Peregrine Treasury Solutions | Weekly Wrap

209

PUBLIC SCRUTINY

They may be accustomed to drawing the spotlight, but politicians globally are facing increased scrutiny as COVID-19 vaccine programs are rolled out – some slower than others, with any instances of corruption quickly being laid bare for all to see. The reality is that in the modern age, there is nowhere to hide.

GLOBAL DATA AND POLITICS

Since the inception of the pandemic, interest rates and quantitative easing have been the name of the game, with governments and central banks pouring trillions into the economy to counter the damage caused by the pandemic. Interest rates made headlines yet again this week, as the European Central Bank (ECB) rattled markets following Governing Council member Klaas Knot’s statement that if necessary, the ECB would look to further cut the deposit rate to reach its inflation target.

The euro had gained a whopping 15% since March 2020, but these comments saw the euro give up ground against the greenback, as most of Europe remains in lockdown and the eurozone continues to struggle against the impacts of the virus, vaccine rollouts and restrictions on the economy. ECB President Christine Lagarde warned that the pandemic continues to pose a serious risk to the economic health of the European Union (EU), emphasising that economic performance remains uncertain. While the EU started its vaccination program in December 2020, it has been an onerous task and progress has been much slower than initially anticipated. Many regions are further complaining about a shortage of doses – an issue that the New York Times recently highlighted as a snowballing crisis.

The situation in the United Kingdom (UK) remains bleak as it sadly breached the grim milestone of 100,000 deaths this week. The UK is now saddled with one of the highest death rates in the world and the highly contentious Boris Johnson is certainly not winning in the popularity front, as many point the finger directly at the Prime Minister. However, just like the EU, obtaining supply of the vaccine remains the UK’s greatest challenge, even as it leads the global charge in the vaccination rollout. There are now concerns that vaccines that were ordered and paid for by the UK might still be diverted to the EU amidst the severe crises in the bloc.

While cases in the United States (US) are steadily trending downward, the threat of the pandemic is far from over. January proved to be one of the virus’ deadliest months in the US, causing over 80,000 deaths, and the Centres for Disease Control and Prevention (CDC) estimates that February could see a further 84,000 deaths.

Vaccinating the nation against the virus has also proven to be a challenging task for the country. A mere 50% of the distributed doses in the US has been administered, giving rise to concerns that it could take months for everyone willing to take the precautionary vaccine to receive it. The US has turned to servicemen and women to assist in the administration of the vaccine and is also looking to government to broaden the list of people who will be allowed to administer the vaccine.

The CDC moved to eliminate some fears around the virus this week, stating that there are no signs of safety concerns. Data has indicated that an allergic reaction to the vaccine has been largely ruled out, with just 2.1 cases per million where the Moderna vaccine has been administered and 6.2 cases per million in the case of the Pfizer vaccine. In an effort to debunk fears around the vaccines, the CDC emphasised during a White House briefing that the chances of contracting the virus far outweighs the chances of an allergic reaction, and that even the most severe reactions are treatable.

Taking a look at data for the week, below follows a quick summary:

  Actual Previous Forecast or ∆%
US      
Durable goods orders MoM DEC 0.2% 1.2% ® 0.9%
Fed interest rate decision 0.25% 0.25% 0.25%
Initial jobless claims 23/JAN 847K 914K ® 875K
New home sales MoM DEC 1.6% -12.6% 1.9%
       
EU      
Consumer confidence final JAN -15.5 -13.8 ® -15.5
       
UK      
Unemployment rate NOV 5% 4.9% 5.1%
       

GLOBAL EQUITIES

This week saw some risk aversion, with quite a few indices entering negative terrain for the week as some caution snuck into the market.

On the international front, the most notable stock-making headline at the moment is definitely GameStop, a retail company in the US that mostly trades in video games. The share has managed to climb a showstopping 2,000% in the year to date – and no, that is not a mistake. The reason for this massive climb is far less technical than one may think and has little to do with earnings or even growth prospects. Rather, this climb has its origins in a chat group on Reddit with one aim: to squeeze hedge funds by driving the price in the opposite direction. Now this might sound bizarre, but this type of trading is becoming more and more prevalent, even as its legality is called into question.

Year to date, as at the time of writing, the Dow was trading softer by 1.06%, while the S&P 500 has shed 0.39%. Looking towards Europe, the DAX was in the red by 1.56% year-to-date, compared to the Japanese Nikkei which added 2.74% for the same period.

COMMODITIES

Gold continued to feel the pinch as investors returned to the dollar as a safe haven bet, with gold now trading 3.02% softer since the beginning of the year.

Although oil traded negative for the week, the black gold overall remains in the green for the year thus far, adding close to 8%. Crude oil futures have been trading above $52 a barrel in the past week, but the price edged below the recent 11-month high as widespread travel restrictions continue to give rise to worries over fuel demand. Chinese authorities ordered citizens to avoid travel during the Lunar New Year holidays that will begin in mid-February, and the UK has also clamped down on travel, requiring those people arriving from high-risk COVID-19 countries to quarantine for 10 days and barring outbound trips for all but exceptional reasons. However, oil price losses were limited owing to a surprise draw in US crude inventories last week and tighter global supplies, owing to Iraq’s voluntary production cuts and the US industry facing stricter regulations under Joe Biden’s administration.

Platinum shed 6.27% over the past week, followed by silver dropping 2.66%. Copper continued its decline by falling 2.89% for the same period, while palladium shed 2.87%.

On Friday morning, gold traded at $1844.55, platinum at $1074.20 and palladium at $2336.00 an ounce.

SOUTH AFRICAN FUNDAMENTALS

Marking a victory in the fight against corruption, the Constitutional Court has ruled that Jacob Zuma must appear before the Zondo Commission and that the former president will be obligated to answer questions posed to him with regards to the state capture scandal. The ruling by the Constitutional Court found that the allegations against Zuma are of such serious nature that they pose a threat to democracy in South Africa, and that it is crucial for public faith in our judicial system and our government that these allegations are assessed and put to bed.

The details emerging from the state capture inquiry have many South Africans shaking their heads in disbelief, revealing how the same officials appointed to manage to country for the benefit of all citizens ended up being the very officials stealing from the nation. The State Security Agency (SSA) came under particular scrutiny this week, with Sydney Mufamadi, former chairperson of a panel that investigated the SSA, alleging that the panel had received evidence that irregular payments as high as R4.5 million a month were at one time being paid to Zuma.

Meanwhile, the country finally received an update on Wednesday regarding the local vaccination program, as government announced that a vaccination data system is currently in development that will cater for details such as:

• Patient information, including demographics and number of doses;
• Safety information such as possible adverse events following immunisation; and
• Details of vaccine administration sites.

Health Minister Mkhize confirmed that one million dosages are scheduled to leave India on Sunday 31 January 2021 and will arrive in the country on Monday 01 February 2021. A further 500,000 vaccine doses are set to arrive in the country later in February.

In a quarterly bulletin released by Citadel Wealth Management, Chief Economist Maarten Ackerman has further explored how the positive global environment is currently being reflected in the rand, local bond markets and even on the JSE. (Read the full overview here)

SOUTH AFRICAN EQUITIES

The FTSE/JSE All Share Index (ALSI) in South Africa extended losses for a third day in line with global markets, falling 0.5% to a more than three-week low of 62,502 on Thursday, as investors reacted to a downbeat economic outlook from the US Federal Reserve and the worsening COVID-19 health crisis.

The JSE ALSI on Thursday suffered a 2.07% week to date loss, while the Top 40 index closed 2.01% softer, reaching 57,787 points.

Looking at SA indices’ performance for the year to date:

• All Share (J203): 5.68%
• Top 40 (J200): 6%
• Resources 10 (J210): 3.48%
• Industrial 25 (J211): 10.19%
• Financial 15 (J212): -1.94%

LOOKING AHEAD

Locally we are gearing up for the State of the Nation (SONA) scheduled for 11 February, which will be followed by a nail-biting Budget Speech at the end of February. The budget will be particularly in focus as ratings agencies are keeping a close eye on the strained economy and deteriorating local fiscal metrics.

Globally we will be watching vaccination rollouts, as well as being on the alert for any signs of an ease in restrictions – especially in the US and EU.

Data expected during next week includes:

Monday:
• CN Caixin Manufacturing PMI
• EU Markit Manufacturing PMI and unemployment rate
• US manufacturing orders and employment

Tuesday:
• EU GDP
• US total vehicle sales

Wednesday:
• EU inflation rate and services PMI
• Local Absa manufacturing PMI
• US Composite PMI

Thursday:
• UK interest rate and QE decision
• US jobless claims and non-farm productivity

Friday:
• US non-farm payrolls and unemployment rate

The rand started the day trading at R15.23/$, R18.43/€ and R20.89/£.