Week in Review: The Delicate Balance

On Thursday more than 150,000 new cases of the coronavirus were recorded, the highest single-day number so far. The new cases were mostly reported in the Americas, with significant numbers from South Asia and the Middle East. Countries globally are moving forward with the reopening of their economies, some more cautiously than others, as each one tries to find the delicate balance between the human and economic toll.

Earlier in the week financial markets rebounded as the Federal Reserve announced that it will start buying individual corporate bonds providing continued liquidity and stability to U.S. credit markets. The central bank expects the full economic healing from the impact of the virus to take years, keeping interest rates near zero at its recent policy meeting.

US retail sales surged a record amount in May as consumers returned to shopping, sales jumped 17.7% in May, the U.S. Commerce Department reported Tuesday, the sharp reversal came after two consecutive months of record declines in March and April. Labour market data disappointed with weekly jobless claims falling less than expected, further improvement in hiring and unemployment figures are likely to be more gradual.

Equities in Europe ended the week higher, supported by stimulus efforts and the reopening of key economies. Little progress was achieved by leaders of the European Union when they met virtually to try finalise terms for a €750 billion rescue package for countries hardest hit by Covid-19.

In the U.K. the Bank of England (BoE) enlarged its bond-buying program by GBP 100 billion and left its key interest rate at a record low of 0.1%. Bank of Japan Governor Kuroda echoed the Fed's recent interest rate outlook this week, saying the BOJ is not even thinking about raising rates through to at least 2022. Russia's central bank cut its policy rate on Friday by 1% to 4.5%.

Tensions between China and India escalated this week as 20 Indian soldiers were killed in clashes with Chinese troops along the disputed border between the countries. China has accused Indian troops of a "deliberate provocation" in its first official comments while India’s Prime Minster, Mr Modi, vowed that India would defend its border with military force if necessary.

Beijing unveiled details of its new national security law for Hong Kong on Saturday, which includes a national security office for Hong Kong to collect intelligence and handle crimes against national security. China says the draft law is aimed at tackling separatist activity, subversion, terrorism and collusion with foreign forces.

The pan-European STOXX 50 Index ended the week 3.66% higher, while the UK’s FTSE 100 Index rose 3.07%. Major U.S. indices recorded gains over the week with the tech heavy Nasdaq ending up 3.73%. In Asia China’s benchmark Shanghai Composite Index gained 1.6% for the week, outpacing the Nikkei’s 0.78% return for the week.

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Market Moves of the Week

The South African Treasury expects a budget deficit (shortfall between revenue and expenditure) to grow to more than 14%, it has said in a presentation to social partners ahead of Wednesday’s supplementary budget. Prior to the Covid-19 crisis a budget deficit of 6.8% was estimated for the fiscal year. The presentation also shows a dramatic increase in government debt. In February, the budget showed a debt to GDP ratio of 71.6% by 2022/2023. Debt is now expected to reach 90.9% of GDP by 2022/2023. Finance minister Tito Mboweni will table his "emergency" budget on Wednesday.

The JSE closed firmer on Friday over good news regarding easing tensions between the U.S, and China, and the start of stimulus talks in Europe. The JSE all share index ended the week up 1.09% with the rand firming towards the close, ending the week at R17.33/$.

Gold gained to $1,756/oz supported by fears of surging global debt, escalating geopolitical tensions and concerns over a second wave of virus infections.

Weekly (3)
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Chart of the Week

U.S. retail sales, a measure of purchases at stores, increased by 17.7% in May from a month earlier. This was more than double the expected estimate of 8.4%. Clothing and accessories stores reported the biggest percentage gain at 188% while sporting goods, hobby, musical instruments and book stores rose 88.2%. The sharp rebound is a positive sign that the US economy is improving, and that consumer spending is recovering from the coronavirus-induced lockdowns (consumer spending accounts for approximately 70% of U.S. GDP).

US Retail

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