The Week Ahead with Chris Gilmour


The Week Ahead with Chris Gilmour

Published Date: 2020-07-27 | Source: INCE|Community | Author: Chris Gilmour

The Week Ahead with Chris Gilmour

US/Chinese tensions heightened last week with the announcement that China's consulate in Houston, Texas, would be closed. US officials suspect the consulate has been used by the Chinese as a spying hub. Shortly after the last Chinese diplomat left the building, US officials forced entry into the building. In retaliation, China ordered the closure of the US consulate in Chengdu. The US Labor Department announced on Thu last week that 1.4 million unemployment claims had been received, an increase of 109,000 from the previous week. This was the first upturn in unemployment numbers in four months, having consistently fallen since the huge shock of over 6 million applicants in Apr. This gives further momentum to the suggestion that the US economic recovery is losing traction. US President Donald Trump cancelled the planned Republican Convention due to take place in Jacksonville Florida next month, due to the continuing spike of coronavirus in that state. The convention will now take place on a much smaller (half a day) scale in Charlotte, North Carolina on 24 August. Trump will be officially nominated as the Republican candidate in the Nov 3 election. Democratic candidate Joe Biden remains ahead in the polls ahead of the Nov 3 election, with the latest Reuters/ Ipsos poll giving him a clear 8 percentage points lead over the incumbent president. At this level of popularity and with Trump continuing to appear to mismanage the coronavirus crisis, Biden will merely have to stay alive to ensure victory in Nov. Former national security advisor in the Obama administration Susan Rice is emerging as a possible vice-presidential running mate for Biden. Trump appears to be pinning his re-election hopes on a vaccine being developed and distributed before the election. This is a real long shot, as even the most optimistic of observers only believe a gradual rollout of a successful vaccine could happen by Oct at the earliest. Nevertheless, the US has hedged its bets in this regard by ordering hundred of millions of doses of vaccines from a variety of sources, including from Oxford University/AstraZeneca and Pfizer/BioNTech. Oxford University's progress was documented in the UK's leading medical journal the Lancet last Mon, with exciting evidence that the vaccine offers double protection, stimulating both antibody and T-cell production.

With the $600 boost to low-income paychecks about to end, the US Congress must soon decide whether or not to let it finish, continue it or reduce the payment levels. Recent bipartisan negotiations suggest both Republicans and Democrats are only prepared to countenance a reduced or more restrictive version of the payment. This will likely have a dampening effect on US retail sales, which have bounced back sharply in May and Jun after slumping in Apr. The Republican argument is that the current system encourages workers to remain on unemployment benefits rather than returning to work. Ending or reducing the federal payments would aid employers and investors by pressurising many of those employees to return to work. Similarly in the UK, the very generous furlough scheme has resulted in many businesses preferring to stay closed, even when they are permitted to reopen under government relaxations of restrictions. A case in point in the hospitality industry, with many pubs waiting until Oct to reopen, when the furlough system ends. Under this system, the UK government pays 80% of an employee's wages up to a maximum of GBP2 500 per month.

The S&P 500 closed 0.3% down for the week at 3215.63 on Fri 24 Jul. The market was spooked on Fri, not just because of the heightened US/Chinese tensions but also by the realisation that the US economy is not necessarily experiencing the much hoped for V-shaped recovery. From its Feb 19 closing peak of 3 386.15, the index has now fallen 5%. It has risen by 43.1% from its Mar 23 closing low of 2 237.4. Just to put some context into the tremendous rise that has occurred in US technology stocks in recent years, just three stocks-Apple, Amazon and Microsoft- make up more than 16% of the S&P 500 Index and over a third of the Nasdaq 100 Index. Together they are now valued at nearly $5 trillion. That's larger than the entire economy of Germany and roughly the size of the Japanese economy. The gold price continues its upwards trajectory, coming within a hair's breadth of its all-time high of around $1 920/ounce set almost a decade ago. Factors in gold's favour include a weakening US dollar and the possibility of inflation appearing in response to all the money that has been thrown at the pandemic. The SA Reserve Bank's MPC reduced the repo rate by 25bp last Thu. This will probably be the last interest rate cut this year, leaving the repo rate at 3.5%, the lowest level since 1998. South African retail sales figures for April and May were released by Statistics SA last week and show a grim picture. As expected, retail sales slumped in Apr, by 50.4% YoY but the rebound, to -12% YoY in May was not nearly as strong as the rebounds in the UK, US or the Eurozone. Segmentally, clothing footwear & textiles managed to get back into positive territory on a YoY basis in May, thanks to massive pent-up demand in Mar and Apr, when clothing stores were prohibited from opening. It will be instructive to see how the Jun figures compare with those of Jun 2019. The JSE Alsi closed 0.5% up for the week at 55 646 on Fri 24 Jul. From its peak of 61 685 on 25 Jan 2018, the Alsi has now fallen by 9.8%. From its recent low point of 37 693 on Mar 19, the index has risen by 47.6%.

The Fragile Five + Russia
Country GDP Growth (%) Inflation (%) Unemployment (%) Interest Rates (%)
South Africa -0.1 3.0 30.1 9.25
Brazil -0.3 2.1 12.9 6.62
India 3.1 6.1 11.0 5.82
Indonesia 3.0 2.0 5.0 6.87
Turkey 4.5 12.6 12.8 11.95
Russia 1.6 3.2 6.2 5.81
Source: Trading Economics

JSE listed company results out this week;

  • 28 July 2020
    • Vivo Energy, Kumba, Ellies
    • 29 July 2020
      • Accelerate Property, Globe Trade Centre, AECI
      • 30 July 2020
        • AB Inbev, MiX Telemeatics, Sappi, Stefanuti Stocks, Resilient Reit, Arc Mittal, Anglo American plc
        • 31 July 2020
          • BAt, Tongaat Hulett

          Economic data releases this week;

          • 29 July 2020 2020
            • SA Inflation Rate, M3 PSCE June, US Fed Interest Rate Decision
          • 30 July 2020
            • SA PPI June
            • 31 July 2020 2020
              • SA Trade Balance June

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