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Following a strong December, international equities took a breather in January

January 2021

Share markets, exchange rates, commodities, international developments, domestic economic indicators

  • Following a strong December, international equities took a breather in January.

  • This was mostly caused by new US president Joe Biden’s Coronavirus stimulus package of $1.4 trillion receiving resistance and lockdown measures in Europe – which dominated announcements of central banks that monetary policy will remain easy.

  • Nevertheless, the International Monetary Fund expect world economic growth to recover to 5.5% in 2021 and 4.2% in 2022 following a revised (lower) contraction of 3.5% in 2020.

  • However, the recovery will be diverse, depending on the pace of the rollout of COVID-19 vaccines.

  • It is bound to be faster in some countries than others – mostly due to the type of agreements negotiated with pharmaceutical companies. Some emerging markets and poorer countries will receive it later.

  • Share markets in the western hemisphere declined, while those in the east increased in January.

  • In the US the S$P lost 1.1%, the UK FTSE 1%, the German Dax 2.1% and the French CaC 2.7%. The Japanese Nikkei gained 0.8%, the Hong Kong Hang Seng 4% and both the Chinese Shanghai and Australian ASX 0.3%.

  • Commodity prices performed mixed. Gold was down 2.4%, Platinum gained 0.4% and the Bret Oil price was up 8.8% to $55.9 per barrel.

  • The US$ strengthened against most currencies, gaining 0.7% over the month.

  • The rand depreciated against the US$, Euro and British pound. The currency lost 3.6% against the US$, ending the month at R15.21/$. It depreciated 3.9% and 3% against respectively the British pound and Euro, ending the month at R20.87/£ and R18.46/€.

  • South Africa’s economic growth rate for Q4 2020 is expected to have slowed considerably and may even have contracted again – due to mostly load shedding and a move to an adjusted level 3. Nevertheless, the stronger performance in Q3 2020 should be strong enough to record a smaller contraction of around 7% compared to initial forecasts of 8%.

  • The country’s fiscal situation also improved during Q4 2020. Income tax receipts from individuals and companies exceeded estimates by far. If expenditure was contained (especially the wage bill), the fiscal deficit will be smaller than estimated by the national treasury – this will be positive for bonds.

  • Equities’ performance will largely depend on the performance of international economic growth, which in turn, will be dependent on the success of the vaccines against COVID-19, the rollout thereof, a continuation of fiscal stimulus and easy monetary policy. Other factors that will affect equities are the extent of load shedding, the rollout of vaccines in South Africa, new coronavirus waves and the resulting decisions on the COVID-19 levels (currently at adjusted level 3).

Courtesy: Multivest Economic Division

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