Markets have been moving to headlines on the Omicron variant and its potential effects on the global economy. Both Pfizer and the World Health Organization (WHO) provided positive messages, helping global equities rally this week. Pfizer stated, following research they conducted, that a booster jab should be an effective defence against the new variant. The WHO has said that early evidence suggests that omicron is certainly more transmissible, but symptoms could be less severe than previous variants. This thesis has also been echoed in multiple reports released this past week.
Inflation in the United States continues to run hot, with the latest Consumer Price Index (CPI) print coming in at 6.8% on a year-over-year basis on Friday. This rise in consumer prices was at the fastest pace seen in 39 years. Core inflation, excluding food and energy, rose 4.9%. The market seemed to react favourably as both prints were in line with expectations, although pressure now looms on the U.S. Federal Reserve to announce a quickening of its bond-buying tapering when its rate-setting committee meets next week. On the labour front, 184 000 Americans, the lowest number since 1969, applied for unemployment benefits the previous week.
U.S. President Joe Biden warned Russian President Vladimir Putin early this week that the U.S. and its allies would take severe measures if there were an attack on Ukraine. Russian troops have been stationed along the countries’ shared borders for weeks now. On Wednesday however, Biden announced plans to hold a meeting with Russia, that would also involve NATO allies, aimed at de-escalating tensions over the situation.
On Monday, China made moves to ease its Monetary policy in an attempt to bolster economic growth, with the central bank announcing that it would cut the amount of cash that banks must hold in reserve. The reserve requirement ratio will be cut by 0.50%, resulting in a release of $188 billion in long-term liquidity.
Credit rating agency Fitch Ratings, declared Chinese property developer Evergrande to be in default this week, following a much anticipated default by the company after it failed to meet its obligations on time. In other Chinese news, the UK and Canada joined the U.S. this week in a diplomatic boycott of the 2021 Beijing Winter Olympics following concerns over human rights in the country.
At an index level, equity markets have regained most of their losses following the Omicron sell-off two weeks ago. In the U.S., the S&P 500 index recorded its best weekly gain since February, rising 3.82%. The Dow (+4.02%) and the Nasdaq (+3.61) also had strong rallies. Stocks in Europe rebounded, with the Euro Stoxx 50 rising 2.92% and the FTSE 100 climbing 2.38%. Asian indexes were behind their global competitors, with the Nikkei 225 up 1.46% and Shanghai Composite Index up 1.63%. Brent crude surged 7.78%, while Gold dipped 0.05%.
Market Moves of the Week
South Africa (SA) faced a week of negative economic news following disappointing data prints. South African GDP growth contracted in the third quarter, declining from +1.1% quarter-on-quarter in Q2 to -1.5% quarter-on-quarter in Q3. This print surprised significantly to the downside as consensus estimated a -1% move. The drop in GDP has been attributed to a combination of both the third wave of Covid-19, which peaked in July and the large-scale social unrest which also took place in July.
The July riots are also said to have played a role in the narrowing of South Africa’s third quarter current account surplus. Data released on Thursday showed that SA’s surplus on the current account of the balance of payments diminished in the third quarter of 2021 to R226-billion from a record R311-billion in Q2. The current account surplus accounted for 3.6% of Gross Domestic Product last quarter, down from 5.1% in Q2. This movement was mostly driven by trade, meaning the commodities boom, that South Africa has been riding on for the past year, may be starting to show signs of fading.
The International Monetary Fund, released a statement this week, urging South Africa to accelerate the implementation of structural reforms. They accused the government of moving too slowly on reforms pertaining to energy, telecommunications, transport, reducing red tape for corporations, corruption and decreasing the power and extent of state ownership in SA. “Structural rigidities are depressing private investment and hindering inclusive growth and job creation. These rigidities need to be tackled immediately to increase the economy’s productivity and competitiveness and reduce poverty and inequality,” the IMF conveyed in its publication.
Investor appetite returned this week, as concerns around the Omicron variant subsided. The JSE reached a record high on Tuesday, benefiting from risk-on sentiment, and managed to close the week up 1.24%. The Rand strengthened this week to end at $/R 15.93.
Chart of the Week
U.S. inflation is spiking to its highest level in decades. The consumer price index, which measures the cost of a wide-ranging basket of goods and services, rose 0.8% for the month, good for a 6.8% pace on a year over year basis and the fastest rate since June 1982. Source: CNBC