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Mid-February economic report

Year to date, the JSE Alsi returned a staggering 8.14%.

In the month of January global risk improved modestly in the wake of upward revision of growth forecasts and the almost certain US round of stimulus spearheaded by the newly elected US President Joseph Biden. Biden unveiled his proposed $1.9 trillion stimulus plan to help shore up the economy. However, concerns about the availability and rollout of Covid-19 vaccines weighed heavily on investor sentiment mostly in the developed markets with the US and EU lagging behind their first vaccine targets.

South Africa announced a phased distribution approach to vaccines, indicating that the country has managed to procure about 42 million vaccines, which will cover roughly 70% of the general populace.

Year to date Brent crude oil saw a 15,62% dramatic jump hitting around $63.30(16/02/2021) a barrel on the backdrop of Middle East tensions, producers holding back supply and spiral demand from US and China. Bad news for South Africa though, as this unprecedented rise loosely translates into a steep increase in petrol prices in March.

Year to date, the Nasdaq 100 and MSCI World Index both yielded 6.56%, S&P 500 5.88%, Dow Jones returned 5.17%, FTSE 100 5.18% and the JSE Alsi returned a staggering 8.14%. Elsewhere, the Nikkei for the first time since 1990 closed above 30 000 points as of February 15 2021, on hopes for business recovery, vaccines rollout and heightened monetary easing after a massive hammering of the economy by Covid-19.

In the US, GDP for Q4 2020 increased by 4% q/q, significantly detracting from a record 33.4% in Q3. However, unemployment remained persistently highly after about 140 000 jobs were slashed in December with initial claims still hovering above 700 000 per week. Added to that, the unemployment rate for December 2020 stood at 6.7%, well above the pre-pandemic levels of around 3.5%. Lastly, the manufacturing PMI handsomely soared to 59.2 in January from 58.3 recorded in the month prior. This sharp expansion in factory activity was over market expectations of  56.5.

The South African Reserve Bank kept its benchmark repo rate unmoved at 3.5% during the month of January 2021. Year on year consumer annual inflation slightly increased to 3.2% in January from 3.1% in December last year below the midpoint of the target range.

On February 14 when most of us were celebrating the undoubted forces of love, the rand was celebrating its birthday, turning 60 years in circulation. At the time of its inception, the rand exchanged £1/R2. In that period, a 1kg loaf of white bread (store baked) in 1961 cost 9c, compared with R15,21 for 700g (sliced), mealie meal was available in a 5kg cotton bag for 30c – today an equivalent size costs R49,27, a dozen large eggs was 34c in 1961 and is presently R37,60 and a pint (570ml) of beer was 16c (and you could return the bottle for a 2c refund) now a 330ml lager cost  R14,56 (no refund). Lastly, cigarettes were 19c for a pack of 20, now averaging R43,14.

President Cyril Ramaphosa delivered his fifth state of the nation address with the prime focus on defeating the coronavirus pandemic, accelerating the country’s economic recovery, implementation of reforms to create sustainable jobs and combatting corruption. South Africa’s fiscal deficit and the substantially high debt still remains a cause for concern in terms of reforms implementation and economic growth.

Our attention is now drawn to the 2021/2022 Budget Speech by the Finance Minister Tito Mboweni. Will the minister increase taxes? How will his budget presentation intertwine with the president’s state of the nation address in terms of job creation, economic recovery, arresting both corruption and coronavirus pandemic? All these questions will be answered in our next monthly economic review. Stay safe.

ADVISOR PROFILE

Mauro Forlin

Global & Local Asset Management

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