Since the beginning of time, there have always been the haves and the have-nots. As we look at how fast developed countries are winning the fight against COVID-19, versus their developing counterparts, this notion raises its head once again.But today, in the advent of successful vaccine rollouts, the haves are choosing not to wear masks.
Some of the key themes emerging this past week were:
- Parts of the world drop their masks
- Few surprises at the highly anticipated United States (US) Federal Reserve (Fed) minutes
- Oil is in a supply stalemate
In May, the first steps to going mask free surfaced in the US. Lawmakers agreed that vaccinated citizens were no longer required to wear a mask, nor socially distance. Now, as time passes, more and more states in the US, as well as other developed nations, are taking this step.
However, the trend of not wearing masks is also rapidly spreading to the unvaccinated youth population, where many US school districts are no longer requiring children to wear masks, but rather issuing a safety recommendation to do so; thus leaving the decision in the hands of parents and their children.
This week, United Kingdom (UK) Prime Minister, Boris Johnson, set out new guidelines for the fourth and final step to “unlock the UK”, following the country’s ongoing lockdown restrictions. From 19 July 2021, new laws will see the wearing of masks become voluntary and the one-meter social distancing rule will also become a practice of the past.
By the end of June, this year, eight countries had already adopted no-mask policies, subject to various conditions:
- United States – vaccinated individuals no longer need to wear masks.
- France – individuals are exempt from wearing masks outdoors, however when indoors or using public transport masks are mandatory.
- Denmark – masks are only mandatory when using public transport.
- Greece – the requirement for masks has been waived when outdoors, however, masks remain mandatory when indoors.
- Spain – individuals are allowed to go maskless when outdoors, as long as they maintain a social distance of 1.5 meters. It is however mandatory to always carry a mask in case social distancing is not maintained in certain circumstances.
- Italy – the mask requirement has been waived, but residents are encouraged to remain cautious.
- Iceland – masks must be worn when it is not possible to maintain a two-meter social distance from other people.
- South Korea – individuals vaccinated with at least one shot are allowed to remove their masks outdoors.
The wearing of masks, however, is part of everyday life in many countries, especially those with less access to vaccines and where COVID-19 infections are on the rise. Some examples are:
- South Africa: 328.65 confirmed infections per million people (approximate population size: 59 million)
- India: 14 confirmed infections per million people (approximate population size: 1.36 billion)
- Brazil: 229.66 confirmed infections per million people (approximate population size: 211 million)
*Expressed as rolling seven-day average
While many western countries want to get rid of the pesky mask, mask wearing was a very common practice in many Asian countries, even before the pandemic hit. The reality for the rest of the world, is that as disease control and pandemics become more and more relevant in the years to come, masks will make a comeback to prevent contagious outbreaks in the future.
GLOBE AT A GLANCE
The Fed minutes were the highly anticipated event of the week. However, it turned out to be rather uneventful, with markets barely responding. On Wednesday night, the Fed reiterated that discussions were underway regarding the tapering of current asset purchases, as the US economy continues to stabilise and recover. The Fed noted that the tapering might begin earlier than expected, however, markets were unphased by the reiteration of this news, as most of the speculation has already been priced into markets, and too much uncertainty still remains around the issue.
The surprise of the week, however, came from the US jobless claims. The data revealed an unexpected rise for the week ending 3 July. The release on Thursday showed that 373 000 people claimed for unemployment benefits, exceeding market expectations of 350 000. This indicates that although the labour market has shown significant signs of improvement, the recovery still has a way to go.
The yield on the benchmark 10-year Treasury note recoiled further to a new five-month low of 1.25% during the first few days of July, amid mounting concerns over a slowdown in US and global growth, and expectations that the Fed will not tighten monetary policy any time soon. In addition, signs surfaced that the economic recovery is slowing down.
Taking a look at Europe. On Thursday, the European Central Bank (ECB) announced a new monetary policy strategy, its first strategy review since 2003. The ECB moved to implement a 2% inflation target over the medium term, slightly higher than the previous target which was just under 2%. ECB policymakers also reinforced that interest rates remain their primary monetary policy instrument. Moving forward, the Bank will also include climate change considerations into monetary policy decisions.
It was a rather quiet week in the UK’s economic calendar. However, it is worth noting that Ireland’s annual inflation rate dropped to 1.6% in June, easing from an over two-year high of 1.7% the previous month. The main contributors of upward pressure included higher prices of home heating – oil, electricity, and gas – as well as higher rent and mortgage interest repayments.
The Chinese State Council noted on Thursday that it wants financial institutions to reduce fees while still making profits. It called for banks to benefit enterprises and people, and implied that the People’s Bank of China could increase lending to businesses, as well as reduce the reserve requirements of banks. The move suggested a possible easing of China’s monetary policy, while raising concerns over a slowdown in the world’s second largest economy.
In South Africa, the country continues to wrestle with the third wave of COVID-19 infections. Businesses are increasingly concerned with the possibility of further lockdown restrictions. On the political front, investors are looking for signs of major divisions within the governing African National Congress (ANC), following the jailing of former President, Jacob Zuma, who was sentenced last week to 15 months in jail for contempt of court, for failing to appear before the Zondo commission. It is the first time a former president has been jailed in post-apartheid South Africa and will be seen as a landmark ruling in a country plagued with corruption.
GLOBAL EQUITIES SHAKEN BY THE EASTERN PUPPET MASTER
US equities remained steady this week following Monday’s Observance of Independence Day, with the Dow Jones, S&P500 and Nasdaq all trading around last week’s all-time-high levels. BlackRock Asset Management stated this week that they have currently shifted their interest away from US stocks to European Union (EU) stocks, following Wednesday’s Federal Open Market Committee (FOMC) meeting. The company raised concerns that the Fed is now possibly looking at the option of tapering down the line, which would see inflation potentially rising in the medium-term. US futures traded almost 1% lower on Thursday, mainly due to the Fed’s FOCM meeting discussions, coupled with the concerns of how the Delta variant of COVID-19 could continue to hamper the much-needed traction of the global economy.
European and UK equity markets moved lower on Thursday, mainly on the back of other global factors besides their own, such as inflation fears, the impact of the pandemic, and the global tech stock dip. By Thursday, the UK FSTE 100 had traded 1.6% lower for the week, while the French CAC 40 and German DAX also lost some ground, falling 2.22% and 1.94% respectively.
Looking east, China has had a dramatic week, with the reigning Chinese Communist Party cracking down on listed Chinese-technology-sector companies, both locally and abroad. Wednesday saw the debut listing of Didi, a Chinese-based ride-hailing company (6.8% owned by Tencent) on the New York Stock Exchange. Its listing price was $14.00 and shares continued to trade 28% higher to levels of around $18.01 per share on its first day of trading.
The hype, however, was short lived as the Chinese Cyberspace Administration immediately suspended the ride-hailing app across all platforms, following an enquiry into the illegal collection and use of client data. This, as privacy concerns for Chinese citizens and Chinese national security, raised its head. Following its listing, Didi was valued at around $86 billion, above Lyft’s valuation of $20 billion but under Uber’s $93 billion valuation at current levels. After news of the clampdown of the Didi app, its share price plummeted to $11.91 per share by Thursday evening.
The week, the Shanghai index has remained flat, while Hong Kong’s exchange suffered a more-than 4% blow. The Japanese Nikkei also traded around 2.4% lower this week. The impact of China’s clampdowns on major technology players directly influenced South Africa’s JSE this week. Naspers and Prosus fell by more than 4%, due to Naspers’ Tencent holding in Didi.
Other big stories on the local front saw DP Ports World (a Dubai Government controlled firm) share a cash buyout offer to purchase Imperial Logistics outright from its shareholders at R66.00 per share or an overall consideration of R12.7 billion. The share traded 33% higher on Thursday at levels of around R63.00 per share, following the buyout offer.
Multichoice ran into a wall on Thursday, after Nigeria’s revenue services instructed all their local banks to freeze Multichoice Africa’s bank accounts and threatened to recoup up to R63 billion in unpaid taxes from Multichoice. This, however, is an age-old tactic (tantamount to blackmail or extortion) which Nigeria has used before on foreign companies operating within their borders. Not only is this amount overexaggerated, but it is quite possibly untrue at this point. We will have to watch this space, for the moment. Multichoice traded more than 5% lower on Thursday.
REFINE AND REDESIGN
Both US West Texas Intermediate (WTI) crude oil and the Oil Producing Export Countries (OPEC) Brent Crude saw around 4% corrections this week. This shift was on the back of OPEC+’s infighting around a way forward, given the pace of global economic reopening while oil cut agreements (which limit oil supply) are still in place. Should the oil cut agreements continue to remain in place, the price of Brent Crude could potentially move towards the $90.00 a barrel mark by the end of the year, as supply dries up with a rapidly reopening global economy. On the other hand, should OPEC+ continue its squabbling, we could see an abrupt end to the supply cut agreement. This would result in more oil flooding the market, ultimately bringing oil prices down. On Thursday afternoon, Brent Crude was trading at $73.04 per barrel, while WTI traded near $71.66 per barrel.
Gold spot prices drifted 1% higher this week, with fears of the Delta variant of COVID-19 potentially becoming a near-mid-term issue for economies trying to reopen successfully. Testing its 21-day moving average, gold will continue to battle the $1,800 an ounce level over the next week.
Platinum prices dipped around 2.33% this week to levels of around $1,072 per ounce, while palladium, although quite volatile, remained subdued at the $2,800 per ounce level on Thursday.
The dollar index retreated from the recent 13-week highs to settle around 92.3 amid a fall in Treasury yields on the back of revived concerns over a slowdown in both US and global growth.
The euro traded around the $1.18 mark, remaining near the weakest levels since early April, amid broad dollar strength and after the ECB set its inflation target at 2% for the medium term.
The British pound traded around $1.38 during the first full week of July, not far from a two-and-a-half-month low of $1.3737, hit last week, as concerns over the Delta variant of the COVID-19 virus dampened sentiment, even as Prime Minister Boris Johnson proceeds with plans to remove remaining Coronavirus restriction on 19 July 2021.
The South African rand traded rangebound for the most of the week, sticking to a broad range of R14.20 and R14.40. On Thursday however, the rand traded in the lower range of R14.40 against the greenback. The dollar strengthened, after minutes from the Fed’s June meeting indicated that asset purchases tapering would be met somewhat earlier than policymakers had anticipated.
We started the day trading at R14.33 /$, R16.96/€ and R19.75/£.