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Mid-April 2021 economic review

Gold retreated by 11% for the quarter as risk-aversion slowly and surely diminishes.

Risk assets in several parts of the world recorded excellent progress for the period, thanks to positive investor sentiments anchored by progress in vaccine rollouts in several parts of the world, rapid growth in economic growth and lastly the US government’s 8-year infrastructural development of about US$2.25 trillion.

Despite, the gains made and positive market sentiments, the spread of coronavirus and its variants dampened this mood which has a ripple effect on growth. Fears of US inflation and interest rates which led to US bonds weakening further resulted in decimating market sentiments.

US consumers started to receive stimulus checks from the government amid a quicker than expected vaccination programme. According to Centres for Disease Control and Prevention (CDC), a total of 195 million vaccines have been administered. This cheered a more positive outlook among consumers and investors. Additionally, the huge Biden led proposed infrastructural spending programme also contributed to this positive outlook.

The US Federal Reserve decided to leave interest rates unchanged, despite its upward revision of GDP growth forecast for 2021 to 6.5% from 4.2% in the previous quarter. Jerome Powell, chairman of the Fed Reserve, pointed out that, despite the rising US Treasury yields and a rise in February CPI to 1.7 y/y from 1.5% in January, the apex bank will keep rates on hold through 2023 and is not relatively worried about inflation growth.

The yield on the 10-year US Treasury bond rose to over 1.7% during the quarter, peaking to a one-year high as the yield curve continues to steepen displaying investors’ inflation fears. The S&P 500 returned 6.2% for the quarter, while the Dow Jones yielded 8.3% and the heavily-tech ladened Nasdaq 100 recorded 1.8% for the same period.

Hopes for quickened growth were uplifted in the United Kingdom largely due to the fast-tracked implementation of the country’s vaccination programme. Additionally, Boris Johnson’s administration unveiled plans to lift all pandemic related restrictions by June 21, this also boosted the buoyed mood in the country.

The UK’s 2020 fourth-quarter GDP numbers of 1.0% q/q expansion helped to uplift market sentiment. Bank of England decided to leave key interest rates unmoved indicating that it would ease monetary policy if necessary. Andy Haldane, chief economist of the Bank of England resigned from his post after a 30-year spell with the bank. However, inflation remained dominantly subdued with February’s year on year pegged at 0.4%. The FTSE 100 produced 5.9%, France’s CAC 40 5.3% and Germany Dax recorded 4.5% for the quarter.

Emerging markets performance for the first quarter of 2021 was as follows:

Region Percentage (%)
MSCI South Africa 12,30%
MSCI India 5,20%
MSCI Russia 5,00%
MSCI Turkey -20,20%

Source Bloomberg data 31 March 2021

Source Bloomberg data 31 March 2021

Brent crude amassed over 26% in the last quarter of 2020, with the spot price per barrel reaching a peak of US$60 in the first quarter of 2021. This comes in the wake of faster and stronger global economic growth recovery expectations and confined supply forces.

On an unrelated matter, Ever Given a large cargo ship owned by Ever Green blocked the Suez Canal for almost six days. This blockage led to massive supply chain disruptions in the world’s busiest canal. At present, the Egyptian government which operates the Suez Canal impounded the cargo ship demanding a massive US$900 million in compensation.

Gold, deemed a source of value and haven for many in markets volatilities, retreated by 11% for the quarter as risk-aversion slowly and surely diminishes.

Global chip shortages induced by the Covid-19 pandemic and increased demand by the new 5G mobile devices (which uses a lot more computer chips) continue to wreak havoc on most manufacturing companies and telecommunication operators. This shortage is envisaged to last until 2022, with a most host of products seeing sky-rocketing prices and car manufacturers cutting production, thus negatively affecting output.

Locally, market sentiment was supported by the government securing vaccines supplies thus earnestly embarking upon phase one of the three-phase vaccination programme with a target of jabbing 67% of the populace come year-end. Coupled with that, investors welcomed the news that local manufacturing of the Johnson&Johnson coronavirus vaccine had started with about 30 million doses set aside for use in South Africa. Nevertheless, concerns remain over inadequate supplies and slower than expected vaccine rollout.

South Africa’s 2020 fourth-quarter GDP grew by 6.5% surpassing market expectations of a 5% increase. Furthermore, the South African Reserve Bank left the repo rate unchanged at 3.5% during its meeting held on March 25, while lowering GDP growth to -0.2% from 1%for the first quarter of 2021. Overall GDP growth is forecasted to be 3.8% for the year from 3.5%, this is as a result of heightened global growth prospects.

The FTSE/JSE All Share Index returned a healthy 13.1% for the quarter, pushed by higher commodity prices, stronger global and local growth outlooks, and re-rating. The rand had a mixed performance against the pound, euro and US dollar. The rand lost 1.8% vs the pound sterling, 3.5% up against the euro and lastly 0.8% down against the US dollar for the quarter.

Insurgency in the neighbouring country Mozambique threatened to destabilise the region following a deadly attack in Palma which left dozens of civilians dead. The province Cabo Delgado houses Africa’s largest (worth US$20 billion) liquefied natural gas project operated by France’s energy giant Total. At present Total has decided to suspend operations following fears of another attack.

Absa decided to shut down its 25-year-old Money Market Fund worth approximately R80 billion citing the widespread impression that most of its retail investors were under the intuition that the unit trusts return, and capital was guaranteed by the bank.

ADVISOR PROFILE

Mauro Forlin

Global & Local Asset Management

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South Africa dominated! Well done.

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