While the world, especially developed countries, is well on its way to a post-covid era, many developing countries are still battling the fallout of the virus, and the subsequent economic effects, with India taking centre stage.
INDIA AT WITS END
India, known for being the second most populous country in the world, taking up the seventh largest landmass as a country, and also boasting a democratic political system, is now also known for becoming the country that is single-handedly responsible for over 40% of the new COVID-19 cases globally, with infections soaring by 300 000 cases for 15 consecutive days, while the death toll approaches 4000 a day.
With the rapid spread of the virus in India, it comes as no surprise that many countries have imposed new travel bans to and from the country, with the United Kingdom (UK), Tanzania and Singapore being amongst some of the countries to follow this route. This new COVID-19 variant, could quickly spell disaster for the world should it spread beyond India’s borders.
The India strain has been dubbed a “double mutant” due to the presence of two changes in the virus’s genome, the E484Q and L452R. Both affect a portion of the spike protein, called the receptor binding domain, which is key for the virus to enter cells. Some researchers estimate that the B.1.617 variant is as transmissible as the B.1.1.7 variant that emerged in the UK, thought to be as much as 70% more transmissible than earlier versions of the virus. The virus mutation known as variant B.1.617 has already been found in as many as 17 other countries including Kenya, Morocco and Indonesia, with the World Health Organisation keeping a close eye on the number of infections in these various locations.
While the new variant is known to transmit more easily, it also carries a couple of new symptoms. In addition to the typical COVID-19 symptoms such as fever, pain in muscles, dry and persistent cough, and loss of smell and taste, many patients with the new variant are reporting additional symptoms like conjunctivitis, headaches, diarrhoea, and discolouration of fingers and toes.
Just as fears soared with the initial outbreak in 2020, the new variant also brings along its own set of fears. Rumours that the new variant might not be responsive to the current vaccines have emerged. These fears, however, have been quickly debunked, by Dr Anthony Fauci, the chief medical advisor to the White House, during a press conference last week. Dr Fauci stated that while they are still gaining insight into the new strain, he said, “The most recent data, was looking at convalescent sera of COVID-19 cases and people who received the vaccine used in India, the Covaxin. It was found to neutralise the 617 variants.”
It is not only travel to and from India that came under pressure as a result of the new variant, but the popular cricket tournament, the Indian Premier League (IPL), enjoyed by millions, has also come to a rapid halt. The decision to suspend play came after two more players tested positive for the strain on Tuesday – Wriddhiman Saha of Sunrisers Hyderabad and Amit Mishra of Delhi Capitals. According to mainstream media, the various IPL teams’ management took it up with the Board of Control for Cricket in India (BCCI) forcing their hand in cancelling the league for the time being, to preserve the health of the players. In an official statement the organisation said, ”The BCCI does not want to compromise on the safety of the players, support staff and the other participants involved in organising the IPL. This decision was taken keeping the safety, health and well-being of all the stakeholders in mind.”
The sport and travel industries are however not the only sectors effect by the ongoing calls for stricter nationwide lockdowns. Many more industries are facing an economic chokehold. The health sector is probably the most challenged sector, as oxygen shortages continues to take their toll, while medical professionals struggle to not only find a bed for thousands of patients, but also to attend to those in need of medical care.
ECONOMIC RECOVERIES IN THE MAKING
United States (US) inflation has been the hot topic for the week, even though the Federal Reserve (the Fed) continue to put Quantitative easing (QE) tapering to rest in the near term. This week saw Treasury Secretary, Janet Yellen, acknowledge the pace at which they are seeing economic activity accelerate, and the impact it may have on inflation. The secretary noted that there might be a need for monetary intervention to ensure the economy does not overheat. The US economy is currently expected to grow by 6% this year, in line with its economic rival, China. US Economic data pointed to a strong recovery of the US jobs market, as weekly jobless claims dropped more than expected to a new year low; planned layoffs in April were at the lowest level since 2000; and first quarter labour productivity growth beat market consensus.
Meanwhile, the Bank of England (BoE) announced on Thursday that they were keeping interest rates on hold, while adjusting growth forecasts higher. Andrew Baily, the governor of the BoE, noted that the UK has not seen an economic bounce back, of the magnitude it is currently witnessing, in modern times. The governor noted, that while there are still many uncertainties, including the structure of the economy, the UK economy is expected to gain 7.25% in 2021. Brexit also made its way into the governors address, when he noted, “The MPC (Monetary Policy Committee) has retained its assumption that trade and activity will be lower in the first half of this year as firms adjust to the introduction of new trading arrangements. These additional effects on trade are assumed to dissipate by the end of this quarter.” Policymakers also announced a slowdown in the pace of purchases of British government bonds to £3.4 billion per week, down from its current rate of £4.4 billion.
Investors however will continue to monitor UK local and national elections. Contests are taking place for the governments of Scotland and Wales, the Mayor of London, and English local councils, which will prove to be a major test for both Prime Minister Boris Johnson and opposition Labour Party Leader Keir Starmer. In Scotland, an outright majority for the Scottish National party would increase calls for another independence referendum.
Elsewhere, the Europe Union (EU) launched a strategy on Thursday, that seeks to ensure more Irish nationals take up careers within the EU, noting the Ireland is notable becoming underrepresented at an official level. The strategy includes €4 billion in funding over the next few years to offer more scholarships for Irish students at the College of Europe in Bruges, seen as the gateway to a career in the EU, and will support extra civil servants being seconded to EU institutions.
The euro held steady at $1.20 during the first week of May, down from the previous week’s two-month high of $1.215, as investors awaited a slurry of economic data this week. The Eurozone Purchasing Managers Index (PMI) survey showed the bloc’s private sector activity grew at a faster pace in April, as the service activity returned to growth; while data released on Monday showed Germany’s retail sales rose in March by the most since May 2020. Last week, GDP figures showed the Eurozone entered a double-dip recession in the first quarter, while consumer prices rose in April by the largest margin in two years. The euro booked a 2.5% monthly gain against the greenback in April, supported by optimism about a strong economic recovery and signs of an acceleration in the pace of vaccinations in Europe.
The British pound clawed its way back above the $1.39 mark on Thursday afternoon, recovering from a short-lived drop that sent the currency to a session-low of $1.386, after the BoE kept interest rates and the scale of its stimulus programme unchanged.
The South African rand traded slightly higher around R14.30 against the greenback on Thursday, its highest level since 29 April 2021, amid a softer dollar and after news that South Africa’s governing party, the African National Congress (ANC) had suspended one of its top officials, Ace Magashule. The move is seen as a sign of President Cyril Ramaphosa’s growing control over his divided party.
Herewith follows an overview of the week’s key data:
|Actual||Previous||Forecast or ∆%|
|Markit Manufacturing PMI Final APR||60.5||59.1||60.6|
|Balance of Trade MAR||$-74.4B||$-70.5B ®||-$73.4B|
|Total Vehicle Sales APR||18.5M||17.7M|
|ADP Employment Change APR||742K||565K ®||785K|
|Markit Composite PMI Final APR||63.5||59.7||62.2|
|Initial Jobless Claims 01/MAY||498K||590K ®||545K|
|Markit Composite PMI Final APR||53.8||53.2||53.7|
|Retail Sales YoY MAR||12%||-1.5% ®||8.3%|
|PPI YoY MAR||4.3%||1.5%||4.1%|
|Markit/CIPS Manufacturing PMI Final APR||60.9||58.9||60.7|
|New Car Sales YoY APR||3176.6%||11.5%||100%|
|Markit/CIPS Composite PMI Final APR||60.7||56.4||60|
|BoE Interest Rate Decision||0.1%||0.1%||0.1%|
|Total New Vehicle Sales APR||35.779K||43.428K ®||50k|
|IHS Markit PMI APR||53.7||50.3||50.1|
|ABSA Manufacturing PMI APR||56.2||57.4||58.3|
We are keeping a keen eye on the rapidly rising Covid 19 cases in India, all while cautiously waiting to see the impact on other countries where the new Indian variant of the virus has been detected.
The inflation narrative will remain top of mind, and the focus will be on any indication from the Fed as to whether a sooner than expected monetary policy adjustment will be made. We also await further details on the stimulus package proposed by the Biden administration, totaling a whopping $1.8 trillion.
From a South African perspective, it will be all eyes on Moody’s ratings agency today. While we are not anticipating a downgrade, we do expect the agency to remain critical of the fiscal position, the economic growth trajectory, as well as the state of state-owned enterprises, in particular Eskom.
We started the day trading at R14.20/$, R17.14/€ and R19.76/£.
Written By: Bianca Botes
Citadel Global: Director