Week in Review: One-Year Anniversary of the Market Bottom

With the one-year anniversary of the market bottom this past week, global stock-market performances over the past 12-months has been exceptionally strong. The market rebound has been powered by expectations for a sharp global economic recovery driven by monetary and fiscal stimulus programs, and more recently, vaccine rollouts.

Marine traffic through the Suez Canal remained blocked throughout the week, with dozens of ships stuck at both the north and south entrances to the shortest route between Asia and Europe. Whilst efforts to dislodge the MV Ever Given (Evergreen), a 400-metre-long and 59-metre wide vessel, lodged sideways since Tuesday, experts suggest the earliest the ship may move is next Wednesday. The longer the blockage lasts, the more it disrupts global supply chains and threatens to increase prices.

Whilst inflation concerns remains top of the list of recent investor concerns, U.S. core inflation (excluding food and energy) increased by 1.4% year over year in February, down from 1.5% in January and still well below the Federal Reserve’s 2% target. Meanwhile, the final estimate of U.S. annualised GDP for 4Q 2020 came in ahead of expectations at 4.3% (expectations were for growth of 4.1%). This was also an improvement to the preliminary figures of 4.0% growth.

Following on from this, Fed Chairman Jerome Powell continued to downplay the risk of inflation in the year ahead, as he and secretary of the treasury, Janet Yellen appeared before a House committee. “While pent-up demand, supply-chain bottlenecks and the comparison with very weak price pressures last year will drive prices higher”, the Fed chair said, "Our best view is that the effect on inflation will be neither particularly large nor persistent." At the same time, Yellen stated that "deep pockets of pain" persist in the U.S. economy.

President Joe Biden had his first press conference on Thursday, promising to double the goal of 100 million Covid-19 shots during his first 100 days in office. He pledged to reach 200 million by the self-imposed deadline. Coronavirus cases have started to rise again, after months of decline as more easily transmitted variants and loosening of restrictions outpace vaccine rollouts. Globally, vaccinations surpassed 500 million.

Chancellor Angela Merkel agreed to extend Germany’s coronavirus lockdown until April 18 after Covid-19 contagion rates nearly doubled in a month. France also extended its lockdown to the city of Lyon and two more regions, whilst Belgium said that schools, nonessential shops, and hairdressers will be closed for the next four weeks, highlighting Europe’s struggle to contain a new wave of infection.

Turkey’s President Erdogan fired the governor of the central bank just three months into his term and replaced him with an academic who has lobbied for lower interest rates. The move saw Turkey’s stocks, bonds and the lira all plummeting on Monday – similar to what transpired in South Africa in 2015 when former President Zuma, removed Nene as finance minister.

Global equity markets posted mixed returns this week. In the U.S., the Dow Jones Industrial Average (+1.36%) and S&P 500 (+1.57%) were stronger, whilst the Nasdaq (-0.58%) lost some ground. European markets including the FTSE 100 Index (+0.48%) and Euro Stoxx 50 (+0.77%) were stronger against a weaker performance from Japan’s Nikkei 225 (-2.07%). China’s Shanghai Composite Index ended the week up +0.40%.

divider-02

Market Moves of the Week

The South African Reserve Bank's Monetary Policy Committee (MPC) decided to keep the repo rate unchanged, at 3.5% this week, inline with market expectations. The Bank’s quarterly projection model forecasts South Africa’s first rate hike in 2Q21, with another expected in 4Q21. An interesting outcome from the meeting was that the Reserve Bank forecast’s SA’s economy to contract by 0.20% in 1Q21, compared to its January MPC meeting expectation for growth of 1.0%.

South Africa’s February inflation data was also released during the week, with inflation advancing by 2.9% (YoY), lower than market expectations of an increase of 3.1%.

The business rescue practitioners of SAA intend to hand back the company by the end of March, ending the 15-month rescue process. In a detailed notice to affected parties, rescue practitioners have outlined all the outstanding matters to be completed by the end of March and said SAA was now a company that is “solvent and liquid”.

The JSE All Share Index ended the week up +1.40%, with all three of the major sectors leading the market higher. The resource (+1.96%) and industrial (+1.54%) sectors were relatively stronger, compared to the financial sector (+0.25%). By Friday close, the rand was trading at R14.95 to the U.S. Dollar, weakening against all of the major developed currencies this week.

Market Moves of the Week - 28 March 2021
divider-02

Chart of the Week

Israel's vaccination program continues to lead the world, with 113 doses administered per 100 population (53% of the population are fully vaccinated and 7% of the population have received one dose). However, vaccination levels are much lower elsewhere in other countries and the speed of the rollouts are diverse across countries. In Sub-Saharan Africa, Ghana is leading the group with 1.4 doses per 100 population, followed by South Africa, (0.3 doses/100ppl).

Chart of the week - 28 March 2021

Related Reading