January 2020
Markets, exchange rates, commodities, international developments
Two events affected markets negatively in January - the military conflict between the USA and Iran early in the month, followed by the spreading of the Coronavirus from China to the rest of the world.
Share markets around the world declined from record numbers as news of a possible devastating impact of the virus took its toll.
The JSE ALSI lost 1.8% in January to 56 079.54 points. The Listed Property Index lost -3.1% in January, General Retailers -7.1%, the Financials (15) -5.9% and the Resources (20) -3.6%. However, the Industrials (25) gained 2%.
The ALBI increased 1.2% in January as the yield on the R186 declined to 8.02% from 8.26%.
US economic growth for Q4 2019 was 2.1% as expected, while interest rates were left unchanged. The good performance of the US economy and financial results of some companies were overshadowed by fears created by the Coronavirus, contributing to declining share prices, hitting especially emerging markets (EM).
The MSCI EM index lost -4.7% in January and the MSCI Developed Market Index -0.7%.
The Dow Jones lost -1%, the S&P -0.2%, UK FTSE -3.4%, German Dax -2%, French CaC -2.9%, Japanese Nikkei -1.9%, Hong Kong Hang Seng -6.7% and the Chinese Shanghai -2.4%. The Australian ASX was supported by stronger commodity prices and gained 4.7%
Resources performed mixed due to the impact of the Coronavirus. Brent oil declined as the virus is expected to reduce spending and economic growth, losing 14.3% in January to $57.6 per barrel. Gold, seen as a safe have, gained 4.8% to $1 589 per ounce. Platinum lost 0.6% to $960 per ounce.
The weakening of the US$ was wiped completely as news of the virus spread. The US$-index gained 0.8% in January. EM market currencies were hit hardest, losing 1% in January. The Rand was particularly hit as the currency had to deal with the virus and home grown troubles such as the shortage of electricity. The rand ended January at R15/$, 6.7% down from R14/$ end December. It lost 6.4% to R19.82 against the pound, and 5.8% to R16.66 against the euro.
The US$ strengthened 1% against the euro, but lost 0.3% against the Japanese Yen.
The volatilities on markets will continue in February, driven by news on the Coronavirus.
South Africa’s markets will be influenced by the national budget – should the debt situation not improve, a Moody’s downgrade in March becomes a real possibility.
Elsewhere, the UK officially left the European Union at the end of January. The parties have a year to reach an agreement. Also, the impeachment against US President Donald Trump turned out to be unsuccessful. The focus will shift to the trade conflict with China (and EU), and monetary policy.
Inflation and repo rate
YoY CPI for December increased by 4% from November’s 3.6%.
CPI still kept low by housing (24.6% weight in the index), but food is increasing.
Medical aid (8.9%), electricity (11.6%) and water (7.1%) prevented lower CPI rates.
The SARB MPC lowered the repo rate by 25 basis points in January, but it is too late.
Credit
Private sector credit growth slowed in December YoY to 6.1% from 6.6% in November.
Households’ increased their personal loans in December compared to November, but reduced their overdraft and credit card balances.
Corporates reduced their outstanding loans and advances in December, putting downward pressure on private sector credit growth.
Retail and Wholesale trade, passenger cars, FNB House Price Index (SA = seasonally adjusted)
Total domestic trade performed mixed in November (Wholesale sales dominate domestic sales).
Retail sales for October and November up 1.8% from 0.5% in Q3.
Wholesale sales for October and November down -1.4% from 11.7% in Q3.
New vehicle sales up 5.1% in Q4 vs Q3, but full year sales down 3% in 2019 vs 2018.
FNB real house price index YoY down -0.1% in November
International trade
Massive trade surplus (inc BLNS) of R14.8 billion in December.
Surplus for 2019 is R24.7 billion.
Surplus of R23.3 billion in Q4 alone will support the economic growth rate for the quarter and year.
Mining, manufacturing, and electricity production (QoQSAA=quarter on quarter seasonally adjusted)
Q4 production up to November is up, but load-shedding in December will change this.
Mining SA in October and November up 0.5% vs -6.8% in Q3.
Manufacturing SA in October and November up 0.5% from -4.1% in Q3.
Electricity SA in October and November down (less) -0.6% from -1.8% in Q3.
Courtesy: Multivest Economic Division