Market commentary

Despite hopes that the global economic recovery would take place relatively quickly, central banks have begun to reassess recovery projections more realistically as the global economy comes to terms with the devastating impact of lockdowns. As the US and UK reimplement scattered lockdowns, and fears grow of an economic recession and depression, could this be the catalyst that sends markets lower for the second time in 2020?



US equity markets are beginning to show signs of hesitation, as the US Federal Reserve (Fed) acknowledged that the road to economic recovery remains is cloaked in a ‘thick fog’ of uncertainty. In a speech web cast by the Economic Club of New York, President of St. Louis Federal Reserve President James Bullard, stated, “The downside risk [to the economy] is nevertheless substantial, and better execution of a granular, risk-based policy will be critical to keep the economy out of depression.” Additionally, Bullard noted that the Fed may approve yet another substantial stimulus package aimed at supporting US households and businesses.

The second wave of Covid-19 cases on US shores is significant, with some 46 states (92%) reporting an increase in deaths and new infections for the first time since mid-April peaks. Where a widespread recovery was initially expected by the end of 2020, Dallas Federal Reserve President Robert Kaplan indicated that expectations have now been pushed out further into 2021. Given that the US is a few months ahead of South Africa in terms of the virus’ curve, it then seems that South Africa may only face a second wave in late 2020 or even early 2021.


  • Core inflation rate came in flat at 1.2% year-on-year for June. Month-on-month core inflation was reported at 0.2% vs the previous month’s -0.1%.
  • Industrial production numbers for June came in stronger month-on-month at 5.4% vs the previous month’s 1.4%. Year-on-year, however, US industrial production fell 10.8% vs the 6.2% contraction expected.
  • Manufacturing production numbers month-on-month came in stronger for June, increasing 7.2%, compared to the 5.4% expected.
  • Retail sales month-on-month for June grew by 7.5% vs the 4.5% increase expected.
  • Jobless claims came in slightly worse than expected at 1.3 million vs 1.29 million as at 11 July.


  • China’s trade surplus weakened to $46.42 billion in June from $49.6 billion in the previous year’s corresponding period. Exports saw a 0.5% increase and imports a 2.7% gain compared with a year ago.
  • Chinese GDP growth for Q2 also came in stronger, rising 3.2% year-on-year vs the 2.4% expected.
  • Industrial production numbers have also seemed to normalise for June, year-on-year.
  • However, retails sales came in at -1.8% year-on-year in June, where analysts had expected a positive 0.3% result.
  • Chinese unemployment came in slightly stronger at 5.7% than the previous month’s 5.9% as the Chinese economy slowly recovers.


  • Industrial production data indicates that the region is still being heavily impacted by Covid-19 lockdowns, with production data for May declining 20.9% year-on-year.
  • New car registrations dropped 22.3% year-on-year in June. 


  • Core inflation rate came in at 1.4% year-on-year in June vs 1.2% in May.
  • PPI output for June came in slightly better than expectations, while still indicating that an economic recovery will take time. Retail sales came in slightly stronger than the previous month, as pubs and restaurants began reopening. 



As South Africa moves swiftly towards the peak of Covid-19 cases, currently expected around mid-August, President Cyril Ramaphosa retightened the screws on lockdown rules and regulations. With alcohol sales suddenly being re-banned and the South African Taxi Association seemingly twisting government’s arm, emotions have been running high.

Despite some criticism of the ANC’s leadership, however, the tightening of lockdown measures appears to have been carefully reasoned. As hospitals are now being flooded with Covid-19 patients, emergency doctors and surgeons lack the necessary capacity to handle injuries derived from immature and drunken behaviour – a logical argument for further restrictions. This said, with the country’s economy already under siege, additional regulations are proving highly detrimental to many struggling businesses, further threatening livelihoods.

Major takeaways from the latest amendments to lockdown regulations included the compulsory wearing and use of masks, the second suspension of alcohol sales and distribution, the reimplementation of the ban on interprovincial travel, and the extension of the prohibition against seeing family members. By Thursday, calls from both the South African Democratic Teachers Union (Sadtu) and the National Professional Teachers Organisation of South Africa (Naptosa) to close schools also drew government consideration, as the number of coronavirus cases rapidly escalate across the country.

Questions around the cancelling of the entire 2020 schooling year are now being raised, and the path forward for the schooling system currently remains unclear. However, there are growing concerns that these disruptions could cause or exacerbate various mental health issues amongst the country’s youth in the long-term.

Notably, amidst the various other challenges posed by the ongoing lockdown, the price of a basic basket of food has also risen. A recent study by the Pietermaritzburg Economic Justice & Dignity Group, which analyses the basic price fluctuations of a normal basket of household foods, found that there was a roughly 8.1% increase between 2 March and 3 June 2020.

Meanwhile, a few data points for the week came in as follows:

  • Gold production increased to -20.30% during May from -60.2% in April, when most mines were in the throes of lockdown. Overall mining production, however, still remains relatively weak compared to output levels seen in 2019. This said, a 44% increase in overall mining production was seen in May compared to April, as mines slowly emerge from lockdown.
  • SACCI business confidence numbers are due for release later today.

Next week, South Africans will find out how retail sales have been performing during this difficult period, while the Monetary Policy Committee (MPC) will also announce interest rate and prime lending rate numbers.



It’s clear that the global economy is not going to emerge from 2020 unscathed. With the US now grappling with a second wave of the Covid-19 pandemic, Europe’s example suggests that recovery is still a way off. Meanwhile on local soil, tempers are beginning to flare and anxieties mount over the fate of the economy.

Amidst ongoing uncertainty, investors should bear in mind that South Africa is facing a looming unemployment crisis, while the US is quickly realizing that tangible signs of an economic recovery may only appear in 2021.

Expected data in the upcoming week:


  • House price index data for May
  • Existing home sales for June
  • New home sales data
  • Flash Markit manufacturing PMI data for July


  • Loan prime rates for 1 and 5 years
  • Industrial profits, year-to-date


  • Current account for May
  • Flash consumer confidence numbers
  • Flash Markit manufacturing and services PMI data for July


  • Business optimism numbers
  • Retail sales for June
  • Flash Markit manufacturing and services PMI data for July

The rand started the day trading at R16.73/$, R19.06/€ and R21.01/£.


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