Weekly Wrap – 11 June 2021

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Written by Citadel Global Director, Bianca Botes

READY, SET, JET

The focus, this week, has largely been on the recovery of economies. Over the last 16 months lockdown restrictions have been in place for the most part, especially when it came to international travel. Now, it seems that there is finally a light at the end of the tunnel, especially for those looking to spread their wings, and travel abroad.

Key topics this week include:

  • Travel restrictions ease
  • US inflation tops 5%
  • Oil prices breaches $70 per barrel

SPREAD YOUR WINGS

With the rapid spread of COVID-19 across the globe, countries shut their borders equally quickly. As such, the US-based Centre of Disease Control (CDC) moved to rank countries according to their level of risk, ranging from level 1 to level 4, with level 4 typifying the riskiest countries.

Most countries, restrict visitors based on the level of risk of their country of origin. Requirements for entry range from being vaccinated to quarantine upon entry. This week saw the CDC lower its ratings of 61 countries from level 4 to level 3. A further 50 countries were given level 2 or level 1 status. This move has provided some relief for those looking to travel abroad. Included on the list of countries whose risk was lowered to level 3 are South Africa, France, Ecuador, the Philippines, Canada, Mexico, Russia, Spain, Switzerland, Turkey, Ukraine, Honduras, Hungary and Italy. The lowest risk countries (level 1) are currently listed as Singapore, Israel, South Korea, Iceland, Belize and Albania.

The CDC, however, refrained from lowering its risk-rating of the United Kingdom (UK), on Thursday morning. United States (US) President, Joe Biden, is expected to meet with his UK counterpart, Prime Minister Boris Johnson, to discuss the task force that will ensure that travel between the two countries can resume as soon as possible.

Meanwhile, the UK – which still faces lockdown restrictions until, at least, 21 June 2021 – moved Portugal from their green list to their amber list. This move will see returning UK residents having to isolate for 10 days after visiting Portugal. As such, UK holiday makers will be discouraged from visiting the country for their summer breaks. 

The UK’s red list has also been expanded, and now includes Afghanistan, Bahrain, Costa Rica, Egypt, Sri Lanka, Sudan, and Trinidad and Tobago. People arriving to the UK from these destinations will be required to stay in a quarantine hotel for 10 days at a fixed cost of £1 750 per adult.

In the European Union (EU), many countries are considered safe, and on Wednesday, EU lawmakers approved a digital COVID-19 travel passport. This will allow free movement of citizens between European countries without them needing to isolate or undergo additional COVID-19 testing. The system has already taken effect in Bulgaria, Croatia, the Czech Republic, Denmark, Germany, Greece and Poland.

ALL EYES ON INFLATION

When it comes to monetary policy, and the subsequent tightening thereof, all eyes are on inflation, and not just in the US. While the US is by far the most crucial when it comes to market movements, inflation driven by economic recovery is a global phenomenon, especially given the current monetary policies countries have adopted to fight the economic slowdowns brought on by the pandemic.

In the US, the annual inflation rate released on Thursday, accelerated to 5% in May, up from 4.2% in April. This figure overshot market expectations of 4.7%. It is the highest reading since August of 2008, resulting from the low-base effect from last year, when the Coronavirus pandemic hit the economy. Rising consumer demand as the economy reopens, soaring commodity prices, supply constraints, and higher wages as companies wrestle with a labour shortage, have all contributed to the higher-than-expected rise in inflation.

Looking at some of the inflation data from the eurozone, Denmark’s annual inflation rate increased to 1.7% in May of 2021 from 1.5% in the previous month. This was the highest inflation rate since December 2012, mainly bolstered by a rise in transport prices (4.8% vs 3.8%) caused by higher petrol and diesel prices. Norway’s inflation rate, however, dipped to 2.7%in May of 2021, down from 3% percent in the previous month, and below market consensus of 2.9%. It was the lowest inflation rate since January, as prices accelerated slower than expected for transports, furnishing and household equipment, and routine maintenance, while prices declined further for food and beverages, clothing, alcoholic beverages, and tobacco. Greece’s consumer prices climbed by 0.1% year-on-year in May, the first annual increase since February 2020.

Meanwhile, in other data events, the European Central Bank (ECB) on Thursday held interest rates at record-low levels, leaving the pace of emergency bond purchases unchanged. This comes even as policymakers acknowledge an improvement in growth prospects due to the ongoing reopening efforts and the rapid pace of COVID-19 vaccinations.

The EU economy contracted by 1.3% year-on-year in the first quarter of 2021, much less than a preliminary estimate of a 1.8% contraction, while the Gross Domestic Product (GDP) in South Africa contracted by 3.2% during the same period, but was up 4.6% quarter-on-quarter.

South African mining production soared at a record pace in April 2021, jumping 116.5% from April 2020, following an upwardly revised 22.5% jump in the previous month and a higher-than-market expectation increase of  105%. It is the biggest ever increase on record, coming off a low base last year when mining fell at a record 50.7% due to the pandemic. The largest contributions came from platinum group metals, gold, manganese ore, and iron ore.

Thursday also saw the release of initial jobless claims in the US. The number of Americans filing new claims for unemployment benefits dropped to 376 000 in the week ending 5 June, reaching the lowest level in nearly 15 months. The US labour market continues to be supported by broader economic reopening and subsequent growth amid a steady decline in the number of daily COVID-19 cases and the rapid pace of vaccinations.

The yield on the benchmark 10-year Treasury Note rose above 1.51% on Thursday, having touched a near three-month low earlier in the session. This on the back of the higher-than-expected inflation rate.

UNEVENTFUL GLOBAL STOCKS

European shares held onto minor losses on Thursday, after the ECB maintained an accommodative policy stance, stating that emergency bond purchases under the Pandemic Emergency Purchasing Programme (PEPP) would continue to be conducted at a significantly higher pace in the next quarter than during the first months of the year.

The UK FTSE 100 was up, marginally, at 7 100 points on Thursday, boosted by an over 2% jump in shares of telecommunications company, BT Group, after Altice Group said it had taken a 12.1% stake in what is Britain’s largest broadband and mobile operator.

The Japanese Nikkei 225 gained 0.34% on Thursday, clawing back the earlier losses of 0.35% in the previous session, as investors proved optimistic on the prospects of a post-pandemic economic recovery.

OIL TRYING TO MAKE A RUN FOR IT

Wednesday saw the black gold soar to levels last seen in 2018, hitting prices above $70 per barrel. On Thursday however, inventory data in the US showed a surge in gasoline stocks that indicates weaker-than-expected fuel demand at the start of summer. This led to a breather in the oil-price rally. Adding to supply, Reuters reported that Libya’s Waha Oil Company, who were hoping to return to normal output operations on Thursday, after fixing a leak on a pipeline that more than halved the company’s oil production. Traders now await the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency’s (IEA’s) June Oil Market Reports later in the day and on Friday, respectively.

Gold prices crept lower, trading around the $1 880 level an ounce on Thursday, as a slightly higher dollar, ahead US inflation report, swept across markets.

Copper futures traded around $4.50 per pound on Thursday, near a five-week low of $4.40 reported last week amid signs of weakening global demand, following China’s export data coming in below market expectations. In addition, the Yangshan copper import premiums, a gauge of China’s import demand, dropped to their lowest since at least 2012 last week. This indicates a drop in the country’s appetite for overseas metal amid tightening financial condition and slowing credit growth.

Palladium futures continued their upward momentum trading above $2 800 per troy ounce, as supply is expected to fall short for the tenth consecutive year, amid strong demand. Tighter car pollution standards in Europe and China are pushing up the demand for the metal, which is used in catalytic converters.

ALL EYES ON THE DOLLAR

The euro held onto levels near $1.217 on Thursday, down from an over four-month high of $1.2265 hit in May, after the ECB maintained an accommodative policy stance as expected. The continuous broad dollar weakness and hopes of a strong economic recovery in Europe continued to support overall sentiment towards the euro.

The US Dollar Index inched up to 90.2 on Thursday, ahead of the crucial Consumer Price Index (CPI) release, that will pave the way for the Federal Reserve Monetary policy in the months to come.

It was a quiet day for the sterling, as the pound shed 0.01% against the dollar to £1.4110 on Thursday, from the £1.4111 level in the previous trading session.

The rand traded stronger against the greenback towards the end of Thursday, after reaching a low of R13.75 during US trade on Wednesday.

We started the day trading at R13.58 /$, 16.55/€ and R19.25/£.