The Week Ahead with Chris Gilmour 23 March 2020

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The Week Ahead with Chris Gilmour 23 March 2020

Published Date: 2020-03-23 | Source: INCE|Community | Author: Chris Gilmour

The Week Ahead with Chris Gilmour 23 March 2020

Markets around the world remained in severe turmoil last week, thanks to the continued onslaught of the coronavirus. The S&P 500 closed at 2 305, 32% below it Feb 19 peak of 3 386 and firmly in bear market territory. The US equity market is obviously taking a very pessimistic view on the outlook for the US economy in the wake of recent announcements by various states that effectively put many parts of the country into lockdown. Goldman Sachs put out a very sobering note on Fri 20 Mar in which the company expects to see US Q1 quarter on quarter growth of -6%, Q2 of -24%, Q3 +12% and Q4 +10%. So in other words, an almost unprecedented contraction in the first two quarters of 2020, followed by two quarters of a strong bounce-back. This would leave full year growth at -3.8%, a far cry from the 2.5% that was confidently predicted by most observers as recently as a month ago. And of course a natural consequence of such a contraction is the inevitable rise in unemployment. Goldman Sachs predicts that the narrow measure of unemployment will rise from 3.5% to 9%. This could have a devastating impact on Donald Trump's bid for the US presidency. Global economic activity is cooling rapidly and it is anyone's guess as to when this will all end. Best estimates are that the pandemic in the US may peak by end Jun and a gradual improvement may occur from then. But if that doesn't happen, governments worldwide will be forced to reconsider their lockdown strategies. These lockdowns are having extremely dampening effects on consumer activity and as consumer spending is the mainstay of most developed economies, it is clear why the effect of such reductions will be so acute on GDP growth.

The UK has thrown a lot of money at the crisis, most recently by guaranteeing to pay 80% of the wages of people in formal employment up to a maximum of 2 500 pounds. Other relief for mortgage payments has been put in place. But there is not an endless supply of money in the UK or anywhere else and hence these measures can only be of a temporary nature. An incipient danger of letting unemployment run wild and having more people on benefits is that workers could end up getting a dependency mindset. This option of putting the UK economy in the deep freeze attempts to avoid such an outcome.

As widely anticipated, the SARB's MPC voted to cut the repo rate by 100 basis points last week. This may not be enough of a stimulus to keep SA out of recession territory and indeed governor Lesetja Kganyago admitted as much by saying that the SARB's GDP growth estimate is 0.2% for the 2020 calendar year. The JSE Alsi closed 9% down for the week at 40270 on Fri 20 Mar. From its peak on Jan 25 2018, the index has now fallen by 35%.

The Fragile Five + Russia
Country GDP Growth (%) Inflation (%) Unemployment (%) Interest Rates (%)
South Africa 0.2 4.4 29.1 11.3
Brazil 1.1 4.2 11.2 4.7
India 4.9 7.6 7.8 6.3
Indonesia 5.1 3.0 5.3 6.4
Turkey 0.7 12.4 13.7 12.5
Russia 1.3 2.4 4.7 8.6
Source: The Economist Mar 20 2020

JSE listed company results out this week;

  • 23 March2020
    • Randgold
  • 23 March 2020
    • AdVtech
  • 24 March 2020
    • Master Drilling
  • 25 March 2020
    • WeSizwe
  • 25 March 2020
    • Gemfields

Economic data releases this week;

  • 26 March 2020 2020
    • SA PPI January
  • 27 March 2020
    • Baker Huges Oil Rig Count

An image of Chris Gilmour




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