THE INDIAN CALAMITY
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.
GLOBAL CURRENT AFFAIRS
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 effected 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.
DATA, ECONOMICS AND POLITICS
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 that Ireland is notably 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 ∆% | |
| US | |||
| 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 |
| EU | |||
| 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% |
| GB (UK) | |||
| 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% |
| ZA | |||
| 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 |
EQUITIES
US stock index futures pointed to a mixed start on Thursday, with the Dow Jones expected to hit a new all-time high, yet again, while the S&P 500 headed for a flat session. The NASDAQ opened in the red. Shares of vaccine manufacturers were under pressure after President Joe Biden said he had backed a World Trade Organisation waiver for COVID-19 vaccine intellectual property. On the corporate front, IBM introduced what they called the world’s first 2-nanonmeter chipmaking technology for faster computing. E-hailing service, Uber, signalled it would pay drivers more to get cars back on the road and disclosed a $600 million charge to provide UK drivers with benefits.
The UK based FTSE 100 traded marginally higher on Thursday,
following a 1.7% rally in the previous session and remaining close to its
highest level since February 2020, amid the ongoing optimism surrounding a
solid economic recovery in the UK and positive earnings updates from Next and
Melrose Industries.
European equity markets eroded early gains to trade in the red on Thursday,
with healthcare firms among the worst performers after the EU backed a plan to
discuss waving intellectual property rights for COVID-19 vaccines. Earlier
during trade, investors hailed buoyant quarterly earnings from AB InBev and
several eurozone banks including UniCredit and Société Générale.
The Japanese Nikkei 225 gained 1.8% to 29331.37 on Thursday as
markets returned to trade for the first time this week, with investors seeming
optimistic following the Nikkei’s fourth consecutive week of losses. Meantime,
Japan’s economy remains under strain, with the nation considering extending a
state of emergency in Tokyo and other major urban areas.
The South African based FTSE/JSE All Share Index traded flat around 67,300 on
Thursday, as investors remained hopeful about a strong global economic recovery
while the market cautiously awaited a scheduled review of South Africa’s
sovereign credit by Moody’s on Friday.
COMMODITIES
Spot gold held firm slightly above $1,790 per ounce mark on
Thursday, as the US dollar eased from two-week highs and US Treasury yields
slipped below 1.6%. Elsewhere, the Fed’s monetary policy is expected to stay
accommodative for some time, despite the improving economic outlook. Chicago
Fed President, Charles Evans, reiterated on Wednesday his concerns about
reaching the 2% inflation goal, while Fed Governor, Michelle Bowman , noted
that the US economy may be growing more quickly than previously expected.
Platinum futures were trading around $1,235 per troy ounce, not far from an
over six-year high of $1,302/oz touched in mid-February supported by robust
demand from the automotive sector due to the global tightening of auto emission
rules and US President Joe Biden’s push for greener policies. On the supply side,
Russian miner, Nornickel, cut its 2021 production guidance in the light of
unexpected mines closures due to water problems. The bull run is expected to
continue as automakers in China and North America are starting to switch to
platinum from more expensive palladium in their autocatalysts, along with new
uses such as hydrogen fuel cells. Demand for platinum is also rising from other
industries such as jewellery and as an investment.
West Texas Intermediate (WTI) crude was little changed around $65.50 a barrel for the third straight session on Thursday, remaining close to eight-week highs, after the Energy Information Administration (EIA) report showed US crude stocks fell the most in three months in the last week. Traders continue to balance optimism over restrictions easing in the US and Europe against rising COVID-19 cases in India. Meanwhile, militants using bombs, attacked two oil wells at an oilfield in northern Iraq Wednesday, the country’s oil ministry said. On the supply side, OPEC+ started this month a gradual easing of oil production curbs after introducing deep cuts since a pandemic-induced oil price collapse in Copper rose to as high as $4.69 per pound, shy of a $4.63 record as inventories stand at levels last seen 15 years ago while speedy vaccination rollouts and trillions in dollars of economic stimulus lift higher demand for metals. Recent economic readings from the US and China reinforced this view, while President Biden’s multitrillion-dollar infrastructure plan lent further optimism to the copper bulls. Adding to the chipper mood, banks like Goldman Sachs and Citi lifted their bets on copper consumption this year, focusing on its longer-term role in a carbon-free world.
On Friday morning, gold traded at $1820.75, platinum at $1258.00 and palladium at $2961.00 an ounce.
LOOKING AHEAD
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/£.
