Mid-October 2020 economic report

In early October, the rand recovered to below R16.50 to the American greenback.
  • Markets have not shown a definite direction of late.
  • Last month we saw that the SA economy contracted by -5.2% in Q2, but then this did include the period in which SA was in hard lockdown, so this contraction was expected.
  • The Sarb expects Q3 and Q4 to reflect recoveries in the economy as economic activities pick up after entering level 1 of the lockdown protocol.
  • The SA unemployment data was reported as much lower than expected but this was not a reason to celebrate as it actually reflects that many more people are not economically active
  • On the good news side, productivity levels in SA have increased albeit from a low base.
  • Inflation has slowed to 3.1% year-on-year. When an economy is depressed one should expect that inflation will slow down. However, as more industries pick up pace after the hard lockdown demand for goods and services should increase and thus this should then be reflected in the inflation numbers.
  • We expect that the Sarb will keep the repo rate unchanged at its next MPC meeting in November, however, if the Sarb does surprise the economy with a further repo rate cut this will be no more than 0.25%.
  • Despite the bad news sentiments on the SA economy, we are not horrendous despite the recent downward trend. Both consumer and business confidence have improved.
  • Despite the global risk-off sentiment, the rand has been firmer after it breached the R17/US$1 level mid- to late-September when news came out about a possible second wave of Covid-19 infections. Then in early October, the rand recovered to below R16.50 to the American greenback.
  • Markets continue to amaze us. With global cash and bond instruments continuing to not provide much yield, it is understandable that global investors will turn to equities to look for yield.
  • The Alsi 40 index ticked up 0.74% in September with resources leading the pack this year even though they have slowed down a little now. We do feel that gold is the resource to perform well over the long-term.

Let’s glance at global markets in September 2020:

  • US GDP growth slowed in Q2 with a higher unemployment rate at 7.9%.
  • US year-on-year inflation was up 1.3%.
  • China GDP in Q2 was down to 3.2% with August vehicles sales down as well, but retail sales figures were positive. The Hang Seng index is up 3.32% despite the US banning TikTok!
  • The UK is going back into some form of lockdown with pubs and restaurants being ordered to close at 10pm every night.
  • UK vehicles sales are also down.
  • Seems that vehicle sales globally are struggling but in this Covid affected world who is looking to buy a new car? Consider this against the fact that car hire companies who traditionally buy many new cars do not have the demand for cars from their customers due to depressed traveller numbers!
  • FTSE index is up 1.91%.
  • Europe is experiencing increasing Covid-19 infections thus we expect to see slower economic activity as these economies return to some form of lockdown.

Markets are going to remain volatile with interest rates globally trending flat to down.

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Mauro Forlin

Global & Local Asset Management


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