Market commentary

After years of warnings from scientists, the world is finally facing the “what if” scenario we were cautioned about. However, one thing we cannot predict is exactly how long the virus will be with us, and for how long it will continue to dictate our economic liberties and social activities.



Economic data and health statistics made it clear this week that the COVID-19 storm has not yet passed. Global cases continue to rise, while economies grapple with the pandemic’s various effects – especially the consequences of regulatory interventions and widespread fear and anxiety.

The European bloc made headlines this week, as following days of heated debate, European leaders finally agreed upon a €750bn recovery fund to rebuild their economies in the wake of COVID-19 related devastation. This much-anticipated stimulus package offered a welcome boost to the euro, with emerging markets riding the tailwinds.

Notably, Bank of England policy maker Jonathan Haskel expressed his concerns on Thursday that the UK may undershoot its inflation target, as the demand-side of markets remains the key driver of economic activity. Haskel observed that the fear of contracting the virus remains the single biggest deterrent to a steeper economic recovery, while the fear of unemployment has further curtailed demand for goods and services.

Meanwhile, the US Federal Reserve (Fed) is busy deciding upon further economic support in addition to the over $1 trillion in monetary support already provided. These deliberations will intensify during the committee meeting on 28 and 29 July, and could mark a change in the Fed’s gears, as the central bank endeavors to act in a dynamic and supportive fashion in response to the unprecedented terrain the world’s largest economy currently finds itself in.

Monetary policymakers are not the only office-bearers facing a tense environment. This week saw US-China tensions escalate yet again, as the US ordered China to shut down its Houston consulate, accusing it of stealing American intellectual property. Many are now referring to the tensions between the two powerhouses as a cold war, as ongoing disagreements over key matters such as trade, technology, and diplomacy add to uncertainty in global markets.

While data from the UK, US and the EU has largely been positive, this merely indicates a turnaround from the bottoms witnessed earlier this year, and stronger, sustained momentum is required to ensure economic recovery in the short to medium term.

Some of the key data released this week included:


  • Consumer confidence remains in negative terrain at -15 points.


  • Existing home sales increased by 20.7% month-on-month in June, undershooting market expectations of 24.5%.
  • Initial jobless claims disappointed, reaching 1.416m for the week.


  • PBoC kept prime lending rates steady at 3.85% in line with market expectations.



South Africa is now caught well within the eye of the storm, as COVID-19 infections continue to climb despite government interventions. The recent reimplementation of the alcohol ban and curfew has done little to curtail infection rates, although these regulations have helped to alleviate pressure from the health system.

Meanwhile, scholars and teachers are continuing under a cloud of uncertainty, as President Ramaphosa announced last night that public schools would be closed for four weeks, although some grades such as Grade 12 will return earlier. Ramaphosa also announced that the current academic year will be extended into next year, although information on this will only be released at a later date.

Unfortunately, the reality of economic hardship in South Africa is even more severe than in developed countries such as the US and EU. Unemployment is expected to spike, the country remains entrenched in a deep recession, and striking a balance between economic preservation and reducing COVID-19 infections is essentially an impossible task.

Adding to the country’s woes, Eskom once again plunged South Africa into the dark, dealing another blow to an already battered economy just weeks after the devastating hard lockdown. The embattled power utility continues to face an increase in demand during winter, while its financial position continues to deteriorate. Local government is at its wits’ end in trying to manage the fiscal strain facing the country while keeping SOE’s such as Eskom and SAA afloat. In some good news, however, the African Development Bank approved a R5 billion loan to South Africa this week in an effort to aid the country in dealing with the pandemic, while feedback from the IMF regarding potential financial support is expected next week.

Key local data for this week included retail sales, which contracted by 12% year-on-year in April, while the SARB cut interest rates by 25bps on Thursday in a bid to aid the fragile economy, taking advantage of historically low inflation rates.

The rand held its own this week, bolstered by the EU stimulus package and the return of risk appetite in recent weeks. While the interest rate cut on Thursday eroded some of the recent gains, current levels are still optimal, with a strengthening to R16.35/$ potentially on the cards in the shorter-term.



We are expecting a few sets of data today, including UK retail sales, EU and US PMI. Focus on the week ahead will then remain on unfolding geopolitical dynamics, and particularly US-Sino relations, as well as government responses to the increasing number of COVID-19 infections. Any indications from the Fed regarding potential monetary interventions will also set the tone for financial markets going forward.

Key data for the week ahead includes:


  • CNY industrial profit
  • US durable goods orders


  • US consumer confidence


  • Local CPI
  • US Federal Reserve interest rate decision


  • EU sentiment and unemployment
  • Local PPI
  • US GDP and jobless claims


  • EU CPI
  • Local trade balance

The rand started the day trading at R16.69/$, R19.37/€ and R21.25/£.


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