The Week Ahead

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The Week Ahead

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Published Date: 2021-05-10 | Source: INCE|Community | Author: Chris Gilmour

The Week Ahead

According to the US Labor Department, initial unemployment benefits fell 92 000 to a seasonally adjusted 498 000 for the week ended May 1. This is the lowest since mid-Mar 2020, when mandatory shutdowns of nonessential businesses were enforced to slow Sars-CoV-2 infections. Economists polled by Reuters had forecast 540 000 applications for the latest week. The decline in claims was led by Virginia, Florida, New York and California. This is another sign that the US labour market recovery has entered a new phase amid a booming economy. That view was endorsed by other data on Thu last week showing US-based employers in Apr announced the fewest job cuts in nearly 21 years. The reports added to other positive employment data in suggesting that the economy enjoyed another very strong month of job growth in Apr. But the labour market is not out of the woods yet, with around 16.2 million people still collecting unemployment cheques. However, there was an unpleasant surprise on the monthly nonfarm payrolls report for April. Consensus had been for employment increasing by over one million people in apr but the figure came in at only 266 000. The unemployment rate rose to 6.1% from the previous 5.8%. Markets largely ignored this, seeing it as a temporary phenomenon related more to employers not being able to find suitable candidates to fill vacancies rather than vacancies drying up. The Biden administration last week said it would support suspending patents for Sars-CoV-2 vaccines, which would allow competitors to produce generic versions of the vaccines without having to wait many years for patents to lapse. The World Health Organisation is very happy about this, as they see it as positive for greatly improved production of vaccines. However, the multinational drug companies who have spent many hundreds of millions of dollars developing these vaccines are understandably unhappy about the proposal, saying it will likely have the opposite effect by putting even more pressure on existing supply chains. There may be substance to these concerns, as the bottlenecks in vaccine production appear to be due to materials and manufacturing capacity. Berkshire Hathaway CEO Warren Buffet named Greg Abel as his successor last week after 56 years at the helm. Bill and Melinda Gates are to divorce after 27 years of marriage. The S&P 500 closed 1.2% up for the week at 4 232.6 on Fri 7 May, a new record high. It has risen by 89.2% from its Mar 23 2020 closing low of 2 237.4. But rising asset prices in the stock market and elsewhere are posing increasing threats to the financial system, the Federal Reserve warned in a report last Thu, according to CNBC. In its semi-annual Financial Stability Report, the Fed said that while the system overall has remained largely stable even through the Covid-19 pandemic, future dangers are rising, in particular should the aggressive run on stocks tail off. Investors have snapped up equities, corporate bonds and cryptocurrencies. They've poured billions into blank-cheque companies called SPACs, and the market has been mostly brisk for traditional initial public offerings. Fed Governor Lael Brainard said the situation bears watching and points out the importance of making sure the system has proper safeguards. She specifically mentioned having banks increase their capital requirements during economic expansions as a buffer against downturns. The report also mentions risk at hedge funds and other nonbank financial institutions on several occasions as potential threats to the system.

UK politics experienced a few seismic events last week, notably the comprehensive win by the Conservatives in the traditionally-socialist constituency of Hartlepool in northern England. A traditional Labour Party stronghold since 1964, the Conservatives managed to win the seat last Thu. And in Scotland, the pro-independence Scottish National Party (SNP) won the largest number of seats in the Scottish Parliament at Holyrood, falling short of an overall majority by one seat. The SNP will form a minority government, relying on informal support from the Green Party, which also supports Scottish secession from the UK. The SNP has stated unequivocally that, as soon as the pandemic is over, it will seek permission to hold a legal referendum on secession from the UK. If, as seems likely, the UK government denies such permission, the issue will end up in the courts and may well provoke a constitutional crisis.

The big commodity news last week was the surge in the copper price, where the price has broken through a key technical level to $10,236/tonne. Bank of America put a report out last week in which it saw copper prices rallying to $13 000/tonne, with stocks at their lowest level in 15 years. The bank calculates that current copper stocks will only cover approximately 3 weeks of demand. According to former Glencore CEO Ivan Glasenberg, in a report in the Financial Times, copper prices must rally 50% for supply to meet demand. Prices had been held back temporarily last week by comments from a Chinese official indicating that China might move to limit commodity prices if they raise inflation. However, if China was to impose such draconian price limits it would likely have already done so in iron ore which is more critical to the Chinese economy than any single base metal. Rising costs at the more marginal copper producers will require higher prices to meet rising demand for the new energy revolution as inflation eats into margins. Copper prices were also moved higher last week by issues in Chile and Peru which might serve to reduce new investment into copper mining in these regions. Demand for copper is being driven by stimulus measures encouraging the development of new renewable energy projects in the US, UK and China. Global copper demand from wind, solar, electric vehicles (EVs) and battery technology alone is expected to grow by nearly 600% by 2030 to 5.4 million tonnes per year. Standard EVs contain approx. 1km of copper wiring- translating to 60-83kg of copper per car. Internal combustion engineered vehicle requires 15-20kg. Level 1&2 EV AC charging points will contain 1-7kg of copper, while fast DC chargers contain up to 25kg. Offshore wind turbines require 13.5 tonnes of copper per megawatt compared with 4 tonnes of copper per megawatt for onshore turbines. Solar capacity requires an estimated 4.6 tonnes of copper per megawatt. Zambia has denied that it has closed the Konkola copper mines at Konkola Copper Mines plc (KCM), denying a Bloomberg report on the closure of the Konkola Deep mine. The mine is being run by the Zambian government Provisional Liquidator following an ongoing legal despite with its former owner, Vedanta over tax issues. KCM is looking to restore the Konkola Deep copper mine to a production rate of 400 000 tonnes per year and to extend the mine life to over 30 years President Cyril Ramaphosa received a big boost when his greatest adversary within the governing ANC, secretary-general Ace Magashule, was eventually suspended by the party last week. The JSE All Share Index (Alsi) closed 2.4% up at 68 520 on Fri 7 May. From its recent low point of 37 693 on Mar 19 2020, it has risen by 81.6%. Year to date, it is up by 15.3% from its close of 59 409 on Dec 31 2020.

The Fragile Five + Russia
Country GDP Growth (%) Inflation (%) Unemployment (%) Interest Rates (%)
South Africa -7.0 3.2 32.5 9.05
Brazil -1.1 6.1 14.4 9.23
India 0.4 5.52 6.5 6.02
Indonesia -0.74 1.42 6.26 6.44
Turkey 5.9 17.14 13.4 17.37
Russia -1.8 5.5 5.4 7.05
Source: Trading Economics

JSE listed company results out this week;

  • 12 May 2021
    • Transaction Capital, Textainer
  • 13 May 2021
    • Long 4 Life
  • 17 May May 2021
    • Astral Foods
  • 21 May 2021
    • Dischem

    Economic data releases this week;

    • 13 May 2021
      • SA Mining Production April
    • 19 May 2021
      • SA Inflation April, Retail Sales March
      • 20 May 2021
        • SA Building Plans Passed March, Repo Rate decision
        • 25 May May 2021
          • SA Leading Indicator March
          • 1 June 2021
            • Absa Manufacturing PMI May, NAAMSA New Vehicle Sales May

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