Weekly Market Wrap – 12 March 2021

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By Bianca Botes

THE BROKEN BLOC

Psychologist Jordan B. Peterson notes, “You are going to pay a price for everything you do, and everything you don’t do. You don’t get to choose not to pay a price. You get to choose which poison you’re going to take. That’s it.” In other words, there are no actions without consequences and no crises without fallout. Ultimately, as many of us have learned over the past year, all we can do is respond in a manner that we hope will result in the best outcome.

GLOBAL CURRENT AFFAIRS

Europe has faced many struggles over the past few years, with economic difficulties and challenges such as countries looking to leave the bloc haunting the European dream.

One of the most pressing matters the bloc is currently facing is the pandemic and its economic fallout. Unfortunately, the pandemic has given rise to issues that will directly and indirectly continue to affect the bloc – and likely the world – for many more months and even years to come. On this front, some notable issues include:

• Vaccine shortages:

With the COVID-19 wave intensifying in Central Europe, the vaccine rollout is becoming increasingly pressing, and tensions continue to run high. On Tuesday, Czech authorities sent its first patient abroad for treatment in Poland, as its local facilities struggled to cope with the influx of cases. Meanwhile, in Hungary, the number of cases in the current wave has surpassed the previous peak in December.

Cases are also on the rise in Poland, where the government on Wednesday recorded the highest number of daily cases since late November, with 17,260 new infections. A health ministry spokesman complained of “increased looseness” among Poles towards general protection measures.

The dispute between the United Kingdom and European Union is ongoing, and news outlets reported this week that the EU has exported in the region of 34 million doses of highly-sought vaccines, even as shortages continue to plague the bloc itself.

• The speed of vaccinations:

As of 09 March 2021, the UK had the highest COVID-19 vaccination rate, having administered 35.02 doses per 100 people in the country. The UK was the first country in the European region to approve the Pfizer/BioNTech vaccine for widespread use, and began inoculations on 08 December 2020.

Serbia had carried out 25.73 doses of the vaccine per 100 people, followed by Malta with a vaccination rate of 23.05 per 100 people. But despite Russia being the first country in the world to authorize a COVID-19 vaccine (Sputnik V) in August 2020, it has only administered 4.59 doses per 100 people in the country.

Source: www.statista.com

• Lost revenues, and the time it will take to regain lost growth and profits:

Europe continues to suffer in line with the rest of the world, but certain countries withing the bloc continue to take particular strain as tourism industries see the effects of COVID-19 outbreaks, public anxiety, and continuous restrictions. Countries such as Greece, Spain, Italy, France and the UK have been among the hardest-hit countries within the region.

On Tuesday, the OECD warned that while they are positive about an economic recovery, the sluggish rollout of the vaccine could lead to further job losses and a slow economic turnaround, seeing billions head down the drain for months to come.

• The mental health of workforces, and employees’ ability to perform

While it is good and well to have workforces vaccinated and return to full operational capacity, the productivity of a workforce depends heavily on the mental and emotional state of employees. Europe has been one of the hardest-hit regions in the world, and the resulting mental and emotional damage inflicted by the pandemic on its citizens will make it more difficult for the economy to return to a state of health. This is not only because of the loss of production resulting from mental health problems, but also owing to the medical costs attached to the treatment of pandemic-induced mental issues.

DATA AND ECONOMICS

With the massive stimulus bill from the US, the Paris-based Organisation for Economic Co-operation and Development (OECD) expects the additional stimulus to add an additional 1% to the global economic growth for 2021. The Chief Economist of the OECD, Laurence Boone, expects that as a result, the global economy will expand by 5.6% this year.

The stimulus bill, known as the “American Rescue Plan”, is one of the largest US government interventions in the economy of the post-Second World War era.

The European Central Bank (ECB) announced on Thursday that while it is keeping its program as is for now, it expects to increase its bond purchases significantly in the next quarter. Bond yields in the eurozone have been rising since February, following the US higher after President Joe Biden announced a massive fiscal stimulus plan.

There are fears that rising yields could derail the economic recovery in Europe by raising borrowing costs for countries already struggling with the crisis that has resulted from the coronavirus pandemic.

The euro touched a session low of $1.1942, before returning to the $1.195 level after the ECB left monetary policy unchanged, adding that it would conduct emergency bond purchases at a significantly higher pace over the next quarter, aiming to curb rising bond yields and support the bloc’s economy. The euro has recently been under pressure as investors continue to monitor the slow pace of COVID-19 vaccinations in the EU and the consequences of this for Europe’s economic recovery.

Inflation fears and rising bond yields have been the talk of the town for the past few weeks, but US data this week (refer to the below table) relieved some of those fears. The US, But while its economy is recovering, the US remains at risk, and many analysts expecting inflation to rise by 3.1% – the highest inflation expectation since December 2014. The US Federal Reserve is targeting an inflation rate of 2% before it is expected to begin interventions to counter inflation.

The UK and its businesses are still seeing the effects of Brexit, after its December 2020 exit from the EU. Food manufacturers are yet again feeling the noose tighten as more bureaucracy makes its way into the system. On 21 April 2021, new focus on multi-ingredient food services will result in not only additional paperwork, but also in additional costs for producers.

The British pound firmed above $1.39 during the second week of March, as investors hope for a quicker economic recovery in the UK due to the continued success of its vaccination rollout programme coupled with massive fiscal and monetary stimulus packages.

Bank of England Governor Andrew Bailey reiterated on Monday that the central bank’s decision to ask banks to make preparations within the next six months (in case it needs to use negative interest rates to provide further support) did not imply anything about policymakers’ intentions in that direction. Bailey also said that his assessment of Britain’s economic outlook was “positive but with large doses of cautionary realism”.

Locally, the state of disaster has been extended by another month, as South Africa continues to comply with level 1 restrictions following the move from level 3 restrictions at the beginning of March. With the rollout of the highly anticipated vaccine program, South Africa is currently vaccinating an average of 10,000 people a day.

The South African rand clawed back some of its recent losses to trade at R15/$ on Thursday, after latest data showed that both the manufacturing and mining sectors contracted in January by more than market estimates.

Meanwhile the current account surplus narrowed in the fourth quarter compared to the previous period. Earlier in the session, the currency touched a near two-week high of R14.90/$ on the back of a softer dollar and sliding Treasury yields.

Taking a look at some of the data released this week:

GLOBAL EQUITIES

Dow Jones and S&P 500 futures extended their rallies on Thursday, and the Nasdaq rebounded to gain around 2% after the $1.9 trillion stimulus bill was passed, with President Biden expected to sign the bill by Friday.

Stable Treasuries and easing concerns over runaway inflation also supported bullish sentiment. Tesla shares were up around 5% in pre-market trading, as Tesla’s Model Y was the third best-selling electric car in China in February, according to data released by the China Passenger Car Association. On Wednesday, the Dow Jones jumped 1.5% to a record high of 32,297. The S&P 500 rose 0.6% to 3,899.

The UK-based FTSE 100 rose marginally on Thursday, after snapping a two-day winning streak in the previous session, as global sentiment was boosted by the $1.9 trillion stimulus plan by the US. On the corporate front, aerospace engineer Rolls-Royce posted a deep loss for 2020.

Major bourses in Europe continued to trade higher on Thursday, with the DAX hitting new highs after the ECB left monetary policy unchanged and signalled faster money-printing over the second quarter of the year.

The Nikkei 225 climbed 0.6% to 29211.64 on Thursday, lifting further from five-week lows as investors proved optimistic on expectations of a strong US economic recovery. Long term bond yields eased, with local 10-year rates at three-week lows of 0.101%, while US 10-year bond yields stabilized at 1.52% after US price data came in line with consensus market expectations, soothing investor concerns over fast post-pandemic inflation.

SOUTH AFRICAN EQUITIES

The FTSE/JSE All Share Index (ALSI) in South Africa rose as much as 0.6% to 68,920 on Thursday, as investors worldwide welcomed the passage of the $1.9 trillion stimulus plan. At the same time, inflation concerns eased as Treasury yields continued to retreat. however. The JSE also tracked the widespread Asian technology share rally.

Deutsche Konsum Reit-AG (DKR), a German property company, listed on the Main Board of the Johannesburg Stock Exchange (JSE) this week, becoming the third company to join the exchange this year.
JSE Director of Capital Markets Valdene Reddy stated, “This listing by DKR reaffirms the JSE’s position as a preferred listing destination. It is in line with our strategy to attract trading from international markets and dual listings. We believe the listing will serve as a springboard from which DKR propels its next growth phase.”

DKR’s listing brings to 38 the number of companies in the Real Estate Investment Trust (REIT) sector. A REIT is a company that owns and operates properties such as shopping centres and office blocks. The REIT sector has a total market capitalisation of R283.27 billion, and constitutes 1.4% of the overall JSE market capitalisation.

Taking a look at some of the moves on Thursday:

• Naspers subsidiary, Prosus NV, added 2.1%
• AngloGold Ashanti gained 1.3%
• Pan African Resources Plc rose by 1.1%

COMMODITIES

Gold rose towards $1,740 an ounce on Thursday, after touching on its highest level in more than a week and consolidating the rebound from a nine-month low of $1,676 hit earlier this week, as a weaker dollar and lower US Treasury yields drove buying into the bullion.

Oil prices extended gains for the second session on Thursday, with WTI crude climbing above $65 a barrel, supported by a higher fuel demand outlook and OPEC output cuts. Meanwhile, the latest EIA data showed that US crude stocks rose more than expected in the week ended 05 March 2021, while gasoline inventories declined at a faster than expected pace.

LME copper futures bounced back to trade above $4.1 a pound, driven by expectations of an industrial demand spark on the back of a strong economic revival in 2021, and as a result of the fact that many government measures to combat the fallout from the virus seem to be aimed at EVs and green projects. Adding further upward pressure, copper production in top-producing country Chile has been declining since mid-2020, and a possible strike at Antofagasta’s Los Pelambres mine has further threatened supply.

On Friday morning, gold traded at $1715.85, platinum at $1206.80 and palladium at $2330.75 an ounce.

LOOKING AHEAD

With the fiscal stimulus package finally approved in the US, and inflation fears eliminated for now, there is a sense of optimism in the market.

We will keep an ear out for the Eurogroup video conference taking place next week, as well as a slurry of data from the US, including retail sales, production numbers, and, of course, employment data. Locally we will keep an eye on retail sales, while the EU is due to release inflation numbers, and the BOE will take the stand to release its interest rate decision.

The rand remains volatile, while trading stronger after significant losses earlier this week. A range of R14.80- R15.10/$ has now come into play.

The rand started the day trading at R14.90/$, R17.81/€ and R20.80/£.