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Economic Indicators February 2020

February 2020

Markets, exchange rates, commodities, international developments

  • Markets are in a state of fear, driven by Covid-19 virus contagion.

  • Clear Covid-19 trends emerged. In China, where it all started, containment was attempted, by limiting social contact and working. It had limited success, though, as the virus spreaded.

  • Containment are now the focus in 64 countries, but the virus spreads to more countries each day.

  • Market fear is driven by the reach of the virus rather than the deaths it caused - as a wider reach means less production/profits. For instance, up to end February 86 992 cases were reported causing 2 979 tragic deaths. But 80 223 tragic flu deaths occurred over the same period.

  • Once market fear gains momentum, it steamrollers in the absence of positive news. The JSE ALSI lost 9% in February – the loss year to date (Ytd) is 10.6%. Listed Property lost 15.7%, General Retailers 11.6%, the Financials (15) 8.2%, Industrials (25) 6.5% and Resources (20) 11.6%.

  • The ALBI lost slightly (0.09%) in February as the yield on the R186 increased to 8.14% from 8.02%.

  • Internationally, the MSCI Developed Market Index lost 8.6% in February and the MSCI Emerging Markets index 5.4%.

  • The Dow Jones lost 10.1% (11.0% Ytd), the S&P 8.4%(8.6%), UK FTSE 9.7% (12.8%), German Dax 8.4% (10.3%), French CaC 8.6% (11.2%), Japanese Nikkei 8.9% (10.6%), Hong Kong Hang Seng 0.7% (7.3%), Chinese Shanghai 3.2% (5.5%) and the Australian ASX 8.6% (4.3%).

  • Resources declined due to the impact of the Coronavirus. Brent oil decreased 12.3% to $50.5 per barrel, (24.8% Ytd), platinum 9.9% (10.4%) and gold 0.2% to $1586 per ounce (still up 4.6% Ytd).

  • The US$ strengthened against most currencies as news of the virus spread. The US$-index gained 0.8% in February. EM market currencies were hit hardest. The Rand depreciated to R15.67/$ (another 4.2%) bringing its total depreciation Ytd to 10.6%. The rand ended February at R20.06/pound (down 7.5% Ytd) and R17.28/euro (9.2%).

  • The fears in markets can continue in March - as major central banks opined that the media/markets are overreacting. However, they at the end of February, also did what markets want to hear – saying they will act if necessary! Also, once positive news sets in, a partial recovery may occur rapidly.

Budget 2020/21

  • Markets received the budget positively as it contributed to higher share prices, declining yields and a stronger rand (this was however quickly wiped by the Covid-19 fears).

  • The positive reaction was mainly due to an unexpected cut of R2 billion in personal income tax and a 0.2% lower budget deficit over the next 3 years. However, debt service costs are still growing - as expenditure cuts (mainly as a proposed cut in civil servant remuneration) are insufficient to curb the growth in the debt burden, mainly caused by allocations to Eskom and other SOE’s.

  • The Budget may postpone a Moody’s downgrade in March, but will not contribute to faster economic growth in 2020. That said, economic growth for Q4 2019 may be positive (following a contraction in Q3 2019) for different reasons – see below!.

Inflation and repo rate

  • YoY CPI for January increased to 4.5% from 4% in December.

  • Increase due to very low base year ago and higher food and administered prices.

  • Government involvement CPI 9.5% in January vs 7.2% December; demand inflation just 2.9%.

Credit extension

  • Private sector credit growth slowed in January to 5% from 6.1% in December.

  • Households credit growth remained at 6.3%, but that of companies slowed from 6% to 4%.

Retail and Wholesale trade, passenger cars, FNB House Price Index (SA = seasonally adjusted)

  • Total domestic trade performed mixed in Q4 (Wholesale sales dominate domestic trade).

  • Retail sales Q4 QoQSAA = 0.4% vs 0% in Q3. Will add marginally to economic growth.

  • Wholesale sales Q4 QoQSAA = -3% vs 10.4% in Q3. Will deduct big from economic growth.

  • New vehicle sales up 5.1% in Q4 vs Q3. January passenger car sales YoY down -5.1%.

  • FNB real house price index YoY down -0.5% in December. Q4 vs Q3 = 0%.

Mining, manufacturing, and electricity production (QoQSAA=quarter on quarter seasonally adjusted)

  • Q4 results are mixed – but will all be better vs Q3 and therefore positive for Q4 economic growth.

  • Mining Q4 QoQSAA = 0.3% vs -6.4% in Q3. Will add to Q4 economic growth.

  • Manufacturing Q4 QoQSAA = -0.3% vs -4.5% in Q3. Will subtract less from economic growth.

  • Electricity Q4 QoQSAA = -1.5% vs -1.9% in Q3. Will subtract less from economic growth.

International trade

  • Trade deficit of R1.9 billion in January. This is 85% less than the deficit a year ago.

Courtesy: Multivest Economic Division

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