The 47th G7 (Group of Seven) summit is currently taking place from 11–13 June 2021 in Cornwall in the United Kingdom. The G7 is an organisation of the world's seven largest so-called advanced economies comprising of Canada, France, Germany, Italy, Japan, the UK and the United States. Expected topics of discussion include developing a response to the COVID-19 pandemic and climate change. Last week finance leaders from the G7 agreed to back a new global minimum tax rate of at least 15 percent that companies would have to pay regardless of where they locate their headquarters.
On Thursday, bond yields jumped briefly after the U.S. Labor Department reported that consumer prices jumped more than expected in May, rising by 5% on a year-over-year basis, the highest since the summer of 2008, when oil prices were skyrocketing. Excluding food and energy, core CPI rose 3.8% year over year, the highest pace since 1992. Fed officials have described the current period of high inflation as transitory, meaning it should be brief or short-lived. There is reason to support the Fed’s view that these inflation numbers will reduce before long given that much of the extreme inflation has been caused by the re-opening sectors (return of tourism), the increase in commodity prices (supply disruptions) and there is still little evidence of real wage pressure.
Shares in Europe gained ground supported by the European Central Bank’s (ECB) commitment to leaving its key policy measures unchanged and continuing its bond-buying program. ECB President Christine Lagarde said at a press conference that inflation would accelerate this year and then slow in 2022. The ECB expects eurozone inflation of 1.9% in 2021, up from the previous estimate of 1.5%.
For the week, global equity markets were mixed. In the U.S., a decrease in long-term bond yields helped push the broad-based S&P 500 to a new record high while the Nasdaq gained 1.85%. Similarly, the pan-European STOXX 50 Index ended 0.91% higher while the UK’s FTSE 100 Index gained 0.92%. Japan’s stock market returns were broadly unchanged for the week, with the Nikkei 225 Index up 0.02% while in China the broader based Shanghai Composite Index edged down 0.06%.
Market Moves of the Week
South Africa’s GDP officially grew by 4.6% in the first three months of 2021 exceeding the Bloomberg consensus estimate of 3.1% q/q. Improved household spending and robust activity in SA’s mining and finance industries helped the economy grow at the better-than-expected pace.
In a surprise announcement earlier this week, President Cyril Ramaphosa announced that the cap on self-generation power without a licence will be raised to 100MW. The aggregate effect of this change in policy is expected to have a massive impact for the SA economy with Andre De Ruyter (Eskom CEO) estimating that this could add as much as 5,000MW over the next 12-18 months. This is a welcomed and long-awaited development given SA’s current power supply crisis.
A consortium comprising of Johannesburg based Global Airways (which owns recently launched domestic airline Lyft) and private equity firm Harith General Partners will take a 51% shareholding in South African Airways, Public Enterprises Minister Pravin Gordhan said on Friday. The government will retain a minority stake.
The JSE All Share Index ended the week marginally lower amid a new surge in Covid-19 infections while the SA listed property sector enjoyed another strong week gaining over 4%. The rand ended the week with a 2.28% loss against the U.S. dollar trading at R13.73/$ at the close.
Chart of the Week
The U.S. Labor Department announced that last month’s increase in the consumer-price index was the largest since August 2008, when the reading rose 5.4%. The core-price index, which excludes the often-volatile categories of food and energy, jumped 3.8% in May from the year before—the largest increase for that reading since June 1992. Fed officials expect the current period of high inflation to be transitory since they are mainly centred in areas impacted by the pandemic.