March 2021 economic review

The spot price of Brent Crude oil experienced an unprecedented jump of 18.4% from the previous month.

February saw most global equity markets trading positively largely due to large-scale rollouts of Covid-19 vaccines and strong indications that the global economy is on a steady path to recovery.

The MSCI All Country World index yielded 2.3% for the month, however, developed markets performed better than developing markets with the MSCI World Index returning 2.6% for the month versus 0.8% from the MSCI Emerging Markets Index.

The spot price of Brent Crude oil experienced an unprecedented jump of 18.4% from the previous month, closing at $64 for the month. This astronomical increase is largely due to supply constraints from the severe storm that battered Texas and the ongoing Opec supply curtailments.

Gold was 4.2% weaker, while the bulk of metal prices traded in the positive with platinum 12.6% up and copper 16.4% higher. Aluminium and palladium also traded higher, 10.8% and 3.4% respectively for the month.

The benchmark US 10-year Treasury bond rose to a one-year high of about 1.6% on the back of sturdy economic recovery, the $1.9 trillion pandemic package, low interest rates, probable reinflation and massive rollout of Covid-19 vaccines (to date over 100 million Americans have been jabbed).

The US economy grew by an annualised 4.1% q/q. Composite PMI, added a marginal 0.1 point from the previous month closing at 58.8, indicating an accelerated rate of expansion in the private sector activity in nearly six years. Dovish comments by the Fed chairman Jerome Powell before the House Financial Committee helped to dampen bond sell-off, indicating a positive economic outlook and robust economic recovery.

S&P 500 closed 2.8% higher for the month, while the Dow Jones heaped 3.4% for the month and the Nasdaq 100 traded sideways for the month.

The pound sterling gained steam against the US dollar hitting a high of around $1.42 since April 2018. This sentiment was anchored by hopes of a swifter economic recovery, the UK’s fast-paced vaccination programme and the prospect of a post-Brexit trade deal with the EU. Prime Minister Boris Johnson revealed plans to lift all lockdown restrictions by June 21 2021, which is a positive for the economy. The Bank of England kept interest rates unchanged but hinted it would adjust its monetary policy if needed.

In South Africa, market fears were dampened when the government announced that it had secured 80 000 doses of the Johnson&Johnson Covid-19 vaccine. This came against a backdrop of early data that showed that the AstraZeneca vaccine provided minimal shield against the local variant of the coronavirus.

Finance Minister Tito Mboweni presented his much-anticipated budget speech which side-lined the proposed tax increases in favour of fiscal consolidation and tightened expenditure to support the heavily pandemic-butchered economy. He further proposed a R300 billion public service wage bill cut over the next three years to help lessen the ballooning government debt and amassed funding for the nation-wide vaccination programme targeting 67% of the populace.

The minister lowered the corporate income tax rate to 27% as of April 1 2022, however, sadly raised excise duties on alcohol and tobacco products by 8%. Despite the promising budget speech, rating agencies remained cautious over the outlined path of recovery.

Unemployment rose to 32.5% in Q4 2020 marking the highest jobless rate since 2008. Eskom was given the thumbs up to hike tariffs by over 15% as of April 1 2021. Inflation remained within the Sarb’s lower band of 3-6% target range closing at 3.2% m/m.

Manufacturing production increased by 1.8% y/y, exceeding market expectations of a 1.3% drop and well above the 4.1% decline recorded in the previous month. The rand was mixed against major currencies, amassing a marginal 0.1% against the US dollar and 0.4% against the euro, while 1.4% weaker against the pound sterling.

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Mauro Forlin

Global & Local Asset Management


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