Market commentary

After months of lockdown, hundreds of thousands of livelihoods globally have been destroyed and lives lost. It is only natural, then, that emotions are running high and tempers flaring. Stir in growing resentment towards governments and continuing uncertainty, and nations worldwide are slowly turning into ticking time bombs.

 

GLOBAL DATA AND POLITICS

An explosion in Beirut earlier this week claimed the lives of at least 157 people and injured thousands more (at the time of writing), raising the question over whether we were once again witnessing an escalation in tensions in the Middle East, or whether the incident was an accident.  Since then, however, it has come to light that the government of Lebanon is at fault, having received numerous warnings about the threat posed by the highly explosive ammonium nitrate stored at the harbour since 2014.

Given the economic turmoil facing Lebanon, this explosion may very well be the straw that breaks the camel’s back in terms of social cohesion, as many take to the streets enraged by a lack of government caution and care. The effects of the explosion were additionally seen in the oil market, sparking a momentary rise in the oil price.

Then, despite the pandemic, the highly anticipated US presidential election is still set to take place on 03 November, even though President Donald Trump has been pushing for elections to be postponed. The US is in the middle of the worst economic downturn since the Great Depression, and politicians and government policies are coming under intense scrutiny.

The primary elections that are currently in motion indicate that US citizens have become even more polarised in their political views and ideas. Contentious issues such as immigration, the various challenges facing minority groups and gun control continue to draw the spotlight, and politicians (and their supporters) engage in the usual mudslinging.

Trump is leading the charge for the Republican party, while Joe Biden takes centre stage for the Democrats, and many are arguing that Trump will ultimately lose the face-off with Biden. But let’s not forget the 2016 upset, where – the question of Russian interference aside – supposed favourite Hilary Clinton was defeated by Trump.

Meanwhile, speculation over the potential collapse of the European Union (EU) has been doing the rounds for years, with many warning that Brexit is just the start of a mass exodus. The UK and Brussels are still at odds over a Brexit agreement, but with the bloc facing an economic crisis in line with the rest of the world, a number of countries are joining in voicing their discontent with the union and expressing their desire for independence. Italy made its way to the top of the list this week as the country most likely to leave the bloc next. Further, Prime Minister Mark Rutte of the Netherlands has also openly criticised the EU in recent weeks, and Poland, Ireland, Denmark and Greece all seem to be participating in the anti-EU movement sweeping across the bloc.

Further east, with China facing its biggest economic slump in over four decades, the Chinese government continues to increase pressure on banks and financial institutions to cut salaries and costs in a bid to boost returns and the economy.

So, as uncertainty remains rife across the globe, additional stimulus from governments and central banks remains a major topic in financial markets, and the extent of these packages will steer the direction of markets in coming weeks.

From a data perspective, the following releases took centre stage:

US:

  • Manufacturing PMI undershot expectations, tipping just above the 50-point mark
  • Factory orders accelerated by 6.2% month-on-month in June
  • Initial jobless claims remain a concern, although the number dipped well below market expectations, coming in at 1.186 million.

CN:

  • Caixin manufacturing PMI accelerated to 52.8 points in July, while services PMI came in at 54.1.

EU:

  • PPI contracted by 3.7% year-on-year in June.
  • Markit composite PMI met expectations at 54.9 points in July.

UK:

  • Manufacturing PMI came in at 53.3 points in July, marginally below expectations.
  • BOE kept interest rates steady at 0.1%.

 

SOUTH AFRICAN FUNDAMENTALS

The local environment remains strained, as South Africa continues under lockdown level 3. With little clarity on when provincial travel, alcohol, cigarettes will be permitted again, certain industries such as entertainment and fitness are also withering away under the heavy burden of lockdown regulations.

Patience with the ruling party is beginning to wear thin, as evidence of corruption in the midst of the pandemic becomes public. Additionally, numerous court battles against the government rage on, with the challenge to the cigarette ban leading the charge. And further flaming outrage is the fact that some 20% of South African breadwinners lost their salaries in June, with many households struggling to make ends meet. As the pandemic unfolds, it is becoming increasingly apparent that the economy and lives are not the only things at stake – the country’s political future also hangs in the balance.

Eskom made headlines yet again this week, as the embattled SOE continues to grapple with its legacy of corruption. Eskom hopes to recover R3.8 billion from former executives, an amount which was allegedly lost as a result of corrupt deals benefiting the controversial Gupta family.

As a glimmer of hope in these challenging times, Finance Minister Tito Mboweni made the decision to suspend the emergency procurement of PPE, as corruption allegations plague the explosive industry. The suspension of emergency procurement will see the process revert to more stringent requirements, and hopefully prevent further corruption from littering the arena.

Local data remains largely overshadowed by global data and events. Data releases this week saw manufacturing PMI dropping to 51.2 points in July from 53.9 points in June, while the Standard Bank PMI remained well below the crucial 50-point mark at 44.9 points – news which barely made the local unit flinch.

The rand came under pressure this week, even as the dollar remains subdued, as global de-risking continues to weigh on emerging market currencies, with the local landscape doing little to assist the local unit. We continue to experience wide trading ranges, which is likely to remain the status quo as uncertainty endures.

 

LOOKING AHEAD

The environment remains largely the same, with COVID-19 fallout and other political tensions causing market jitters, while policymakers try their utmost to balance politics and economics.

We will be keeping a close eye on any stimulus developments, as well as the US political scene as we approach the November elections.

The strains in the world’s largest economies continue to add to the pain of emerging markets, with the rand remaining under pressure as we end the week.

Today will see the release of Chinese import and export data, as well as US unemployment rates, while key events next week include:

Monday:

  • Local public holiday (Women’s Day)
  • CN CPI
  • US JOLTs job openings

Tuesday:

  • UK unemployment
  • Local unemployment and manufacturing production
  • US PPI

Wednesday:

  • UK GDP and manufacturing production
  • EU industrial production
  • Local retail sales
  • US CPI

Thursday:

  • Local gold and mining production

The rand started the day trading at R17.55/$, R20.77/€ and R23.01/£.

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