JOHANNESBURG - Global financial markets started to improve last week, although huge swings between positive and negative movements still prevail.
Various attempts from central banks and governments across the world in order to stop a definite deepening recession in most countries had some positive influence on a limited return to risky assets by investors.
The release of core economic data that prove that the recession around the world is well and alive and will be deeper than expected, had put some doubt on the policy announcements around stimulation. The fear dominating markets now had spread to expected sharp rises in deaths due to the Covid-19 virus.
The US Future market started to improve somewhat from last Tuesday as the news of a $2 trillion stimulation package from the Trump administration was to be approved. This has led to the fastest equity rally in the US in nine decades as share indices surged on Wall Street.
Over the three days Tuesday to Thursday last week, the S&P500 index had gained 18 percent and was heading for its best week in 11 years.
Real economic data, however, stopped the trade buying frenzy quickly in its tracks. On Thursday the US Labour Department announced that US Jobless claims had shot up to 3.8 million by March 21. This is the highest level since 1967 and almost 2.8 million higher than the 211 00 persons that filed for unemployment insurance two weeks earlier.
US consumer sentiment also slumped to the lowest since 2008 as the University of Michigan’s consumer sentiment index for March dropped by 11.9 points to 89.1. The news on Friday that the US numbers reported to be positive for Covid-19 is now higher than in China also brought the bears back to the market. The S&P 500 opened more than 5 percent lower on Friday.
On the JSE most equity indices also improved somewhat during last week. The all share index closed last Thursday on 45 038 points. This was 4 766 points, or 11.8 percent, higher than the previous Friday close.
The above concern in the US, the news of the first Covid-19 deaths in South Africa and uncertainty over the expected downgrade to junk by Moody’s turned risky asset sentiment highly negative on Friday.
The index turned around and dropped again by almost 2 100 points and closed on 42 946, or just 6.6 percent, up from the previous Friday.
Over the past week, resources were outstanding as the Res10 index improved by 17.3 percent, wiping out almost all its losses of 18.9 percent the previous week.
Industrials also recovered mostly last week gaining 5.6 percent. Given the fears of a downgrading and soaring debt levels and loss of income from consumers during the 21-day lock down, Financial shares (-1.7percent) and listed Property (-6.9percent) continue their downward spiral.
These two indices are now down by 41.4percent and 50.1percent, respectively, since the beginning of the year.
The R186 government bond had increased sharply the previous week and had traded last Monday on 12.5percent as nervous investors bought US dollar. This is 50 percent, or 4.5 percentage points, higher than the 8percent recorded the day with the National Budget speech at the end of February.
The news of the Quantitative Easing efforts by the Reserve Bank in buying back bonds in the market, as well as the various stimulation attempts by the government to cushion the 21-day lock down period and expected deepening of the recession by the economy over the next six months, helped somewhat to restore confidence back in the bond market.
The R186 ended last Friday on 10.48percent, the same level as the previous Friday close.
The Rand exchange rate stays under pressure, despite efforts by the Reserve Bank to stabilise the banking sector. The currency ended last week on R17.57 to the dollar. This was 7 cents weaker than the previous week. The Rand lost noticeable big margins against the Pound from R20.52 to R21. 67(5.6percent) and against the Euro from R18.69 to R19.38 (3.7percent).
Given the sharp decrease in the price for Brent oil during March it is expected that the price for petrol will decrease by 193 cents per litre and that of Diesel by 149c per litre from 1 April 1. This should encourage the Monetary Policy Committee to decrease the repo rate further as soon as possible.
Dr Chris Harmse: Economist and Chief Investment officer of Rebalance Fund Managers.
BUSINESS REPORT