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Week in Review: A Volatile Week for Markets

Stock market volatility made a comeback this week, triggered by concerns around the new omicron COVID-19 variant, which the World Health Organization has labelled as a variant of concern. Commentary from the Federal Reserve about speeding up tapering also added some fuel to the fire, but the market’s focus centred around the new COVID-19 variant.

In some of the first data to come back on the omicron variant, researchers in South Africa say the mutation is spreading faster than the delta strain. There also seems to be a greater risk of reinfection—where previously infected people get the virus again. Reports of mostly mild illness from the omicron variant also need to be interpreted with caution but encouragingly, hospitalisations for now appear to be muted, partly explained due to higher vaccination rates. The World Health Organization has also weighed in, saying that vaccines will likely protect against severe cases of the new omicron variant of Covid-19.

Re-elected Fed Chair Jerome Powell acknowledged in testimony before Congress this week, that inflationary pressures, while still expected to abate in 2022, remained elevated for long enough that the central bank may consider ending its asset purchases earlier than planned. The market’s read of this statement is that the Fed might also move forward the timeline of interest rate hikes.

U.S. unemployment data provided mixed signals. The unemployment rate improved in November from 4.6% to 4.2% and average hours worked also ticked up. However, job creation slowed with nonfarm payrolls increasing by 210,000 in November—well below the 546,000 positions added in October and less than half of analysts’ consensus estimates.

There will be no US shutdown this year as the Senate passed a stopgap measure which went to Biden for his signature. This follows days of negotiations between Senate leaders and conservative republicans.

Cases of the omicron variant were detected across Europe this week. This comes at a time where Germany have tightened restrictions on people who aren’t vaccinated against Covid and limited attendance at public events. A law on mandatory vaccination could be submitted to parliament for implementation in February or March. France is also weighing up new restrictions.

Inflation in Europe accelerated to its highest level since the Euro was introduced in 1999. Consumer prices rose by 4.9% (annualised), up from 4.1% in October, as energy costs surged. The unemployment rate dropped to 7.3% in October, compared to a reading of 7.4% in the previous month.

The Chinese delisting theme from U.S. stock exchanges gained momentum this week, after Chinese ride-hailing app Didi said it would delist its U.S.-listed shares from the New York Stock Exchange. A media report released earlier in the week stated that Chinese authorities were considering banning companies from going public overseas using variable-interest entities (VIEs), casting doubt on existing tech listings. However, the China Securities Regulatory Commission said on its website on Wednesday that the media report is not true, without giving further details.

Chinese real estate firms had another miserable month in November as a slump in home sales deepened. The country’s developers are facing $12 billion in trust payments coming due in December. Analysts increasingly believe that we are likely to see a policy response from Chinese authorities to help the ailing property sector as the contagion spreads.

Except for the FTSE 100 (+1.11%) and Shanghai Composite (+1.22%) Indices, global equities were generally softer this week. In the U.S., the Dow Jones (-0.91%) and S&P 500 (-1.22%) were weaker whilst the Nasdaq (-5.87%) came under significant pressure. Similarly, the Euro Stoxx 50 (-0.23%) and Nikkei 225 (-2.51%) indices were weaker.

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Market Moves of the Week

The 4th wave of coronavirus infections has arrived in South Africa with confirmed cases increasing eight-fold in a week, as the omicron variant spreads across the country. The National Institute for Communicable Diseases (NICD), reported on Friday that 16,055 new COVID-19 cases have been identified in South Africa, which brings the total number of laboratory-confirmed cases to 3,004,203. This increase represents a 24.3% positivity rate.

South Africa is moving closer to a mandatory vaccine policy and is set to implement it early next year. This according to a senior labour union official. A broad agreement has been reached on the policy at the National Economic Development and Labour Council (Nedlac), although some details have yet to been finalised. COSATU, which initially opposed forcing people to get inoculated, has now joined business groups in backing the move.

The latest Quarterly Labour Force Survey (QFLS), published on 30 November, showed that the official SA unemployment rate increased from 34.4% in the second quarter of 2021 to 34.9% in the third quarter of 2021. The data also showed that there are now three provinces where the unemployment rate exceeds 50% including the Eastern Cape (54.5%), Limpopo (54.5%) and the North West (52.2%).

According to Wonga’s Summer Spending Survey, consumers are budgeting to spend an average of R6 326 over and above their usual monthly expenses during the festive season, compared with R5 673 in 2020. Of those surveyed, 41% said they are better off financially in this year’s season and only 23% say they are in the same financial position as last year.

JSE listed companies posted strong returns for the week. The JSE All-Share Index was up +3.20%, led higher by the financial (+7.59%) and resource (+3.79%) sectors, whilst industrial shares (+0.95%) were also well supported. By Friday close, the rand was trading at R16.05 to the U.S. Dollar.

Market Moves of the week_5 Dec 2021 divider-02

Chart of the Week

Corporate America has performed exceptionally well in 2021. In the past two quarters, U.S. corporates outside of the finance industry posted their widest profit margins since 1950. On earnings calls, plenty of executives are complaining about the squeeze from rising labour and material costs. However, overall profits are up 37% from a year earlier.

Chart of the week_5 Dec 2021

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