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Weekly Commentary - 18 February 2021

Weekly Market Commentary

Love is…. gRAND

What made the headlines...

The Rand is officially a pensioner.

On the 14th of February 1961, South Africa introduced the Rand as its currency; replacing the British pound at an exchange rate of approximately R2 for £1. Today the exchange rate was R20,28 for £1.  Over the decades the Rand sure has had its share of adventure. 

The change in currency happened just three months before South Africa declared itself a republic and left the Commonwealth of Nations on the 31st of May 1961. For the year of the Rand's release, the annual inflation was 1,6%, and the average for the whole of 1961 was 1,9%. The 1960s was a period of generally low inflation, reaching a peak of 4,6% in November 1966, and during the 1970s and 1980s, inflation climbed to reach its highest recorded level of 19,7% in September 1986. Annual inflation has averaged 8% in the period since the Rand's introduction.  

Statistics South Africa's Patrick Kelly explains: "Essentially if you had R100 in 1961 and you bought a set of goods and services, today you would be paying R9,700 for the same items. So, that's an increase of almost 97 times by that amount over the last 60 years."  Stats S.A. provided an amusing look at how prices have changed from 1961 to today in the image below.



The Rand has been among the world's strongest currencies over the past year. It is now trading at the same level as five years ago.  As Colleen Goko writes for Bloomberg, the Rand is now the "weather vane of emerging-market confidence".  At last count, she wrote, the Rand was the 18th-most-traded currency in the world, with a daily turnover in the currency now $72bn. And, perhaps more illuminating, demand for the Rand rose 180% between 2010 and 2019.



Global Weekly Commentary

South Africa


The Covid-19 pandemic has been a confidence-shattering event.  In 2020, the average business confidence in South Africa was worse than it was in the mid-1980s.  "During the economic sanctions period of the 1980s, the 1985 BCI measured the second-lowest average of 91.5, followed by an average of 92.6 in 2019. The highest annual average for the BCI was recorded in 2006 at 137.5," The South Africa Chamber of Commerce and Industry said in a statement. In May 2020, it reached its lowest monthly level ever at 70.1. 

According to the United Nations Conference on Trade and Development (Unctad), foreign direct investment flows into South Africa in 2020 almost halved to $2.5bn from $4.6bn in 2019, a 15% decline of around $5.4bn in 2018. That is roughly $12.5bn in total over the past three calendar years, which is far short of the $100bn in new investment over five years that the government targeted in 2018. 

According to data from Stats S.A, retail sales fell 6.9% overall during 2020; the worst decline ever recorded and the only year of contraction apart from 2009, the height of the global financial crisis when sales contracted 3.2%. 

Inflation picked up to 3.2% year-on-year, from 3.1% in December, slightly below analyst expectations, driven by higher food prices and services costs.  Stats S.A.'s miscellaneous goods and services category, which covers, among other things, insurance, saw a 6.5% rise year-on-year, contributing one percentage point to the headline figure.  Food and non-alcoholic beverages increased by 5.4% year-on-year and contributed 0.9 of a percentage point to the headline figure; while housing and utilities increased by 2.6% year-on-year, and contributed 0.6 of a percentage point. 

Despite pandemic-induced economic uncertainty, S.A.'s agricultural sector is flourishing, with the country shipping $10.2bn (about R150bn) worth of produce in 2020; 3% more than in the previous year. 

New-vehicle prices in S.A. soared 9.6% in the fourth quarter of 2020, well above inflation in a market already severely constrained by the economic effects of the Covid-19 pandemic.  Used-vehicle prices rose 2.9% from 1.2% over the same period. 

The Passenger Rail Agency of S.A. (Prasa) stands to recover only R65m, due to the liquidation of tender recipient Swifambo, of the R2.3bn it paid upfront for locomotives that were too tall to run on S.A.'s railway lines.  In March 2020, Prasa announced that it was going through a "debilitating cash-flow crunch" that depleted its operational budget, failing to pay suppliers and creditors. 

Since the Covid-19 lockdown started, the organisation has lost R199, and the projected revenue loss for 2020 is R757m.



Europe is now trading more goods with China than the United States, a sign of how the pandemic is transforming the global economy.  Data released this week by the European Union's statistics service attributed the shift to a 5.6% increase in imports from China in 2020 and a 2.2% increase in exports. Meanwhile, there was a "significant drop" in trade with the United States, with imports plunging 13.2% and exports falling 8.2%. The overall value of EU-China goods trade last year was €586bn ($706bn), about €31bn ($37bn) more than between the European Union and the United States. 

The wholesale price index in Germany rose 2.1% in January on a monthly basis. In the prior month, the wholesale price index had climbed 0.6%.  The final CPI recorded a rise of 0.8%, compared to an advance of 0.5% in the previous month. The preliminary figures had also recorded an advance of 0.8%. Markets were anticipating the CPI to rise by 0.8%. 

In December, industrial production in France slid 0.8% on a monthly basis, compared to market expectations of an advance of 0.2%. In the prior month, industrial production had recorded a revised drop of 0.7%.  On a monthly basis, manufacturing production registered a decline of 1.7%. Manufacturing production had recorded a revised rise of 0.7% in the prior month. 

Brexit trade recovers with fewer cross-channel cargoes rejected.  Figures suggest that companies are adapting to new customs rules put in place on the 01st of January.  Shipments of goods across the English Channel are recovering, with fewer haulage companies pulling out of jobs in the past week.

United Kingdom


The U.K. has vaccinated 15.6-million people with a first dose so far, and Prime Minister Boris Johnson says the exit plan will be cautious but irreversible.

In December, the total trade deficit in the U.K. narrowed to GBP6.20bn, while it registered a total trade deficit of GBP6.62bn in the prior month. In the same month, industrial production advanced by 0.2%. Industrial production had climbed by a revised 0.3% for the previous month.  Manufacturing production registered a rise of 0.3%, compared to a revised increase of 1.1% in the prior month. Markets were expecting manufacturing production to rise by 0.6%.

The preliminary GDP rose 1.0% in 4Q20 on a quarterly basis, more than market expectations for a rise of 0.5%. The GDP had climbed 16.1% in the previous quarter. 

The Rightmove house price index registered a rise of 0.5% in February on a monthly basis. The Rightmove house price index had fallen 0.9% in the previous month.

United States


The economy contracted 3.5% in 2020, the worst performance since 1946. That followed 2.2% growth in 2019 and was the first annual decline in GDP since the 2007/2009 recession. The economy plunged into recession last February. 

It seems initial jobless claims have peaked and the U.S. labour market should continue to heal as vaccinations help curb the virus.  In late March 2020, jobless claims soared to 6.8 million. As the economic recovery and re-opening unfolded, they steadily receded. They have been range-bound since Labor Day, rising from a low of 711,000 in early November to 927,000 in early January 2021, as the post-holiday spike in COVID-19 cases led to tighter stay-at-home restrictions. They recently fell to 793,000. 

Leisure and hospitality bore the most significant impacts of the initial wave of stay-at-home restrictions in March and April 2020, with the industry shedding more than 8 million jobs. By November, approximately 60% of overall job losses were recovered, with an even greater recovery rate of 65% among restaurants and bars. 

The largest retail sales gain in seven months reported by the Commerce Department ended three straight monthly decreases.  The value of overall sales increased 5.3% from the prior month after a 1% decline in December.   It was the first monthly gain since September, and all major categories showed sharp advances. 

In the U.S, the flash Reuters/Michigan, consumer sentiment index, registered an unexpected drop to 76.20 in February. In the prior month, the Reuters/Michigan consumer sentiment index had recorded a level of 79.00. 

The CPI rose 0.3% in January on a monthly basis, in line with market expectations of an advance of 0.3%. The CPI had advanced 0.4% in the previous month. 



In Japan, the GDP rose 3.0% on a Quarter-on-Quarter basis in 4Q20, more than market expectations of a rise of 2.3%.  According to the finance minister, Japan logged a trade deficit of 323,9bn yen ($3bn) in January.  Consumption rose 2.2% in the fourth quarter.  Business investment climbed 4.5%, and exports picked up 11.1%.  At an annualised pace — the way Japan normally reports GDP — growth was 12.7% in the fourth quarter, but that figure has little meaning in the context of a rebound from coronavirus. 

China's economy expanded 2.3% last year as it raced to recover from the pandemic, while the United States saw output shrink 3.5%. That allowed China, the world's second largest economy, to increase its clout.

Taiwan's economy outgrows China's for the first time in 30 years, as chips demand soars.  Taiwan's economy grew 2.98% in 2020.  The last time Taiwan's economy grew faster than China was in 1990, when the island's 5.5% growth beat its giant neighbor's 3.9%, official data from both sides showed.

The Week In Numbers



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