Market Report: Economic stimulation vs the curve of Covid-19 pandemic
JOHANNESBURG – Financial markets are comparing the effects of the enormous bail-out stimulation programmes of the developed world, against the “flattening” of the Covid-19 infection and death-rate curves. World equity markets experienced a sharp recovery last week.
Markets, however, have opened weaker due to fears that the start of the US earnings season this week will show the devastating effects of the coronavirus.
The news last week that the US jobless claims had jumped considerably from 210 000 three weeks ago to 17.7 million on Thursday also contributed to some negative sentiment for shares, bonds, and emerging market currencies this week.
US futures also are in the red, although there are signs of a weaker dollar, and bond rates that are starting to move downwards, suggesting that a more risky appetite might prevail in the markets.
On Wall Street, equity markets were stronger on Thursday as the infection curve in the US started to flatten and risky appetite emerged, as US stimulation policies were introduced.
The Dow Industrial index had improved by 12.7 percent, while the S&P 500 index jumped by a full 12.52 percent. For the year to date, the two indexes had recovered by more than 50 percent.
The Dow was down by -34.8 percent on March 23, and at the close on Thursday the index was down by -16.9 percent in the year to date, a recovery of 17.9 percent.
In the same manner the S&P 500 index had recovered from -30.8 percent on March 23 to -13.7 percent on Thursday.
Domestically equities, bonds and the rand exchange rate also improved strongly.
The rand/dollar exchange rate had appreciated from R19.36 against the dollar at the opening last Monday to levels lower than R18 on Friday.
The all share index on the JSE had improved last week by almost 3 400 points, and traded at the close on Thursday 12.72 percent higher than the previous Friday.
The Resources 10 index was up for the week by 5.8 percent, the Financial 15 index improved by 6.9 percent, while Industrials had gained 1 percent.
Listed Property surprisingly had increased by 17.8 percent, its highest weekly increase in more than two years.
On the bond market, the R186 government bond had decreased by 6.4 percent as the gilt now traded on 9.77 percent against 10.44 percent 10 days ago.
The sharp recovery in the rand exchange rate against the dollar as well as the continuous low international oil price could mean good news for consumers.
Dr Chris Harmse is an economist and chief investment officer at Rebalance Fund Managers.