Market commentary

The US election year is in full swing, and political bickering is to be expected as the Democrats and the Republicans face off in the ultimate power struggle to see who will steer the economic powerhouse’s policy for the next presidential term. Presidents are often judged by one or two key themes or events seen during their term, and just as George W. Bush is closely tied to the Middle East conflict, so, too, will Donald Trump forever be associated with the COVID-19 pandemic.

It’s no secret that the US, in line with the rest of the globe, is taking significant economic strain. And unfortunately, a lack of funds and the stalemate on a government COVID-19 relief package is now placing thousands of civil servants at the risk of furlough.

 

GLOBAL DATA AND POLITICS

As the US reaches 5.22 million infections and nearly 166,000 deaths, President Trump has been accused of flouting the constitution by unilaterally extending a relief program. House Speaker Nancy Pelosi described Trump’s announcement as "absurdly unconstitutional”, and the package was further criticised as being inadequate, unworkable and narrow.

However, Trump dished out some criticism of his own, as Democratic presidential candidate Joe Biden selected Kamala Harris as his running mate. In a press release, Trump campaign spokesperson Katrina Pierson stated, “Phony Kamala will abandon her own morals, as well as try to bury her record as a prosecutor, in order to appease the anti-police extremists controlling the Democrat Party.'' This comes only weeks after the police killing of an unarmed black man which sparked widespread riots took the US by storm.

Meanwhile, the UK and the EU are still at odds over Brexit and the crucial trade agreement. But in some good news, New Zealand made it clear this week that it looks forward to striking new agreements with the UK, as the UK seeks to expand its Commonwealth trading ties and trade more effectively outside the EU. The UK’s chief Brexit negotiator, David Frost, also turned up the heat on the EU, making it clear that the UK’s sovereignty over its laws, courts and fishing waters were simply not up for negotiation, and that the UK will not accept any agreement that undermines this demand.

Turning east, markets are waiting with nervous tension for the US-China phase one trade agreement review due to take place mid-August. This follows the near collapse of diplomatic ties between the two nations in July. With China falling short of the $200bn US goods import commitment, partially as a result of the global pandemic, uneasiness and uncertainty remains rife, as markets wait to see how the chess pieces move in the ongoing battle between the world’s two largest economies.

Moving from current affairs to data, the following topped the list for this week:

US:

  • PPI expanded by 0.3% year-on-year in July
  • CPI reached 1% year-on-year in July
  • Initial jobless claims broke below expectations, with 963k claims for the week, down from the previous 1.19m

CN:

  • CPI came in at 2.7% year-on-year in July, while PPI contracted by 2.4% for the same period
  • FDI for July gained 0.5% following the contraction of 1.3% in June

EU:

  • Industrial production undershot expectations, remaining in negative terrain after contracting 12.3% year-on-year in June

UK:

  • Unemployment remained steady at 3.9% in June
  • GDP contracted by 21.7% year-on-year in Q2
  • Industrial production gained 9.3% month-on-month in June

 

SOUTH AFRICAN FUNDAMENTALS

We kicked the week off celebrating National Woman’s Day, with the spotlight particularly on issues of gender-based violence and femicide. A government document, named the National Strategic Plan on Gender-Based Violence & Femicide 2020–2030, released earlier this year, highlights the plight of South African women, who are increasingly becoming victims of murder, rape and assault. With South Africa coming in at 38 out of 163 countries in a ranking of the most dangerous countries in the world, the plan then aims to protect women through various strategic initiatives. But while the topic receives extensive media coverage and social media attention, social and economic pressures, and lockdown regulations, have seen the country and its women falling prey to increased violence.

The COVID-19 mortality rate in SA remains impressive by world standards, and hospitals remain below capacity. So, following rumours that President Ramaphosa is facing pressure to lift the ban on alcohol and cigarettes, and reduce the lockdown to level two, many expected Ramaphosa to address the nation on Thursday evening with an update that would potentially see some of the hardest hit sectors of the economy regain some operational ability. However, as of Friday morning, some news reports indicate that this may only take place on Saturday.

The controversial topic of South Africa’s pension funds came into focus again this week, as major news outlets reported on government’s bid to amend tax laws. The new proposed laws seek to prevent South Africans who no longer pay tax in SA from withdrawing funds until such a time that they can prove tax residency. This move comes on the back of concerns that government may use pension funds to finance fiscal activity, as many question government’s ability to effectively manage funds.

The rand started the week on the back foot, weakening to R17.78/$ on Monday. However, the slip in the dollar (amidst the government stimulus stalemate) assisted the unit to claw back ground, remaining largely stable for the rest of the week and trading in a range of R17.35-17.60/$.

Data for this week included retail sales, which improved from the lockdown lows of -11.9% year-on-year in May to a contraction of 7.5% year-on-year in June. This improvement, however, undershot market expectations, giving evidence to the strain being faced by South African consumers as the lockdown plagues the economy and livelihoods. Gold and mining production remained constrained, contracting by 17% and 28.2% respectively year-on-year in June.

 

LOOKING AHEAD

The environment remains largely unchanged, with key focus for the week falling on the US stimulus package, and the upcoming review of the trade agreement between the US and China.

From a data perspective, Monday and Tuesday will be fairly quiet, and we will keep an eye on the following from Wednesday:

Wednesday:

  • UK PPI and CPI
  • Local CPI
  • EU CPI

Thursday:

  • CN PBoC Prime loan rates
  • EU monetary meeting minutes
  • US initial jobless claims

Friday:

  • UK retail sales and PMI
  • EU PMI
  • US PMI

The rand started the day trading at R17.43/$, R20.59/€ and R22.76/£.

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