The COVID-19 pandemic remains at centre stage, but there are numerous other events taking place around the world that – even though they may not be receiving the attention that they deserve – are still working to shape the market environment and merit a closer look.
NEW DEVELPOMENTS IN SA AND ABROAD
First, turning to South Africa, the state capture inquiry continues its torturous progress – although South Africans are yet to see any prosecutions emanate from its incriminating testimonies. This week saw President Cyril Ramaphosa take the stand to address questions concerning funds deployed by the ANC, as well as regarding donations by companies that were later awarded tenders. He reiterated his previous position that funds were never deployed as a means of purchasing votes, but rather to obtain election collateral such as T-shirts, and to cover other expenses including transport, cell phone airtime and accommodation.
He stated that state capture was a direct result of long-standing divisions within the ANC, acknowledging that the party should have done more to avoid the tragic events that saw the South African economy lose billions of rands to corruption. With municipal elections drawing closer and the state capture inquiry still dragging on, South Africans will yet again face a difficult decision. We can only hope that towing the party line will also mean doing what is in the best interest of all citizens and the future of the country.
Next, scrutinising American politics, United States President Joe Biden has just completed his first 100 days in office and has managed to exceed his vaccination objectives with ease. The US is administering an average of 2.7 million doses a day, and it comes as no surprise that most states have reported that nearly half of all adults have received the vaccination, allowing many to return to normal and go about mask-less again.
Third, the infamous Brexit finally seems to be running its course after years of contentious negotiations and politicking. European lawmakers on Wednesday voted overwhelmingly in support of an agreement that will ensure that free trade continues between the two sides without tariffs and quotas. Leaders and businesses from both the European Union (EU) and United Kingdom (UK) expressed hopes that the ratification of this post-Brexit trade treaty will bring about a new era of cooperation, and potentially see new opportunities arise for trade as a whole.
UK Prime Minister Boris Johnson noted that the vote marked the “final step in a long journey, providing stability to our new relationship with the EU as vital trading partners, close allies and sovereign equals.” European Commission President Ursula von der Leyen added that the faithful implementation of the accord will be of the essence.
Additionally, the EU is engaging positively with the UK regarding the reopening of travel routes, potentially considering COVID-19 passports detailing the vaccination status of the holder and recent test results. The EU has already reached a similar agreement with the US.
Finally, we turn to ongoing geopolitical tensions involving China and Russia. The EU is the latest to take issue with the two countries, accusing them this week of spreading COVID-19 vaccine disinformation in a deliberate effort to undermine trust in Western vaccines.
EMERGING MARKETS CHEER FED SUPPORT AND BIDEN’S STIMULUS PLAN
As expected, the US Federal Reserve remained cautious on Wednesday night, noting that it will maintain its accommodative monetary policy until sustainable growth and inflation becomes apparent in the market. The Fed highlighted that it was still too early in the race to recovery to start tapering back on its emergency support, as many workers are still unemployed as a result of the pandemic.
Furthermore, President Joe Biden made his first address to a joint sitting of Congress, emphasising the importance of job creation and supporting the middle class during the pandemic, and proposing a new $1.8 trillion stimulus package in the form of investments and tax credits to run over a decade. Aimed at supporting children and families, this package would be fully offset in 15 years by an increase in tax on the wealthiest US citizens. Some of the key allocation proposals are as follows:
- $225 billion toward high-quality childcare
- $200 billion towards free pre-school for three and four-year olds
- $109 billion towards two years of free community college for all students
- $45 billion towards childhood nutritional needs programmes
- Making certain tax credits permanent such as:
- Tax credits for childless workers
- Child and dependant tax credits
Emerging markets responded positively to the news of the Fed’s dovish stance and Biden’s stimulus plan, with investors reallocating holdings into riskier assets.
The euro traded above the $1.21 mark towards the end of the month, hovering around two-month highs and heading for a more than 3% monthly gain against the greenback. This was supported by optimism for a strong economic recovery and by signs of an acceleration in the pace of vaccinations in Europe.
Markets also braced for a slurry of key economic data this week, including first-quarter US GDP, inflation and jobless rates, while US 10-year rates moved higher to 1.647%.
The British pound held above the $1.39 mark (not far from the seven-week high of $1.40 hit last week), and it is now heading for a 1% monthly gain against the greenback. Investors have welcomed signs the UK economy is rebounding from the pandemic, bolstered by the country’s gradual reopening of its economy, a rapid vaccine rollout and government policy support.
The Chinese yuan added 0.01136 points or 0.18% to reach fresh two-month highs of ¥6.46383 against the US dollar on Thursday after the onshore rate was set at ¥6.4715.
The South African rand was little changed at R14.20 against the greenback on Thursday, having touched an over one-year high of R14.10/$ earlier in the session. This came on the back of a softer dollar after the US government and the Fed reiterated their pledge to support the US economy. On the local front, optimism around vaccines and a faster vaccination rollout continued to support market sentiment. On the data front, South Africa’s producer price inflation (PPI) accelerated more than expected to hit a near two-year high of 5.2% in March, boosted by the prices of food, fuels and metal products.
Herewith follows an overview of the week’s key data:
|Actual||Previous||Forecast or ∆%|
|Initial Jobless Claims 24/APR||553k||566K ®||551k|
|Durable Goods Orders MoM MAR||0.5%||-0.9% ®||1.7%|
|CB Consumer Confidence APR||121.7||109 ®||112|
|Fed Interest Rate Decision||0.25%||0.25%||0.25%|
|GDP Growth Rate QoQ Adv Q1||6.4%||4.3%||6.1%|
|Consumer Confidence Final APR||-8.1||-10.8||-8.1|
|Economic Sentiment APR||110.3||100.9 ®||104|
|Car Production YoY MAR||46.6%||-14%||51%|
|Inflation Rate YoY MAR||0.7%||0.4%||0.8%|
|PPI YoY MAR||5.2%||4%||4.9|
Copious amounts of stimulus could hit the market in the next few months following the unveiling of Biden’s latest stimulus plan. This will continue to boost the market’s risk appetite and will be supportive of emerging markets.
We will, however, keep a close eye on rising COVID-19 cases in developing countries such as India, Brazil, Japan and South Africa, as well as on the pace of vaccinations – especially as South Africa heads into winter.
The local currency enjoyed a fairly uneventful week, shedding some value on Wednesday before clawing back lost ground on Thursday morning. Thursday afternoon, however, saw the rand retreat again as US markets came into play. Global optimism will remain supportive of the ZAR while we await sufficient momentum for the rand to make a sustained move in either direction.
We started the day trading at R14.29/$, R17.32/€ and R19.94/£.
Written By: Bianca Botes
Citadel Global: Director