decide ultimately to take rates below zero, as already tried in the European Union and Japan, it would be the first time they have done so since the Bank was founded in the 17th century.

 

British Airways unveiled a partnership with U.S. startup LanzaJet to produce jet fuel aimed at cutting carbon emissions from 2022.  "Despite the crisis in global aviation, it is vital for our future that we continue to address climate change and we remain focused on playing our part to reduce the impact we have on the planet," B.A. chief executive Sean Doyle said in a statement.  B.A., owned by aviation giant IAG, will invest an undisclosed amount in LanzaJet, which starts building its first commercial plant in the U.S. state of Georgia later this year.  The investment is part of B.A.'s ambition to become a net-zero carbon company by 2050. 

 

B.P. and Energie Baden-Wuerttemberg AG (EnBW) of Germany are paying £900m for entry into the U.K. offshore wind market with two 60-year leases, around 18miles off north-west England.  CEO Bernard Looney said the development would deliver on B.P.'s requirement for an 8-10% return on its investment "at a minimum".  The two companies will form a 50-50 joint venture to operate and develop the leases, expecting to make four annual payments of £231million before a final investment decision is made.

 

The cost to companies of "final salary" style pension schemes could fall by as much as GBP60.00bn because of its impact Covid-19, according to a new analysis.

 

Retail sales across all sectors in the U.K. recorded a rise of 7.1% on an annual basis, in January. In the prior month, retail sales across all sectors had risen by 4.8%.

 

 

Europe

Spain has attracted more than EUR65.00bn in orders for a new 50-year bond on the same day Italy's borrowing costs reached a historic low, underscoring the sizzling conditions in Europe's debt markets.

 

Foreign visitors to Spain plunged 77.3% in 2020 from a year earlier, as the pandemic and travel restrictions decimated tourism.  Spain received 19 million international tourists last year, national statistics office INE said, down from 83.5 million in 2019 when it was the world's second-most visited country after France.  The last time Spain had so few foreign tourists were in the late 1960s.  According to Spanish union CCOO, around 14% of Spanish hotel jobs, or 190 000 posts, were cut in 2020.

 

Heineken boss Dolf van den Brink, who only took charge of the group last year, now plans to cut around 10% of the group's 85,000-strong global workforce in a €2bn cost-saving drive aimed at kick-starting growth in the wake of the coronavirus pandemic.  The Dutch company, which is the world's second-biggest brewer, slumped to a loss of €204mn last year after being hit by exceptional charges of over €1billion as it revalued assets in several markets hit by the pandemic.

 

In Italy, the seasonally adjusted industrial production registered a drop of 0.2% on a monthly basis in December, compared to market expectations of an advance of 0.3%. Industrial production had recorded a drop of 1.4% in the prior month.

 

In France, the business sentiment index remained unchanged at a level of 98.00 in January. In the previous month, the business sentiment index had registered a revised similar level of 98.00.

 

Germany had registered the seasonally adjusted trade surplus of EUR14.80bn in December, following a trade surplus of EUR16.70bn in the prior month.

 

December, the non-seasonally & working day adjusted industrial production recorded a drop of 1.0% in Germany on a Year-on-Year basis. Industrial production had registered a revised drop of 2.5% in the previous month.

 

In Switzerland, the seasonally adjusted unemployment rate remained steady at a level of 3.5% in January, in line with market expectations of a steady reading of 3.5%. The unemployment rate had registered a revised similar level of 3.5% in the prior month.

 

The investor confidence index in the eurozone fell unexpectedly to a level of -0.20 in February, compared to a level of 1.30 in the previous month.

 

 

United States

 

U.S. stocks struck fresh record highs yesterday as trading got underway amid stimulus hopes, while oil prices hit 13-month highs.  Dealers remain upbeat about the chances of U.S. President Joe Biden pushing through his $1.9tn economic rescue package despite warnings that the move - along with an expected economic recovery - would fan inflation.

 

Bitcoin dipped to $45,402 after setting a record close to $50,000 on Tuesday.

 

The small business optimism index recorded a drop to 95.00 in January, in the U.S., compared to a level of 95.90 in the previous month.

 

In the U.S., JOLTs job openings registered an unexpected rise to 6646.00K in December, compared to a revised reading of 6572.00K in the prior month.

 

Fox News continues to produce big bucks for the Murdochs, despite losing to CNN in the ratings war. Quarterly earnings for the three months ending December shows its revenue increased 1% to $1.49bn. Pre-tax profit increased by 3% to $571mn. Meanwhile, advertising grew by 31% to $441mn.

 

 

Asia

 

"Solar power is set for explosive growth in India, matching coal's share in the Indian power generation mix by 2040," the International Energy Agency (IEA) said in its India Energy Outlook 2021 released yesterday. Coal currently dominates India's electricity sector, accounting for more than 70% of overall generation with only about 4% produced through solar.  India was on track to exceed its commitments as a part of the 2015 Paris agreement.

 

China has eliminated abject poverty.  According to the poverty line of $3.2 per person a day set by the World Bank, 99.7% of Chinese were poor in 1978, and this percentage was reduced to 4.7% in 2018. According to the abject poverty line of $1.9 per person a day also set by the World Bank, 93.1% of Chinese were poor in 1978, and this percentage dropped to 1.4% in 2018.

 

The United Nations Millennium Declaration, signed in September 2000, commits world leaders to combat poverty, hunger, disease, illiteracy, environmental degradation, and discrimination against women.  One of the Millennium Development Goals (MDGs) were to halve poverty between 1990 and 2015, during which China contributed 63.9% to global poverty reduction. This is why it has been well recognised that if China was excluded from consideration, the world could not have achieved the MDGs' poverty goal. If we focus on the first 15 years of the MDG agenda (1990-2005), China's contribution amounts to a remarkable 93.2%. In other words, from 1990 to 2005, all other developing member economies of the United Nations only managed 6.8% contributions to the poverty goal of MDGs.

 

The producer price index (PPI) in China advanced 0.3% in January on a YoY basis. The PPI had fallen 0.4% in the previous month.

 

The CPI in China registered a drop of 0.3% on a YoY basis, in January. In the prior month, the CPI had advanced 0.2%.

 

The Week in Numbers

 

Equity Indices (Price Only)

 

In Local Currency

In Sterling

Index

Last Week

YTD

Last Week

YTD

UK

FTSE 100

1.3%

0.4%

1.3%

0.4%

FTSE 250

4.1%

2.8%

4.1%

2.8%

FTSE All-Share

1.9%

1.0%

1.9%

1.0%

U.S.

US Equities

4.6%

3.5%

4.4%

2.9%

Europe

European equities

5.0%

2.9%

4.0%

0.7%

Asia

Japanese equities

4.5%

4.8%

3.7%

1.7%

Hong Kong equities

3.6%

7.6%

3.4%

6.9%

Emerging Markets

Emerging market equities

4.9%

8.1%

4.7%

7.4%

Government bond yields (yield change in basis points)

 

Current Level

Last Year

YTD

10-year Gilts

0.48%

16

29

10-year US Treasury

1.16%

10

25

10-year German Bund

-0.45%

7

12

Currencies

 

Current Level

Last Year

YTD

Sterling/USD

1.3735

0.2%

0.5%

Sterling/Euro

1.1401

1.0%

1.9%

Euro/USD

1.2046

-0.7%

-1.4%

Japanese yen/USD

105.39

-0.7%

-2.0%

Commodities (in USD)

 

Current Level

Last Year

YTD

Brent oil (bbl)

59.34

6.2%

14.6%

WTI oil (bbl)

56.85

8.9%

17.2%

Copper (metric tonne)

7912.5

0.7%

1.9%

Gold (oz)

1814.11

-1.8%

-4.4%

 

 

 



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