Not a member? Register | Lost your password?

Weekly Commentary - 24 February 2021

Weekly Market Commentary

An Otherworldly Experience

What Made The Headlines ...

 

It's been a busy week on planet Earth.

 

ANC secretary-general Ace Magashule's fraud and corruption case is heading to the Free State High Court following his brief appearance at the Bloemfontein Magistrate's Court on Friday.  Ngozi Okonjo-Iweala, a former Nigerian finance minister, was appointed as Director-General of the WTO; the first woman and the first African to hold the position; and Mario Draghi was sworn in as Italy's latest prime minister, bringing the total number of Italian prime ministers post the second world war, to 59. Italy has had 66 governments, at an average of one every 1.14 years. Of Italy's 59 prime ministers, Benito Mussolini was the longest-serving at more than 20 years. Tommaso Tittoni served as Prime Minister for only 16 days.  And finally, scientists have cloned the first U.S. endangered species, a black-footed ferret duplicated from an animal's genes that died 32 years ago.

 

And an even busier week on Mars:  after a 300-million-mile road trip, NASA's Mars rover, the Perseverance, the world's most advanced astrobiological machine has landed, autonomously, on the Red Planet, ready to start its mission in search for signs of ancient microbial life. Footage released by the agency shows the deployment of its parachute, jettisoning of the heat shield, and the crucial skycrane manoeuvre, which saw the car-sized rover lowered into Mars' Jezero crater via a rocket-powered hovering descent vehicle.  In the video description, NASA said: "The footage from high-definition cameras aboard the spacecraft starts 7 miles (11 kilometres) above the surface, showing the supersonic deployment of the most massive parachute ever sent to another world and ends with the rover's touchdown in the crater."  For your viewing pleasure:  Preserverence Rover's Descent and touchdown on Mars

 

 

 

Global Weekly Commentary

 

South Africa

 

Unemployment rises ahead of the budget speech.  StatsSA today said South Africa's unemployment rate rose to a record 32.5% between October and December 2020, the highest since the start of records in 2008.  South Africa, the continent's most industrialised economy, which has the continent's highest rate of COVID-19 infections, was in recession before it recorded its first coronavirus infection in March and has long suffered from extremely high levels of unemployment.

 

According to an expanded definition of unemployment that includes those discouraged from seeking work (an additional 235,000 people), 42.6% of the labour force was without work in the fourth quarter, amounting to 11.1 million people, StatsSA data showed.

 

Compared to a year ago, total employment fell by 1.4 million people, while the number of people who were not economically active rose by 1.5 million, the agency said.

 

 

 

 

 

 

 

As Finance minister Tito Mboweni is set to deliver his budget speech,  the DA has expressed dismay about the country's R4tn debt crisis. "All this debt must be paid off in years to come, and that means every South African, our children and our grandchildren, will inherit the burden of paying off this debt," DA shadow minister of finance Geordin Hill-Lewis said. "Every child born in S.A. today already owes R67,000 before they have taken their first breath. This number is going up as the government continues to borrow more and more."

 

Apart from South Africa's increasing debt, some of the other burning issues that are likely to be addressed during the 2021 budget speech will be whether personal income tax will be increased, a wealth tax will be introduced, how the budget will provide for Covid-19 vaccine funding and how the government plans to rebuild the economy and create jobs.

 

Minister Mboweni's 2021 Budget Speech will be broadcast live on Parliament's DSTV Channel 408, live-streamed on Parliament's website, social media platforms and its YouTube channel today, 24 February 2021 at 14:00. Links below:

 

Twitter: https://twitter.com/ParliamentofRSA

Facebook: https://facebook.com/ParliamentofRSA

YouTube: https://www.youtube.com/ParliamentofRSA

 

 

United Kingdom

 

The British pound appreciated towards the $1.41 level, hovering around a near three-year high, after Prime Minister Boris Johnson delivered details of the plans to ease restrictions on the U.K. economy, saying his roadmap will guide the government "cautiously but irreversibly" to lifting the lockdown.

 

Unemployment has risen to 5.1%, its highest in nearly five years; meaning a total number of 1.74 million unemployed people. Unemployment has been held down by the government's Job Retention Scheme, which supports about 4 million jobs: one in five employees. The employment rate continued to fall to 75%, while the number of vacancies rose by 64K to 599K in the three months to January. The number of redundancies rose by 29K to 343K, the least since the second quarter. Meanwhile, average earnings growth accelerated more quickly than expected to 4.7%, the highest since 2008, driven in part by compositional effects of a fall in the number and proportion of lower-paid employee jobs and by increased bonuses, which had been postponed earlier in the year.

 

The GfK Group's Consumer Confidence index rose five points from the previous month to -23 in February 2021, beating the market consensus of -27. Since March last year, it was the highest reading as prospects for a recovery in the economy improved amid vaccination rollouts and falling numbers of daily coronavirus infections and deaths. There were improvements in four sub-indexes: personal finances over the next 12 months (4 vs 2 in January); economic situation over the last 12 months (-64 vs -67); economic situation over the next 12 months (-30 vs -44); and big purchases climate (-19 vs -24).

 

 

 

Europe

 

The German Bundesbank monthly report stated that the economy is likely to shrink this quarter because of tighter pandemic-related restrictions. However, it will recover in the spring as coronavirus infections continue to fall, and vaccines are distributed.

 

According to the Ifo research institute, German business sentiment surprised the upside this month as its export-oriented manufacturing sector continued to find markets abroad.  The Ifo Institute's Business Climate indicator for Germany rose to 92.4 in February 2021, up from an upwardly revised 90.3 in the previous month.  The current assessment of business conditions rose 1.4 points, while expectations jumped to 94.2 points, up from January's 91.5.

 

The IHS Markit Germany Manufacturing PMI jumped to 60.6 in February of 2021 from 57.1 in January, well above market forecasts of 56.5, flash estimates showed. The reading pointed to the strongest growth in factory activity in 3 years as order book volumes remained robust, supported by the strongest growth in factory export orders in over three years. Backorders at manufacturers continued to rise steeply despite record reports of delays in the delivery of inputs amid raw material shortages and squeezed transport capacity, as well as an associated spike in costs. Having fallen in each month throughout the past two years, manufacturing employment came closer to stabilising in February, recording only a marginal decline that was the slowest in the aforementioned period.

 

The trade surplus increased to CHF 3.584 billion in January from CHF 3.102bn in December. This was the largest trade surplus since last April, due to a gradually improved global demand. Exports increased by 5.4% from a month earlier to CHF 18.86 billion, boosted by higher sales of chemical & pharmaceutical products, machines and electronics, metals, and precision instruments. Among key trade partners, exports increased to China, Singapore, the U.S., and the E.U. Meanwhile, imports rose at a softer 3.3% to CHF 15.28 billion, led by chemical & pharmaceutical products, machines and electronics, and metals. Imports were up from the E.U., the U.K., China, and Singapore.

 

 

 

United States

 

In prepared remarks for his Semiannual Monetary Policy Report to the Congress, Fed Chair Powell said that the economy is long from the Fed's employment and inflation goals. It is likely to take some time for substantial further progress to be achieved. Although the number of new Covid-19 cases and hospitalisations has been falling, and ongoing vaccinations offer hope for a return to more normal conditions later this year, the economic recovery remains uneven and far from complete. The inflation rate is on track to moderately exceed 2% for some time, but nothing was said regarding the recent rise in Treasury yields.

 

The housing market continues to be a catalyst for the broader U.S. economy, as a shortage of homes for sale continued to push prices higher in January. The National Association of Realtors said that sales of existing homes rose 0.6% in January compared with market expectations of a fall of 1.5%. Relative to January of 2020, sales jumped nearly 24%.

 

On a monthly basis, building permits climbed 10.4% in the U.S. in January. In the previous month, building permits had risen by a revised 4.2%.

 

U.S. retail sales rose 5.3% in January compared with the previous month, surpassing economists' expectations and snapping a three-month string of decreases. The rebound was attributed in part to stimulus payments that Americans received as part of a $900 billion measure that Congress approved in late December.

 

 

Asia

 

Indonesia's central bank cut its benchmark interest rate by 25 basis points to 3.5% to a record low and downgraded its growth outlook amid fears that a resurgence in Covid-19 cases slows its economic recovery.  Policymakers have signalled growing concern over the economy, as Indonesia's first recession in more than two decades threatens to spill over to this quarter after movement curbs were reimposed to control a surge in cases. Recent economic indicators have shown marked declines in imports, retail sales and consumer confidence.  Governor Perry Warjiyo said the bank now sees gross domestic product expanding 4.3% to 5.3% this year, down from an earlier forecast of 4.8% to 5.8%.

 

The unemployment rate in South Korea jumped to 5.4% in January of 2021 from 4.6% in the previous month and compared to 4.0% in the same month of the previous year. It was the highest unemployment rate since October of 1999, as the pandemic continued to weigh heavily.  Labour force participation rate decreased to 62.3% from 62.4%, and the employment rate dropped to 58.9% from 59.6%.

 

 

India's trade deficit in goods narrowed to USD 14.54 billion in January 2021, from USD 15.30 billion in the same month last year and compared with preliminary estimates of a USD 14.75 billion shortfall. Exports were up 6.16% to USD 27.45 billion, boosted by sales of other cereals (343.57%), oil meals (257.50%), iron ore (108.84%), cereal preparations & miscellaneous processed items (44.88%), and rice (26.33%). Exports of petroleum products, however, slumped 32.06%. Meanwhile, imports increased by 2.03% to USD 41.99 billion due to purchases of gold (154.70%). On the other hand, imports were down for oil (27.72%), transport equipment (-25.26%), and fertilisers, crude & manufactured (-11.57%). Considering April-January of 2020-21 fiscal year, the trade gap narrowed sharply to USD 72.0 billion from USD 141.2 billion in the same period of the previous year.

 

The Japanese Yen fell 0.08% to 105.145 against the U.S. Dollar, trading near 3-month lows.  U.S. 10-year yields remained elevated at yearly highs of 1.362%, while Japanese 10-year yields hit over 2-year highs of 0.115% amid lingering speculation the Bank Of Japan could widen the 40-basis-point band under which it allows 10-year yields to move around its 0% target.

 

The Week in Numbers

 

Equity Indices (Price Only)

 

In Local Currency

In Sterling

Index

Last Week

YTD

Last Week

YTD

UK

FTSE 100

0.5%

2.5%

0.5%

2.5%

FTSE 250

0.0%

2.7%

0.0%

2.7%

FTSE All-Share

0.4%

2.6%

0.4%

2.6%

US

US Equities

-0.7%

4.0%

-1.9%

1.3%

Europe

European equities

0.5%

4.5%

-0.7%

0.9%

Asia

Japanese equities

-0.3%

6.9%

-1.9%

1.5%

Hong Kong equities

1.6%

12.5%

0.0%

9.6%

Emerging Markets

Emerging market equities

0.1%

10.7%

-1.1%

7.8%

Government bond yields (yield change in basis points)

 

Current Level

Last Year

YTD

10-year Gilts

0.70%

18

50

10-year US Treasury

1.34%

13

42

10-year German Bund

-0.31%

12

26

Currencies

 

Current Level

Last Year

YTD

Sterling/USD

1.4016

1.2%

2.5%

Sterling/Euro

1.1561

1.1%

3.4%

Euro/USD

1.2119

0.0%

-0.8%

Japanese yen/USD

105.45

-0.5%

-2.1%

Commodities (in USD)

 

Current Level

Last Year

YTD

Brent oil (bbl)

62.91

0.8%

21.4%

WTI oil (bbl)

59.24

-0.4%

22.1%

Copper (metric tonne)

8909.5

6.9%

14.7%



Twitter
Facebook
Connect with us