The rand closed weaker on Thursday afternoon after confirmation of the first patient to be diagnosed with the coronavirus in South Africa.
It fell to R15.51 from R15.30 against the US dollar, weakening by 1.54%, and dropped 2.23% to R17.37 against the euro, under pressure of global fears that Covid-19 might become a global pandemic interrupting the flow of goods and services. The JSE All-share index reversed earlier gains, closing at 5 2 936 points.
The National Institute for Communicable Diseases confirmed that a 38-year-old patient in KwaZulu-Natal had tested positive for Covid-19 after a trip to Italy with his wife.
Globally the flow of movement to public places, from schools and parks to workplaces, is beginning to be restricted, with some choosing to quarantine themselves. The number of cases has risen beyond 95 000, with more than 3 000 fatalities.
According to Investec chief economist Annabel Bishop: “The latest World Health Organisation [WHO] situation report shows a very high-risk assessment for China and at a global level, with new countries recording cases, as well as a new case in countries already showing the incidence of infections.”
Bishop adds that from a global and domestic perspective, South Africa’s risk outlook is increasing.
“Covid-19 is now expected to have a much greater impact on global economic growth than previously thought.
“The very high-risk assessment of the WHO does not yet show a pandemic, but the CDC [Centres for Disease Control and Prevention in the US] believes it could declare it ‘once sustained person-to-person spread takes hold outside China.
“A severe pandemic would see significantly weaker global GDP, including the likelihood of a global recession.”
The International Monetary Fund stated this week that global growth is expected to dip below last year’s rate of 2.9%.
And what of the fragile South African economy – with its high and escalating debt trajectory, having dipped into recession in the last quarter of 2019, and with a possible credit rating downgrade hanging over it?
“A global recession would necessitate a more severe downwards revision to SA’s expected case economic outlook,” says Bishop.
Resource stocks hit
Resource stocks on the JSE that were hit on Thursday:
- Iron ore, manganese and chrome producer Impala Platinum (down )
- Anglo American Platinum (down ), and
- Metals and minerals
According to independent energy research and business intelligence company Rystad Energy, the spread of the latest coronavirus will deepen the severity of the blow to global fuel demand. It expects more than half of global oil demand growth to be lost in 2020.
“As global stocks increase by the day, the ongoing Opec+ meeting is unlikely to result in cuts sufficient enough to balance the market, under all of our scenarios.”
Its adds that the impact on demand growth has been staggering, if not unprecedented, with February’s crude demand dropping by a shocking 4.6 million barrels per day (bpd), led by a 2.9 million bpd month-on-month drop in Chinese crude runs.
Opec ministers are meeting in Vienna on March 5 and 6 to decide if the oil-producing block will bite the bullet and step in by cutting production in order to balance the supply-demand gap and shield oil prices. However, Rystad Energy sees that as an unlikely outcome.
Bjørnar Tonhaugen, Rystad Energy senior vice-president and head of oil markets, says they have modelled out three likely outcomes of the Opec+ meeting, and not one of them comes close to bridging the supply-demand balance.
“Even though Opec+ is already tremendously over-complying on cuts agreed upon in December 2019, it’s not enough to counter the demand destruction of Covid-19,” says Tonhaugen.
Rystad Energy predicts that at least two million bpd of supply needs to be removed from second quarter balances in order to see a stabilisation in oil prices if Libya’s shut-in 1.1 million bpd production comes back online.
Global stocks hit
The virus also continued to grip Wall Street after a coronavirus-related death and 53 confirmed cases in the state.
The number of infections in New York doubled overnight to 22 as the state ramps up its testing. The major stock indexes were down more than 3% and government bond yields to record lows of 1.54 % for the 30-year Treasury bond and the 10 years fell 0.897%. Bank shares were also leading the declines. The S&P 500 fell by 3.4%.