Weekly Commentary 18 March 2021
Weekly Market Commentary
Covid-19:2 … Luck Of The Irish: 0
What Made The Headlines
Twenty-four hours before "Paddy's Day" 2020, the Irish government asked all pubs to cease trading. For the second year in succession, the normally boisterous celebrations have been cancelled by coronavirus curbs, and the people aren't happy. More than 2 500 police officers have been deployed across Ireland to prevent anti-lockdown protests organised via social media. By the 14th of March, 617 050 people were vaccinated in Ireland and 206,400 doses of the AstraZeneca jab delivered to the country. Earlier this week, Ireland paused the AstraZeneca vaccine administration due to safety concerns joining fellow European countries Spain, Germany, France, and Italy that have done the same.
According to the CDC website, 39,042,345 people in the U.S. were fully vaccinated; 11.8% of its 330mn population. Meanwhile, a total of 157,286 people have been vaccinated in South Africa. While this is good news for healthcare workers, at the current rate, it will take 18 years to reach the government's target to vaccinate 67% of South Africans. It will require 137,000 vaccinations per day for the targeted 40mn South Africans to be vaccinated by the end of the year.
It's been a sad week for theatre lovers with the announcement from founder, producer and benefactor of Cape Town's Fugard Theatre, Eric Abraham, that it would not be safe health-wise or financially viable to reopen in the foreseeable future.
Elon Musk's drive towards internet-for-all takes another leap forward. SpaceX launched 60 satellites into orbit as part of its internet-from-space initiative, Starlink: a proposed constellation of thousands of satellites, designed to orbit at low altitudes above the Earth and beam internet coverage to the surface below.
King Goodwill Zwelithini was interred at midnight last night. Regiments called Amabutho will be part of the planting ceremony tonight.
Global Weekly Commentary
Jeff Gable, Absa's chief economist and head of research, estimates that the South African economy could take four years to recover from Covid-19. It only needed 15 months to get over the 2008 global financial crisis. Factors mentioned during his industry update include jobs, interest rates and South Africa's debt, among others. He said that while only a few jobs were created in 2019, up to 700 000 jobs were affected by the pandemic. Mr Gable also raised the concern that R1 out of every R4 collected in tax is used to pay the interest on government debt rather than pay for new infrastructure, teachers, nurses, doctors or police officers. "That number 10 years ago was eight cents or nine cents out of every R1," he said, continuing that the government could address the budget shortfall by borrowing less by raising more tax – or spending less.
South Africa's retail trade fell 3.5% from a year earlier in January of 2021. It was the 10th successive monthly decline in retail activity amid the ongoing pandemic crisis. Sales fell significantly for food, beverages and tobacco (-33.6% vs -3.8% in December), all other retailers (-15.1% vs -14.3%) and general dealers (-6% vs 1.6%). On a seasonally adjusted monthly basis, retail sales went down 1.6%, the steepest decrease since last April.
The FNB/BER consumer confidence index published this week increased by three index points to a level of -9 in the first quarter of 2021. The sudden onset of the coronavirus pandemic and the accompanying severe economic restrictions saw consumer confidence collapse to a 35-year low of -33 in the second quarter of 2020. The recovery to -9 index points brings the CCI back in line with the reading recorded in March 2020. Consumer confidence, in general, remains depressed – the latest reading of -9 is still well below the average CCI reading of +2 since 1994.
The Automobile Association (A.A.) has warned motorists to brace for the most significant fuel price increase in April and Eskom chief executive Andre de Ruyter has warned that South Africans can expect another five years of load shedding as the country faces a shortfall of 4,000MW.
In other parts of the continent, Nigeria's jobless rate rose to 33.3% in the three months through December. That's up from 27.1% in the second quarter of 2020. According to the Nigerian definition, a third of the 69.7mn-strong labour force in Africa's most-populous nation either did nothing or worked less than 20 hours a week, making them unemployed. Another 15.9 million worked less than 40 hours a week, making them underemployed.
Producer prices in Russia surged 10.7% year-on-year in February of 2021, accelerating from a 6.7% jump in the previous month. It was the most significant increase in producer prices since April of 2019, as prices advanced faster for manufacturing (12.1% vs 9.1% in January); mining (9.9% vs 1.8%); electricity, gas, steam & air conditioning (5.2% vs 2.2%) and water supply (3.4% vs 2.7%). Monthly, producer prices advanced 3.5%, the same as in January.
Portugal's current account deficit widened to EUR 282.8mn in January of 2021 from EUR 140.9mn in the same month of the previous year. It was the second-largest current account gap since last May, as the services surplus narrowed to EUR 404.5m from 1,018.8mn in January of 2020, amid a sharp decline in tourism revenues (EUR 357.8mn from EUR 993.8mn), while the secondary income surplus fell to EUR 53.2mn from EUR 270.2mn. On the other hand, the primary income deficit shrank to EUR 55.9mn from EUR 187.6mn, and the trade gap of goods narrowed to EUR 684.5mn from EUR 1242.4mn.
The seasonally adjusted unemployment rate in Greece decreased to 15.8% in December of 2020 from 16.2% in the previous month. Since February, it was the lowest jobless rate as the number of unemployed persons decreased by 24,332 to 726,360 and employed persons by 12,697 to 3,880,364. The age group, 15-24, remains the most affected by unemployment (34.2%). Across the country's regions, the highest unemployment rates were recorded in the Aegean Islands (18.8%) and Epirus-Western Macedonia (18%).
The consumer price inflation rate in the Euro Area was confirmed at 0.9% year-on-year in February 2021, unchanged from the previous month's 11-month high, boosted by increases in cost for services (1.2% vs 1.4% in January), non-energy industrial goods (1.0% vs 1.5%), and food, alcohol & tobacco (1.3% vs 1.5%). At the same time, energy prices fell 1.7%, much slower than a 4.2% slump in the previous month. Meanwhile, the annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and at which the ECB looks in its policy decisions, slowed to 1.1% in February, from 1.4% in January. Monthly, consumer prices rose 0.2 percent, while the core index edged up 0.1 percent.
The ZEW Indicator of Economic Sentiment for the Euro Area rose by 4.4 points to 74 in March of 2021, the highest reading since February of 2004. In March, 79.4% of the surveyed analysts predicted an improvement in economic activity, while 5.4% expected it to get worse, and 15.2% expected no changes. In addition, the indicator for the current economic situation in the Eurozone increased by 4.8 points to -69.8, while inflation expectations rose by 8.8 points to 80.6.
Britain's gross domestic product shrank by 1.7% in the three months to January 2021, the first period of contraction since May-July but better than market expectations of a 2.5% contraction. In January alone, the GDP fell by 2.9%, compared with forecasts of a 4.9% slump, as restrictions on activity were reintroduced in response to the COVID pandemic. January's level remained 9.0% below that seen in February 2020 and 4.0% below the initial recovery peak levels seen in October 2020. The services sector contracted by 3.5%, led by falls in consumer-facing services industries and education, while output in the production sector fell by 1.5%, after manufacturing contracted for the first time since the initial pandemic-driven fall in production in April 2020. Meanwhile, construction output rose 0.9%, driven by growth in new work.
Manufacturing production in the U.K. fell 5.2% year-on-year in January of 2021, the 22nd decline in a row and much worse than forecasts of a 3.6% fall. On a monthly basis, factory output sank 2.3%, compared to estimates of a 0.8% fall, mainly due to a drop in transport equipment. Manufacturing was 5.7% below its level in February of 2020.
Imports to the U.K. plummeted 18.5% from the previous month to a near ten-year low of GBP 43bn in January of 2021, following the end of the E.U. exit transition period and the reintroduction of COVID-19 restrictions on activity. Purchases of goods slipped 22.8%, and acquisitions of services fell 2.4%. Within goods, purchases fell mostly for machinery & transport equipment (-21.9%), in particular cars; chemicals (-30.1%); material manufactures (-19.2%) and miscellaneous manufacturers (-28.3%). Also, acquisitions of unspecified goods, which include precious metals such as non-monetary gold, silver, platinum and palladium, tumbled 80.5%. Imports of goods shrank 28.9% from the E.U. and declined 15.4% from countries outside the E.U.
Exports from the U.K. slipped 18.2% from the previous month to a near nine-year low of GBP 41.4bn in January of 2021, following the end of the E.U. exit transition period and the reintroduction of another lockdown. Goods shipments tumbled 18.3%, and services sales went down 0.9%. Within goods, shipments fell mostly for machinery & transport (-15.3%), chemicals (-25.2%), material manufactures (-15.8%), miscellaneous manufactures (-15.9%) and fuels (-32.4%). Conversely, sales of unspecified goods, which include precious metals such as non-monetary gold, silver, platinum and palladium, jumped 390%. Sales of goods crashed 40.5% from the E.U. while goods exports from countries outside the E.U. rose 3.6%.
A year ago yesterday, the Dow crashed nearly 3,000 points (13%). Flash forward 12 months; the health crisis isn't over, but investors are increasingly confident it soon will be. For the first time since February 2020, Covid-19 is no longer the No. 1 fear among portfolio managers surveyed by Bank of America. Portfolio managers polled by the Bank of America now cite inflation as the top risk.
The Federal Reserve left the target range for its federal funds rate unchanged at a record low level of 0-0.25% during its March 2021 meeting, saying it is committed to using its full range of tools to support the U.S. economy. Policymakers also pledged to maintain an accommodative monetary policy stance until inflation moderately rises above 2% for some time and longer-term inflation expectations remain well-anchored at 2%.
One statistic that would generally go unnoticed is the household change in net worth, which soared from US$3.9trn in Q3 to US$6.9trn in Q4 to an all-time high for household net worth, confirming that most of the stimulus cheques so far have been saved rather than spent. The average number was US$2trn pre-COVID-19. The numbers are enormous compared to the size of the U.S. economy, which is US$21trn.
The NY Empire State manufacturing index in the U.S. registered a rise to 17.40 in March, compared with a reading of 12.10 in the previous month. Markets were expecting the N.Y. Empire State manufacturing index to climb to 14.50.
Imports to Japan rebounded 11.8% year-on-year to JPY 5.82trn in February of 2021, practically matching an 11.9& increase consensus. Purchases were mainly nudged by manufactured goods (29.2%), machinery (29.1%), and electrical machinery (31.8%), more than offsetting a 9.1% fall in imports of mineral fuels. Among major trading partners, purchases were led by a 114.5% surge in imports from China.
Exports from Japan decreased by 4.5% year-on-year to JPY 6.04trn in February of 2021, compared with market expectations of a 0.8% decline. It was the first decline in three months amid lower sales of machinery (-1.4%), electrical machinery (-0.9%), transport equipment (-12.8%), and manufactured goods (-5.2%). On the bright side, sales of chemicals increased by 5.2%. Among major trading partners, shipments declined to the U.S. (-14%) and Hong Kong (-8.5%), whereas sales to China climbed 3.4%.
Japan's trade balance recorded a surplus of ¥217.38bn in February, down 80.5% from a year ago but swinging into the black from a ¥325.38bn deficit in the previous month.
India's trade deficit in February widened to $12.6bn during the month. Preliminary data released earlier this month had shown exports to have shrunk 0.25% in February. Data released by the commerce ministry showed exports grew 0.67% in February while imports grew 7%. Provisional food prices and manufactured products, which hold maximum weightage in the WPI index, rose 3.31% and 5.81%, respectively, on a sequential basis. The Department for Promotion of Industry and Internal Trade (DPIIT) said the Wholesale Price Index (WPI) based inflation quickened to 4.17% in February compared to last month. It stood at 2.26% in the same month the previous year and rose to 2.03% last month, January 2021.
On Tuesday, Moody's Investors Service revised Mongolia's sovereign credit rating outlook to stable from negative and affirmed the debt grade at B3, citing as the main driver behind the change Moody's view that liquidity risks and external pressure have stabilised for the foreseeable future, albeit at somewhat higher levels than seen before the pandemic. Standard & Poor's credit rating for Mongolia stands at B with a stable outlook. Fitch's credit rating for Mongolia was last reported at B with a stable outlook.
The Week in Numbers