The Week Ahead with Chris Gilmour


The Week Ahead with Chris Gilmour


Published Date: 2021-07-19 | Source: INCE|Community | Author: Chris Gilmour

The Week Ahead with Chris Gilmour

US jobs

According to the US Department of Labor, initial jobless claims fell by 26 000 in the week ending Jul 10 to a total of 360 000, a new pandemic low. This is the lowest level since Mar 14, 2020, when there were 256 000 initial claims.

Normally this would be regarded as more good news and further evidence of a recovering US economy but worker shortages and supply chain bottlenecks are frustrating efforts by businesses to increase production to meet strong demand for goods and services. At least 13.8 million people were still collecting unemployment cheques under all unemployment programmes-state and federal-in late Jun.

US other

US inflation hit 5.4% year on year (YoY) to end Jun 2021, a 13 year high. This follows successive increases in inflation during the past three months and no matter how US Federal Reserve Chairman Jerome Powell tries to calm investor fears that sustained inflation is not returning, doubters abound.

As was the case in previous months, prices of used vehicles rose sharply, in the case of the latest Jun figures by 10.5%. Powell reiterated his support for the current pace of asset purchases and monetary policy in his second US congress address last Thu. "This is a shock going through the system associated with the reopening of the economy and it's driven inflation well above 2%, and of course we're not comfortable with that," Powell told the Senate Banking Committee. "To the extent that it's temporary it wouldn't make sense to react to it," he added.

While Powell is attempting to allay investor and congressional fears, consumers are expressing ever greater confidence in their spending. US consumer confidence spiked in Jun to a post-pandemic high of 127.3 against 120 points in May. And the percentage of disposable income used to pay down debt by US consumers-the debt-service ratio- hit a 41-year low last week.

In a separate Gallup poll published last week, the percentage of Americans who consider themselves to be "thriving", rose to 59%, the highest level ever since first recording this metric in 2008. The US will be ready "within the next several days" to say when it may lift Covid-related travel restrictions on European countries, US President Joe Biden said last week. European countries within the Schengen area have been on a US travel ban list since the early weeks of the pandemic last year.

Quarterly US bank results released last week were mixed in the sense that profits easily beat analyst expectations but revenue growth disappointed. Hence they didn't result in surging share prices, as investors and speculators are nervous about the sustainability of earnings growth. Most market participants fully expected a favourable rebound from the depressed levels of a year ago as well as the positive impact of the release of over-provisions by the banks. These were all discounted before the results came out. There were worrying revenue trends, notably weak lending and interest income figures, with the weak interest income being perceived to continue for as long as interest rates remain low.

The S&P 500 closed 1% lower for the week at 4 327.16 on Fri 16 Jul. Year to date, the index is up 15.2% from its closing level on 31 Dec 2020 of 3756.07. Moderna Inc, the Sars-CoV-2 vaccine manufacturer, jumped to a fresh record after S&P Dow Jones Indices said last week it plans to add the company to its benchmark index next week. Moderna maker rallied 10% to $286.43 at the close on Fri, the biggest move since Mar 31, as the company will replace Alexion Pharmaceuticals in the S&P 500 Index before the opening of trading on Jul 21. UK drugmaker AstraZeneca's $39 billion deal for Alexion is set to close on the same day.


The Chinese economy expanded by 7.9% in the second quarter of 2021 compared with the same period a year earlier, according to the Chinese National Bureau of Statistics. This was marginally below the 8% Bloomberg consensus. Quarter over quarter growth was 1.3%, which while much better than the previous quarter on quarter's growth of only 0.6%, was still one of the weakest quarterly growth rates in China for many years.

Most commentators are forecasting growth for the year of around 8% but much will depend on the willingness of Chinese consumers to spend. This compares with last year's 2.3% growth, the only positive growth recorded by a major economy in 2020, thanks to the impact of the pandemic.

China's trade surplus rose to $51.53 billion in Jun vs $44.2 billion in May. Exports rose by 32.2% YoY versus 27.9% YoY in May and estimates of 23%. Imports rose by 36.7% YoY but were significantly lower than the 51.1% YoY growth in May. Exporters are still struggling with higher raw material and freight costs and logistics bottlenecks and shipments are therefore expected to slow down through the second half as the shortage of semiconductors and containers combined with high shipping costs and other logistics issues hamper exports. This situation will likely serve to accelerate the onshoring of manufacturing capacity to western economies, though this is a slow process and mainly confined to higher value, non-commodity-type products.

Europe, UK

A human catastrophe is playing out in western Europe as record flooding causes havoc in Germany, Belgium, The Netherlands and Luxembourg. Over 120 people are dead, with hundreds more unaccounted for.

Inflation in Britain jumped to 2.5% in Jun, its highest level since 2018. The main culprits were higher than expected rises in second hand car prices, food, clothing & footwear and fuel. The Bank of England is making similar noises to the US Fed, insisting that these inflationary spikes are only temporary and will ease once the economy normalises post the pandemic.

And the UK's unemployment situation continued to improve in Jun, helped by hospitality and retail amid a gradual reopening of the economy, according to the Financial Times. The economy added 356 000 jobs in Jun, although employment was still over 200 000 down on pre-pandemic levels with a large number of workers still remaining on the furlough scheme. But there are many more job vacancies now than there were before the pandemic, official figures show, as unemployment edges slowly down after a year of job losses. The number of open jobs between Apr and Jun 2021 was 77 500 above their pre-pandemic level in Jan to Mar 2020, according to the Official for National Statistics (ONS). There were 862 000 job vacancies between Apr and Jun, the highest number in 15 months. As is the case in America, UK firms often struggle to find people to work for them. In some instances, it is due to large numbers of people self-isolating, others have decided to make career changes and lots more are still enjoying the benefits of the furlough system, with no real incentive to return to work.

Rest of World

Cuba was thrown into crisis last week as hundreds of thousands of ordinary Cubans took to the streets to demonstrate against the communist dictatorship that has run the country since 1959. The protests are the worst in six decades, with more than 140 people having "gone missing", in all likelihood detained by the regime. Health facilities are on the verge of collapse as the daily infection rate of the Sars-CoV-2 virus soars. The Caribbean island has been plagued by power, food and foreign exchange shortages ever since the start of the pandemic, as the tourism industry has been paralyzed. Tourism has largely taken over from sugar as the country's largest hard currency earner but as the global tourism market has declined, Cuba has felt the impact.

Cuba has five homegrown coronavirus vaccines including brands such as Abdala and Soberana 2 but the rollout is painfully slow. The country has eschewed using western vaccines and has not joined the international Covax vaccine alliance. US President Joe Biden has offered to send US vaccines to Cuba but only if the Cuban state is not involved in their distribution.

In Lebanon, another human tragedy is playing out. The country has never recovered from the devastating blast caused by old fertilizer stocks in Beirut last year. Food, medicine and power have been in short supply since then and last week, the entire electricity grid collapsed, although it has since been partially restored. Two Turkish power ships have been providing power as a goodwill gesture from Turkey since Jun this year. Meanwhile, political leaders appear unable or unwilling to form a new administration.

South Africa

South Africa experienced an orgy of unprecedented violence last week, as rioters looted and pillaged with impunity, mainly in KwaZulu-Natal and parts of Gauteng. The genesis of the violence appears to lie in the incarceration of former president Jacob Zuma, who is currently serving a 15-month sentence in Estcourt Prison for contempt of the Constitutional Court.

Supporters of the former president appear to have fomented the looting spree, and many believe they were largely instigated by Zuma's former spymaster Thulani Dlomo using a network of agitators within local communities in a potential attempt to overthrow the government. However, formal charges have not been laid.

In an address to the nation last Fri, president Cyril Ramaphosa said the violence was pre-planned, describing it as an assault on democracy. If this is indeed the case, then the president needs to urgently root out agitators and fifth columnists in his African National Congress party, otherwise the possibility of further riots cannot be ruled out.

Approximately 25 000 troops have been deployed to KZN and this appears to have largely quelled the violence. The rand was remarkably resilient during the riots, helped by continuing high commodity prices, high local interest rates and the perception that president Ramaphosa will be able to use the crisis to force through his anti-corruption reforms and clear criminal elements out of the ANC.

Over 200 people are believed to have died in the violence and many hundreds of retail outlets, factories, distribution centres and other buildings have been burned and/or looted. Pepkor notes that 489 of its stores have been looted, TFG Group 190 stores, Spar 184 stores, Mr Price Group 109 stores, Massmart 41 stores, Famous Brands 99 restaurants and Cashbuild 36 stores.

Perhaps slightly ironically, Cashbuild shares rose towards the end of the week, mainly on the perception that its products will be in great demand during the rebuilding phase. According to Bloomberg, the economic impact will be to reduce SA's 2021 economic growth by between 0.4% and 0.8%.

Investec sees the SA economy contracting during the third quarter of this year as a direct consequence of the riots.

Many people have been forced to queue for food and medicine in the looted areas, with queues sometimes stretching over a kilometre in length. The cleanup has begun but it will take time to repair the damage and re-stock the stores.

Businesses that were fully insured should be able to claim for riot insurance from state-owned Sasria, but anecdotal evidence suggests that Sasria takes a long time to pay out claims and the sheer physical size of this event will test its resources to the maximum.

The JSE All Share Index (Alsi) closed 0.2% higher at 66 530 on Fri 16 Jul. From its recent low point of 37 693 on Mar 19 2020, it has risen by 76.5%. Year to date, it is up by 12% from its close of 59 409 on Dec 31 2020.

The Fragile Five + Russia
Country GDP Growth (%) Inflation (%) Unemployment (%) Interest Rates (%)
South Africa -3.2 5.2 32.6 8.94
Brazil 1.0 8.35 14.7 8.83
India 1.6 6.3 11.9 6.13
Indonesia -0.74 1.33 6.26 6.44
Turkey 7.0 17.53 13.2 16.67
Russia -0.7 6.5 4.9 7.21
Source: Trading Economics
JSE listed company results out this week;
No Results

Economic data releases this week:

20 July 2021

  • SA Leading Business Cycle Indicator May

21 July 2021

  • SA Inflation rate June

22 July 2021

  • SA Repo rate decision

29 July 2021

  • SA M3 Money Supply, PSCE, PPI June

30 July 2021

  • SA Trade Balance June

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