Equities nervous on Covid-19 second wave
By Dr Chris Harmse
FINANCIAL markets in South Africa and globally last week opened on the same positive fashion as during the first week of the year.
The JSE all share index had its best performance during the first week since 1999. This momentum during the beginning of the second week was mostly due to optimism around the rollout of various anti-Covid-19 vaccines in most countries, expectations on the US President elect Joe Biden’s relief plan and news that the UK recession risk easesd as its GDP declined less than expected.
President elect Joe Biden on Friday released a $1.9 trillion (about R28.7 trillion) stimulus plan to support the economy.
The package involves a R1 trillion direct payments of $1 400 to each American, $415 billion to fight the pandemic and $440bn as relief for small businesses.
This stimulus plan came at a time the Covid-19 pandemic was hitting new record highs in the US, topping more than 200 000 new cases and over 4 000 deaths a day.
The news of the stimulus plan led to a stronger dollar but US stocks continued to move weaker since Thursday on rising infections. South Africa also experienced alarming high new daily infections breaching 20 000 with new daily deaths exceeding 700.
Foreign selling of shares and bonds became evident especially from last Wednesday.
JSE data showed that foreigners had already sold more that R6 billion South African bonds during the first two weeks of 2021, wiping out the R6.1bn net purchases of bonds for the whole of 2020. Bond rates on Friday alone surged by 1.1 percent and the rand came under pressure.
Equities on Thursday and Friday reversed the positive trend and share prices lost steam, especially on Friday.
On the JSE, the all share index, after recording new record levels daily for seven days in a row between January 4 and January 10, experienced a volatile movement during the second part of last week. The index ended Friday on 63 550, or 335 points (-0.5 percent) lower for the day. For the week the index managed a marginal gain of 30 points (0.04 percent).
Financials continued to reflect the domestic economic woes by trading weaker for most of the time since the beginning of the new year.
The Fin15 index ended Friday on 11 917, or 3.2 percent down since the previous Friday.
Resources also lost momentum last week as commodity prices started to dwindle. The Resources 10 index dropped 2 percent. Industrials also continued to defy negative sentiment. The
Industrial 15 index added 2.8 percent, already 7.6 percent higher for the year to date.
Just like financial counters, listed property stayed under pressure over the last two weeks and at the close on Friday the listed property index ended flat.
In the US, shares held their losses on Friday as retail sales for December came in worse than expected, and fears that the Biden stimulus plan could be watered down by congressional opposition and fears that taxes could rise.
On Wall Street, the Dow Jones industrial index contracted by 0.2 percent on Thursday and opened more than 1 percent in the red on Friday, with the S&P 500 index trading down 0.4 percent last Thursday and losing almost 1 percent at the opening on Friday.
Meanwhile, the rand was rather volatile against the dollar last week, trading in a wide range of between R15.09 and R15.48. On Friday evening the local currency was at R15.28 to the greenback, or a mere 4 cents stronger than the previous Friday. Against the pound, the rand remained flat on R20.77 during the week and against the euro the currency improved by 25 cents and traded on R18.47
This week all eyes will be on the first meeting of the monetary policy committee (MPC) starting tomorrow with a decision on interest rates to be announced on Thursday. It is expected that the MPC will keep the repo rate at 3.5 percent.
The current weaker rand and rise in the international oil prices point to sharp increases in prices in months to come.
StatsSA will publish mining production figures tomorrow, release the latest inflation rate data for December on Wednesday and retail sales numbers for November on Thursday.
Dr Chris Harmse is an economist at CH Economics.