Market commentary

The strained relations between Hong Kong and China is nothing new, as the issue of Hong Kong’s independence versus its general integration into China, or rather the question of the self-identity of Hong Kong’s citizens, has resulted in numerous spats over the years.

Many will recall the protests that took place in Hong Kong last year over China’s proposed extradition bill, which would have allowed dissidents to be transferred to mainland China. And while tensions had simmered down in recent months owing to the Covid-19 outbreak, this week unfortunately saw this conflict flare up yet again.



The National People’s Congress (NPC), or the parliamentary sitting of the Chinese government, on Thursday voted overwhelmingly in favour of a controversial security bill for Hong Kong, which is intended to address secession, terrorism, and foreign interference. However, critics argue that the bill poses a threat to Hong Kong’s independence and autonomy, opening the path for China to establish intelligence bases in the city and suppress political activity and opposition.

Notably, China’s decision also threatens to destroy Hong Kong’s special relationship with the US. The US has supported Hong Kong’s autonomy for many years, granting it a preferential trade status. But in the run-up to the NPC vote, US Secretary of State Mike Pompeo declared that having reviewed the situation, Hong Kong can no longer be seen to have significant autonomy from China.

President Trump has yet to announce what measures will be taken in response to the revocation of Hong Kong’s special trade status. However, this determination, seen together with trade tensions and accusations over blame for the Covid-19 pandemic, has sent US-Sino relations plummeting to dangerous new lows.

The rapidly changing relationship between the two powerhouse economies will then shape the way the rest of the globe interacts with China, posing a significant challenge to emerging markets (such as South Africa) that have become heavily reliant on Chinese ties. And, although markets have remained largely upbeat over hopes for a potential vaccine and the gradual resumption of global economic activity after weeks of lockdown, the US-China conflict poses a major threat to international trade and long-term risk appetite.

Turning to the pandemic’s various economic impacts, stimulus packages remain in the spotlight, as the European Commission this week proposed a massive €750 billion recovery plan for the European economy. Additionally, China’s central bank on Tuesday announced that it would continue with flexible monetary policy to assist the economy and ensure sufficient liquidity, while the US Federal Reserve is also continuing to offer unwavering monetary support for the US economy.

Meanwhile, emerging market assets rallied this week, driven by renewed optimistic sentiment. However, economic data remained generally poor:


  • US GDP was the most important release for the week. The data indicated that the US economy contracted more than expected, shrinking 5% quarter-on-quarter for Q1 2020
  • New home sales accelerated by 623k in April
  • Initial jobless claims steadied from the previous week to just over 21 million
  • Durable goods orders lost 17.2% month-on-month in April


  • Industrial profits recovered slightly from March, but remained negative at -4.3% year-on-year in April, while the numbers are down 27.4% YTD


  • Industrial and services sentiment remained negative at -27.5 and -43.6 respectively for May
  • CPI due for release today is expected to come in at 0.1% year-on-year for May


  • GfK consumer confidence due today is expected to remain negative at -34 for May



After eight weeks of a nationwide lockdown that caused economic carnage and decimated jobs, the local economy is finally reopening. Government’s announcement that the entire country will move to level three has come as a welcome relief to business owners and employees alike, with eight million people gearing up to return to work.

On Thursday, various ministers took to the podium to release the new regulations for level three, including some exciting developments such as:

  • The ban on alcohol being lifted
  • Religious sermons with a maximum of 50 people to recommence
  • Restaurants being permitted to reopen for drive-throughs, pick-ups and take-aways (including the controversial Woolworths roasted chicken)
  • Fitness enthusiasts being able to hit the streets to walk, jog, and cycle
  • Professional non-contact sports to resume

On a more sombre note, South Africa unfortunately still has some tough times in store, as the economy remains in an extremely fragile state. We are now facing the prospect of a deep recession, and can only hope that our current situation will act as a call to action to government and citizens to work together to finally build an inclusive, sustainable, and most importantly growing economy. There are some difficult decisions ahead for the country’s leadership on the public wage bill, SOE’s, and possible austerity measures, but sadly, the country has run out of time for further prevarication and delays.

The rand made significant gains this week, in line with other emerging market currencies. Ultimately, the rand’s rally has been driven by the global turn in risk appetite, and has very little to do with the current state of the country. The global environment therefore needs to be taken into account when making currency-related decisions.

With the lockdown delaying the publishing of data by Stats SA, the data calendar has remained on the light side. PPI marginally undershot expectations, reaching 3.3% year-on-year in March, while the trade balance is due for release today.



Optimism over a potential vaccine and the lifting of global lockdowns has been overshadowing the numerous global risks at play, and the rand has enjoyed a welcome reprieve following weeks of severe volatility and exaggerated weakness. However, attention on Friday has moved to the tension between the US and China, as President Trump plans to address the media on China later today. Markets are expecting the US to sever most of its ties with Beijing, eroding market sentiment. The content of Trump’s address and the severity of the measures taken will set the course for the local unit, and market focus in the week ahead will remain on the US-China dynamic, as well as the other geopolitical impacts of the fall-out.

The data calendar for the week ahead is somewhat heavier than the past week, and we will be looking for signs of recovery – albeit slow – from the US and Europe, as these economies start to pick-up some speed.


  • CN, EU, UK and US manufacturing PMI
  • Local total vehicle sales & Absa PMI


  • UK HPI


  • CN Caixin services PMI
  • Local Standard Bank PMI
  • EU Markit Services PMI, unemployment and PPI
  • US non-manufacturing PMI & non-manufacturing unemployment


  • EU services PMI & retail sales
  • EU interest rate decision
  • US non-farm productivity, and jobless claims


  • Local SACCI business confidence
  • US non-farm payrolls and unemployment

The rand then began the day slightly on the back foot, trading at R17.48/$, R19.38/€ and R21.53/£. 


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