World markets traded positively in November as investors cheered the news of prospective Covid-19 vaccines by Pfizer-BioNTech and Moderna and their imminent rollout across the globe, with the S&P 500 and the Dow Jones clocking all-time highs. This news came in the wake of numerous countries, especially in Europe, re-imposing lockdown restrictions in a bid to arrest the second wave of infections. Joe Biden’s win in the much-anticipated US election showdown and the likelihood of a Brexit deal spurred the global markets.
The US employment rate dropped to 6.9% in October relative to market expectations of 7.7%. The US manufacturing PMI climbed to 56.7 in November, indicating a sharp expansion in factory activity since September 2014. Service PMI soared to 57.7 beating forecasts of 55.0 by a sizeable margin. The US’s annual inflation rate dropped marginally to 1.2% in October, below market expectations of 1.3%.
The Sarb kept the repo rate unchanged at 3.5%, suggesting that further quantitative easing was unlikely in the near term. The South African economy is expected to shrink by 8% in 2020, before rebounding by 3.5% in 2021 and 2.4% in 2022. South Africa’s third-quarter GDP spiked by a considerable 13.5% from previous troughs seen in the first and second quarter of 2020. Annualised GDP grew by 66.1%.
President Cyril Ramaphosa eased further certain lockdown restrictions which included the resumption of international flights and return to normalcy of alcohol trading hours. Meanwhile, due to the sudden spike in Covid-19 numbers pointing to a second wave, the president-imposed restrictions in identified hotspot areas such as Eastern Cape.
Moody’s and Fitch rating agencies downgraded SA’s sovereign credit rating further into junk status citing weakened fiscal strength over the mid-term and ballooning government debt. However, Standard & Poor maintained its crediting rating at BB- with a stable outlook.
The rand benefited the most from a weakened US dollar, gaining 5.8%, 2.6% against the pound sterling and 3.3% versus the euro. This strengthening saw the rand maintaining a firmer R15 to R15.50 a dollar after a peak of R19.08 in the middle of the pandemic in April.
Mining production fell 2.8 y/y in September, marking the seventh consecutive month of declines in mining activity. PMI data showed that South Africa’s private sector activity expanded for the first time in 18 months in October, thanks to the relaxation of lockdown restrictions, while CPI rose to a seven-month high of 3.3% in October, above market expectations of 3.1%, but still far below 4.6% posted in February before the start of lockdown restrictions.
The FTSE/JSE ALSI returned 10.5% in November, however year-to-date the index yielded 3.24%. Industrials delivered 8.0%, listed property (SAPY index) returned 17.5%, financials 17.1% and resources 10.9%. In the fixed-income securities, SA bonds yielded 3.3% (as measured by the FTSE/JSE All Bond Index), while SA inflation-linked bonds returned 2.0% and cash (as measured by the STeFI Composite) delivered 0.3%.
- Covid-19 vaccines spurred the markets;
- Repo rate unchanged at 3.50%;
- Rating agencies downgrade SA further into junk status;
- Rand firmer against major currencies;
- ALSI returned 10.54% for the period;
- Third-quarter GDP spiked by 13.5%.