During this last week both the ANC’s National Executive Committee and the National Coronavirus Command Council strongly indicated that a return to last year’s hard lockdown was unlikely which augers well ahead of this Friday’s scheduled Family Meeting. Rumours of a return to hard lockdown had been circulating throughout the week and only gained momentum as South Africa recorded more than 20,000 confirmed positive coronavirus cases on each of four days late last week. This partly explains the rand weakening beyond 15 to the US dollar; given the inevitably devastating economic consequences of harder lockdown states. The total number of South African confirmed positive cases is approaching 1.25 million with more than 33,000 deaths. The active case count is the highest it has ever been. Globally the respective numbers are 90 million confirmed positives and approaching 2 million deaths, with roughly 20-25% of these in the United States alone.
Also in the US, headlines were made as pro-Trump supporters stormed the US Capitol building as President-elect Joe Biden’s victory was being certified by the US Senate. The immediate fallout has been swift with both Twitter and Facebook banning President Donald Trump from their platforms, but more dire consequences perhaps lie in wait with talk of impeachment or the invoking of the 25th Amendment. Both of which are being sought in order to remove Trump from office before Biden’s inauguration on the 20th of January. Additionally, in an eventful week on the US political front, were the Georgia Senate run-off elections which saw two seats move from the Republicans to the Democrats: giving the Democrats the majority in the Senate. This places the office of the President, the Senate and the House in the care of the Democrats for the next 2 years. That being the amount of time to the mid-term elections.
Markets see control by the Democrats as paving the way to larger stimulus measures with speculation rife that $2,000 checks and a $1 trillion stimulus bill are firmly back on the table. As this weakens the US balance sheet, the yield on the US 10-year nominal government bond has moved firmly above 1.1%. On the back of the resolution of the Georgia elections, more pro-growth policies and more attractive long-term yields the US dollar strengthened back above 90 on the US dollar index (a trade-weighted basket of currencies, helpful for assessing dollar strength/weakness on a global basis). For completeness: the market had seen a split Democrat/Republic power structure as being positive for mega-cap tech stocks which goes some way to explaining why underperforming value stocks have been somewhat more in favour recently.
With three vaccines in the Western world in various stages of approval and/or distribution together with one each in Russia and China and many, many more being developed globally, risk-taking activity was very much on last week. This despite harder lockdowns in the UK, Sweden, Tokyo and parts of South-East Asia. The S&P 500, the Dow Jones Industrial Average and the Nasdaq all set record highs. As did our very own All Share Index; now above 63,000. Tesla continues to astound and has made Elon Musk the world’s richest person this last week, overtaking Amazon’s Jeff Bezos ($195 billion plays $185 billion).
Worth noting from last week: Saudi Arabia cut oil supplies which, together with a more risk-taking environment, saw oil prices rise above $50 a barrel. Combine this with a weak rand and South African consumers can expect further increases in the retail price of fuel as we experienced in the first week of January this year. This may however be offset by lower interest rates: the market is now forecasting two cuts of 25 basis points in the repurchase rate over the next six months with the first perhaps occurring as soon as this month’s meeting of the South African Reserve Bank’s Monetary Policy Committee.
The last edition of the weekly Chart Book can be found here.
As always, please stay safe, wear a mask.
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