It is a common belief that those in positions of power are often above the law, while the less powerful are always held to account. However, this week South Africa had a small victory against the abuse of power. The sentencing of former president, Jacob Zuma, to jail time for contempt of court, went a long way in reigniting South Africans’ belief in the country’s legal system and returning some of their lost confidence in the country.
Major themes for the past week include:
- South Africa wins a battle, but the war rages on
- Gold suffers its worst month in five years
- US Jobless claims reach a 15-month low
A BATTLE WON
Corruption and the abuse of power are as old as time, and history has shown us that every country and civilisation has fallen foul of their influence. When leaders fail in their duties of care, citizens feel betrayed and lose confidence in the very people they have entrusted to look after their interests. And it is always the poorest and most vulnerable of society that are disproportionately impacted by poor leadership.
This week, South Africa finally won a battle in the war against corruption and the abuse of power. On Tuesday, the Constitutional Court sentenced South Africa’s ex-president to 15 months in prison for refusing to appear and testify in front of the Zondo commission in the State Capture enquiry. State Capture, in which Zuma has been implicated, caused significant damage to the country’s economy, as well as destroying confidence in the government and the country’s institutions. The judgement stated that the former president wilfully defied the court’s order that required him to appear before the commission and that he knew what the consequences of his actions would be.
While the Jacob Zuma foundation hit back, stating that the judgment was filled with emotion and anger, and that it is not in line with South Africa’s constitution, the mood of the nation has certainly been lifted. For the first time since his resignation 2018, there is a sense that the country’s justice system still serves a purpose, and that no one is above the law.
There is still a long way to go, but a small victory such as this one, will go a long way in restoring the lost trust and confidence in the country’s legal system.
THE GLOBE AT A GLANCE
When we think of Greece, we think about white sandy beaches and azure waters. We do not consider their economy and the contribution the country makes to the eurozone. This week however, Greece found itself under the spotlight when it reported its highest factory activity in 21 years. The IHS Markit Greece Manufacturing PMI jumped to 58.6 in June of 2021 from 58 in the previous month, marking the strongest growth in factory activity since April 2000. New orders increased as a result of stronger client demand from both domestic and foreign markets.
Staying with Europe, the European Union’s (EUs) seasonally-adjusted unemployment rate declined to 7.9% in May, the lowest level since May 2020, beating market expectations of 8%. The bloc’s labour market showed signs of recovery amid the gradual easing of Coronavirus-induced restrictions. The youth unemployment rate also declined to 17.5% in May, down from 18.4% in the previous month.
The IHS Markit Eurozone Manufacturing PMI was revised upward to a new record high of 63.4 in June, from an initial estimate of 63.1, marking an expansion of 12 consecutive months. Overall production growth remained higher during June, while new orders experienced their third-fastest increase ever reported. Taking a look at the labour market, the pace of job creation was also the fastest on record.
Moving over to the United Kingdom (UK), the IHS Markit/CIPS UK Manufacturing PMI was adjusted lower to 63.9 in June, from the initial estimate of 64.2 and down from the record high of 65.6 witnessed in May. However, the latest data continued to signal a strong pace of expansion in the manufacturing sector, as output increased at marked rates across the consumer, intermediate and investment goods industries.
The UK government announced last month that the economy’s full reopening will be delayed as a result of concerns over the Delta variant of the COVID-19 virus. Meanwhile the Bank of England’s (BoE’s) outgoing chief economist, Andy Haldane, cautioned that UK inflation could swell to 4% this year, well above the Bank’s target.
South Africa’s Absa Manufacturing PMI edged down to 57.4 in June from 57.8 in the previous month, amid fresh concerns over rising Coronavirus cases and tighter restrictions. Both business activity and sales accelerated at a gentler pace, but remain buoyant, even as South Africa battles a new wave of COVID-19 infections. However, international donors, on Wednesday, committed over $700 million to South African pharmaceutical giant Aspen to bolster the production efforts of COVID-19 vaccines and treatment.
The number of claims for unemployment benefits by Americans dipped to a new pandemic low of 364 000 in the week ending 26 June, dropping back below the 400 000 level for the first time in three weeks, beating market expectations of 390 000. The easing of Coronavirus restrictions and the rapid rate of vaccinations, coupled with ongoing government support, continued to boost economic activity and demand for labour.
The yield on the US 10-Year Treasury Note held steady around 1.5% as we kicked off July, remaining above the four-month low of 1.36% witnessed last week. United States (US) Federal Reserve (Fed) officials have been trying to reassure financial markets that the recent increase in inflation is transitionary and is therefore of a temporary nature and that there will be no immediate tightening of monetary policy.
US EQUITY VALUATIONS NEARING ALL-TIME-HIGHS
US equities continued their gentle trajectory higher this week, with most constituents of the Dow Jones Industrial Average, S&P 500 and Nasdaq now testing all-time-high valuation levels. When turning to US equity funds, the approximate net inflow of investor money into various equity funds has reached around $189 billion since February this year, indicating that, while tightening adjustments to monetary policy by the Fed could be in the pipeline, investors are still confident with the amount of stimulus-liquidity still floating around within the greater US equity market. US jobless claims numbers came in at 364 000 lower than an expected 388 000, helping US markets drift between 0.50% and 1.50% higher during the week.
European equity markets remained largely flat this week, with sectors such as utilities, transportation and logistics, and technology all creating a drag on the market by Wednesday’s close. The German DAX saw its volatility index turning up this week, indicating greater implied volatility within the German options market. On Wednesday 285 stocks had traded positively on the DAX, while 392 had traded negatively. German preliminary inflation rate numbers came in unchanged at 2.3%, year-on-year.
As travel restrictions start to ease in the UK and EU, both retail and airline stocks helped stabilise the UK FTSE 100, while yet another looming wave of COVID-19, this time the Delta variant, continued to make its way across the UK, with over 26,068 new cases being registered on Wednesday alone. Concerns over yet another wave of infections saw the overall UK market dropping by around 1.38% by Thursday.
Weaker manufacturing numbers coming out of China saw Chinese-listed shares sliding during Thursday’s trading. Both the Shanghai and Shenzhen indices dipped lower on the day by 0.07% and 0.74% respectively. The Japanese Nikkei also had a slower week, dropping 1.23% by Thursday’s close.
Much like the US markets, the JSE All Share index pressed around 0.43% higher by Thursday, assisted by a 2.13% weaker rand against the US dollar. The slight weakening in rand saw dual-listed stocks such as Naspers, Prosus, BHP Billiton and British American Tobacco propping up South African equity markets. With a 14-day prohibition of alcohol sales, both Distell and AB InBev saw their respective share prices fall. Resource stocks battled to gain traction, due to wavering underlying resource prices. By Thursday evening the Resources Index had dropped by just under 1% for the week. This week also saw the likes of Sibanye Stillwater’s directors mostly placing collars on their personal share options within their business. Nothing major to flag here, however this does possibly indicate some downside risk in the mid-term for Sibanye’s share price, as insiders turn to hedging their personal wealth.
CLOSING THE GAP
US West Texas Intermediate (WTI) crude oil saw around a 1.17% move higher during the week, whereas the Organization of the Petroleum Exporting Countries’ (OPEC’s) Brent Crude was seen dipping by half-a-percent. These respective moves now see the gap slowly closing between the west and east, with WTI now under 1% away from Brent crude’s price. This does, however, start drawing favour away from WTI, as any competitive pricing now becomes much-of-a-muchness. With OPEC discussing an increase of two million barrels per day, due to the lack of supply in a rapidly opening global economy (in developed markets), oil prices rallied on the news of lagging global oil supply. On Thursday evening Brent traded at $75.59 per barrel, while WTI traded at $74.80.
After falling more than 6% last week, gold spot prices were stable this week, trading at levels of around $1 780.00 per fine ounce. The lack in action seen in gold ultimately had a drag-effect on mining companies during the week. Platinum also remained calm, averaging around $1 083 throughout the week. Palladium, on the other hand, saw more than a 5% increase, recovering almost all of its losses from the previous week.
With US lumber futures having quadrupled during 2020, and through to May 2021, to levels of $1 670.50 per 1 000 board feet, the month of June saw the price of timber crashing around 55% to levels of around $684.50 on Thursday. Although a rapid decline in prices was seen, lumber prices remain at historically high levels. With global wealth rising, as well as more DIY projects having been undertaken during worldwide lockdowns, the demand for timber and the pace at which sawmills can realistically get product out to customers has been the main factor in the explosion in lumber prices.
DOLLAR CALLING THE SHOTS
The US Dollar Index traded around the 92.4 mark, close to 12-week highs as investors continued to position themselves for potential earlier interest rate hikes by the Fed. This followed statements by Fed Governor, Christopher Waller, on Tuesday, that the Fed may need to soon start reviewing its enormous asset purchase program downward.
The euro touched $1.184 on Thursday, the lowest level since 6 April 2021, as dovish comments from European Central Bank (ECB) officials conflicted with the Fed’s hawkish turn, and the subsequent stronger dollar. Investors also remain concerned about the spread of the Delta variant that has prompted some countries such as the UK and parts of Europe to undertake or plan renewed lockdowns. The euro gave up 3.1% against the greenback during the month of June.
The British pound traded around $1.377, its weakest level since mid-April, as the BoE remained dovish, in line with the ECB. In June, the sterling shed 2.8% against the dollar, suffering its worst month since September 2020.
The South African rand remained largely rangebound, trading near the R14.30 mark against the dollar on Thursday, edging towards lows witnessed in May. Risk appetite remained under pressure, as ongoing concerns about a resurgence of COVID-19 infections and a new round of lockdown restrictions dampened the mood.
We started the day trading at R14.48/$, 17.15/€ and R19.94/£.