We have all become accustomed to a rather strange way of living, as COVID-19 has seemingly turned everyday life onto its head – and the markets are no exception.
PANDEMIC SAGA CONTINUES
The US has had a difficult time managing the COVID-19 pandemic. However, other significant risks are also on the horizon as the country continues to enforce travel bans and certain restrictions. For instance, while South Africa has been flagged as a high-risk country as a result of the “South African variant” of the virus, the US state department recently announced that it will be making certain exceptions for South African travellers to enter the country, and especially those working in the agricultural sector under the H-2 visa. This decision forms part of the effort to ensure US food security, as local labour in this specific category remains limited.
President Biden also had his hands full this week, speaking with Australian Prime Minister Scott Morrison for the first time since becoming president. Tensions between Australia and China have soared amidst ongoing trade disputes, and following the recent coup in Myanmar, many hope that the US-Australia relationship will ensure peace and stability within the region.
The United Kingdom (UK) is also battling the virus on all fronts, and although the number of infections is still “alarmingly high”, Prime Minister Johnson emphasised this week that it is not practical to completely close the UK borders given its reliance on food and medicine imports. In some good news for the country, however, the UK seems to have made its way through the latest peak, with new infections falling 29% in the week to 27 January from the previous week. The UK is also leading the charge in the vaccine rollout, having surpassed the 10 million mark, bringing some hope to the region that has been particularly hard hit by a second wave.
By contrast, the European Union (EU) seems to be on a slippery slope as panic around the vaccine rollout and shortages in the region continue to snowball. This saw Brussels threaten to trigger Article 16 of the Northern Ireland Protocol to keep vaccines from entering the UK. At this point in time, it seems that the EU’s vaccine rollout plans have been derailed, with no clear strategy for setting these plans to rights.
Meanwhile, China seems to be doing well at curbing the spread of the virus – or so we are told. China reported only 25 new cases on Tuesday, compared to a staggering 116,000 cases in the US. While China is not including asymptomatic cases in its numbers, the overall infections still seem fairly low compared to the rest of the world, leaving many questioning whether the Asian powerhouse’s statistics are reliable.
Below follows a quick summary of key data for the week:
|Forecast or ∆%
|Markit manufacturing PMI final JAN
|ISM manufacturing employment JAN
|Markit services PMI final JAN
|Initial jobless claims 30/JAN
|Unemployment rate DEC
|GDP growth rate YoY flash Q4
|Markit Composite PMI final JAN
|Inflation rate YoY flash JAN
|Retail Sales YoY DEC
|BoE interest rate decision
|BoE quantitative easing
|New Car Sales YoY JAN
SA ANXIOUSLY AWAITS CRITICAL SONA AND NATIONAL BUDGET
Local politics remains focussed on the state capture inquiry, with all eyes on ex-president Jacob Zuma and his public defiance of the recent Constitutional Court’s ruling that obliges him to appear in front of the Zondo Commission. In another twist in the ongoing saga, entangled ANC secretary-general Ace Magashule also publicly defended Zuma when approached by journalists on the matter.
As February unfolds, increasing attention is being paid to the upcoming State of the Nation Address (SONA) by President Ramaphosa, as well as the National Budget which is due to be delivered by Finance Minister Tito Mboweni. Just like every other year, speculation is rife. But this time around, fears of a sovereign debt crisis have been added into the mix.
Minister Mboweni has repeatedly warned that South Africa’s fiscal behaviour urgently needs to change, and the biggest task for our government in the 2021 budget year will be to stabilise its debt and clamp down on spending. Unfortunately, this is something that government has found particularly challenging, especially regarding state-owned enterprises (SOEs) and the public sector wage bill.
Ratings agencies such as Moody’s and S&P will be keeping a close eye on our local fiscal metrics. A report issued by S&P on Tuesday highlighted how low GDP growth in countries such as Japan, Brazil and South Africa could make it even more difficult for governments to improve their financial positions.
The local currency, however, seems to be ignoring these fears, with the rand maintaining its footing against the USD. While this might seem a little upside down or counter-intuitive, the market is currently driven by:
2. The hunt for yield
3. The collective power of a betting world
On the pandemic-front, South Africa will be receiving an additional 3 million doses of COVID-19 vaccines as part of the Covax initiative. South Africa aims to vaccinate health workers and those with co-morbidities as soon as possible, and these individuals will be prioritised during the first phase of the vaccination program.
In terms of data, Absa manufacturing PMI beat expectations, reaching 50.9 points in January, while new vehicle sales undershot the mark, as the motor industry continues to show signs of pain.
We will be keeping an eye on the upcoming SONA, as well as policies pertaining to economic development and SOEs. The address is scheduled to take place on 11 February.
On the international front, we still await news on potential fiscal stimulus from the US that could see the Democrats bypass the Republicans.
The local currency continues to fare well, as major currencies remain under pressure amidst the chaos of the pandemic and the ongoing search for yield, regardless of the underlying fundamentals at play.
Data expected during next week includes:
- U•S consumer inflation expectations
- US JOLTs job openings
- CN inflation rate & PPI
- Local SACCI business confidence
- US inflation rate
- Local gold, mining and manufacturing production
- US jobless claims
- UK manufacturing, construction and industrial output
- UK GDP
- EU industrial production
The rand started the day trading at R15.02/$, R17.96/€ and R20.53/£.