November 2020
Share markets, exchange rates, commodities, international developments, domestic economic indicators
Markets performed strongly in November as positive vaccine news and a “new US President” overshadowed negativity accruing from the second wave of Covid-19 infections, new lockdowns, and weaker economic indicators.
In the short-run, markets will be driven by news of fiscal stimulus and the pace of vaccination.
In the USA, the economy is performing strongly. But uncertainty still exists despite indications that Joe Biden will be the new president. This is because the Republicans are set to be the majority in the senate, which may stifle many of Biden’s proposed policies. However, Biden’s choice of former Fed Chair, Janet Yellen, as new secretary of the treasury, is positive. She is pro-stimulus – and fiscal stimulus is extremely important for the US economy not to deteriorate in 2021. Lastly, Biden’s stance on the trade war with China is still unclear – which will cause uncertainty.
In Europe, the second wave of Covid-19 infections is taking its toll on especially France, Germany, Italy, Spain, and the UK. New lockdowns will undoubtedly slow the economic recovery.
However, China’s economy is on a roll. Retail sales increased 4.3% YoY in October, industrial production was up 6.9% and foreign direct investment for the first 10 months of October was 6.4% higher – despite attempts of the US to limit Chinese access to foreign capital.
Japan’s economy is also recovering, but it is still well below pre-pandemic levels. Although economic growth was 21.4% in Q3 - from a contraction of 28.8% in Q2 – it means that the economy recovered just more than half that was lost in Q2.
In South Africa, the economic rebound in the production sectors were strong in Q3 2020 (see QoQSAA-numbers in the table below). Nevertheless, it will be years for the country to return to pre-pandemic GDP-levels. Although employment increased by 543 000 in Q3 2020, it was still 1.7 million less than the pre-pandemic numbers. Moreover, South Africa does not possess the resources to continue with fiscal stimulus.
The consequence of the above developments and expectations going forward were visible in share market movements. Developed market shares were up 12.7% in November and that of emerging markets 9.2%. The JSE ALSI increased 10.5% and the ALBI 3.3%, bringing its gains for the year to 6.1%
Furthermore, the US$ continued its downward path, supported by Biden’s “victory”, as his policies are not as pro-US$ as the current policies of Donald Trump. Positive vaccine news also contributed to a weaker gold price, while oil benefitted from faster growing economies and a possible production cut by OPEC.
However, the increases in November may not be sustainable, so caution must be exercised.
Courtesy: Multivest Economic Division
Comments