On Monday, U.S. President Joe Biden signed into law a bipartisan infrastructure bill that will cost around $1 trillion dollars. The measure is designed to create employment by spending billions of dollars on upgrading outdated roads, bridges, transit systems and more. Five hundred and fifty billion dollars will be deployed into transportation, broadband and utilities, while $110 billion will be put into roads, bridges and other major projects. Materials made in the U.S. will be given priority in the infrastructure projects, the White House said.
U.S. retail sales rose in October for the third month in a row, signalling households continue to spend despite the speed of inflation. Sales increased 1.7%, the biggest jump since March, compared to the 1.5% that economists estimated. However, U.S. consumer confidence hit a 10-year low in November as measured by the University of Michigan Consumer Sentiment Index.
In geopolitical news, Joe Biden and Chinese President Xi Jinping met virtually on Tuesday in an attempt to improve relations between the world’s two biggest economies. No immediate outcome came from it but both sides issued public statements emphasizing ways to steer clear of conflict after the meeting.
U.K. inflation rose to its highest level in almost a decade in October, jumping to 4.2%, up from 3.1% in September. The rise was driven in particular by higher oil and gas prices. The hot inflation print, coupled with an increase in the number of payroll employees over October, created market speculation over whether the Bank of England would start increasing interest rates in December.
Japan’s prime minister, Fumio Kishida, hopes to rebuild the country’s pandemic-hit economy through economic stimulus. The Government recently approved a larger-than-expected stimulus package, totalling around $490 billion. This package comes at a crucial time, as quarterly estimates of gross domestic product show that Japan’s economy contracted 0.8% in the third quarter translating to an annualized decline of 3.0%.
Europe is busy witnessing record-breaking Covid-19 infections and is once again at the epicentre of the Covid-19 pandemic. Germany has broken new records, the Netherlands has gone into a partial lockdown after reporting a new record number of cases, Austria is entering a fourth nationwide lockdown and hospitals around parts of Europe are being swamped with covid-19 patients.
Major global indexes ended the week mixed. The S&P 500 (0.32%) advanced slightly but remained below record territory, the Dow dipped -1.38% and the Nasdaq climbed 1.24% - reaching a new high. Stocks in Europe were slightly changed, with the Euro Stoxx 50 declining 0.32%, while the FTSE 100 fell 1.69%. Asian indexes manged slight gains, with the Nikkei 225 up 0.46% and Shanghai Composite Index up 0.60%. Brent crude was down 4.29% for the week, a six-week low, while Gold dipped 1.11%.
Market Moves of the Week
Economic news flowed out of South Africa this week, with September retail sales, a new inflation print and a key policy rate decision making headlines. Retail sales rose 2.1% on a YoY basis in September, following a 1.5% drop in the previous month. The September number firmly beat expectations (-0.2%) with the main contributor being retailers in textiles, clothing, footwear and leather goods (contributing 1.6 percentage points).
South Africa’s October inflation print remained unchanged at 5% (vs. September), in line with consensus. Notably, food inflation declined by 0.5% while petrol rose 23% YoY from 20% YoY in September. Inflation has now been above the 4.5% midpoint of the South African Reserve Bank’s (SARB) monetary policy target range of 3%-6% for six consecutive months.
On Thursday, the Monetary Policy Committee raised its key repo rate by 0.25% to 3.75% after a split 3-2 decision was made among MPC members, marking the beginning of policy rate normalization. Yet, Lesetja Kganyago insisted that monetary policy would remain accommodative. Meanwhile, the SARB revised its 2021 gross domestic product projection lower to 5.2% from 5.3% “due to the larger negative effect on output than was previously estimated from the July unrest and other factors”.
In Covid-19 news, the South African Covid-19 Modeling Consortium said on Wednesday that an estimated 60% to 70% of the population had already contracted Covid-19 and this, coupled with vaccinations, should make the potential 4th wave less severe.
The JSE all-share index hit an all-time high on Wednesday but dipped in the following days, managing to close up 0.65% for the week. The Rand had a tough week as the market digests the SA Reserve Bank’s rate hike decision, weakening to R15.71 to the USD and R21.12 to the Pound.
Chart of the Week
The currencies of Emerging market countries, as measured by the JPMorgan EM FX index, have dipped to an 18-month low, approaching the all-time trough during last year’s Covid-19 shutdown. And earlier this week, their stocks, as measured by the MSCI emerging markets index, dropped to a new low compared to the developed world (represented by the MSCI World index).