The Week Ahead with Chris Gilmour

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The Week Ahead with Chris Gilmour

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Published Date: 2020-08-31 | Source: INCE|Community | Author: Chris Gilmour

The Week Ahead with Chris Gilmour

In his annual Jackson Hole, Wyoming speech last week, US Fed chair Jerome Powell announced that the Fed will tolerate inflation rising above 2% for short periods of time. What this means in practice is that it will be comfortable keeping its massive stimulus measures in place for longer as it waits for the labour market to improve and the economy to recover. US unemployment claims remain stubbornly high at just over 1 million. The trend in new coronavirus cases is undoubtedly declining across America but the real economy is struggling to retain traction. Further stimulus is likely to be required. The US Q2 GDP second reading showed the economy shrank 31.7% quarter on quarter (annualised) at the height of the pandemic marking the largest quarterly drop since the 1940s led by a collapse in consumer spending (-34.1%). Pending home sales rose 15.5% year on year (YoY) in Jul vs 5.6% YoY in Jun as home sales played catch up following the lockdown.# At a greatly attenuated Republican National Convention, US President Donald Trump came out with all guns blazing, attacking Democratic contender Joe Biden for all he was worth. Trump is on the back foot and trails Biden by around 7 percentage points in the opinion polls. But much can happen during the next couple of months in the final runup to the Nov 3 election and the race is now becoming too close to call. The S&P 500 closed 3.3% up for the week at 3 508.01 on Fri 28 Aug, a new record high. From its Feb 19 former peak of 3 386.15, the index has now risen by 3.6%. It has risen by 56.8% from its Mar 23 closing low of 2 237.4.

Despite the volatile gold price, fears of the economic impact of coronavirus and loose US monetary policy have been a source of constant support for gold over the past couple of months. Both were key factors in gold's rally over the $2000/oz mark earlier in Aug. The gold price slipped last Monday on news that the Trump administration is considering bypassing US regulatory standards to fast-track an experimental vaccine for coronavirus, once again demonstrating the close correlation between the gold price and political and economic events in the US. Anything to do with potential vaccines or cures for the coronavirus could have a dampening impact on the gold price in future. Copper prices continued to rise last week as speculators and traders interpreted a policy shift from the US Fed as prioritising employment over inflationary targets, in respect of the move to allowing inflation to rise above 2% briefly. This will likely result in a weaker US dollar and cheaper dollar denominated prices, which in turn means that base metals on international commodity markets will be cheaper in other currencies. London Metal Exchange copper stocks have fallen sharply in recent months, as countries emerge from lockdown and kickstart manufacturing. Stocks stood at just over 90,000 tonnes last week, the lowest level since 2005 and significantly lower than the 280,000 tonnes in May. Japanese Prime Minster Shinzo Abe is stepping down due to chronic ulcerative colitis, from which he has suffered ever since he was a teenager. After seven years, his own brand of reforms, dubbed "Abenomics" has had mixed success. The Bank of Japan bought Japanese treasuries to help weaken the Yen and improve exports. The Nikkei 225 stock index has doubled in value during his time in office but is still only just over half it record level set in 1989. And he didn't manage to rescue Japan from its deflationary spiral. But on balance he was the most successful prime minister Japan has had in decades.

The latest Reuters consensus for South African Q2 GDP is now -44.5% quarter on quarter annualised. The forecast range is a very wide -20% to -53%. Probably nearer -53% than -20%, considering the data already in. The JSE Alsi closed 0.2% up for the week at 56 057 on Fri 28 Aug. From its peak of 61 685 on 25 Jan 2018, the Alsi has now fallen by 9.1%. From its recent low point of 37 693 on Mar 19, the index has risen by 48.7%.

The Fragile Five + Russia
Country GDP Growth (%) Inflation (%) Unemployment (%) Interest Rates (%)
South Africa -0.1 3.2 30.1 9.32
Brazil -0.3 2.3 13.3 6.86
India 3.1 6.1 11.0 6.1
Indonesia -5.3 1.54 5.0 6.86
Turkey 4.5 11.8 12.9 13.56
Russia -8.5 3.4 6.3 6.1
Source: Trading Economics

JSE listed company results out this week;

  • 1 September 2020
    • DRD Gold, SA Corp, Raven Property, Old Mutual, Sea Harvest, Transpaco, Cashbuild
    • 2 September 2020
      • Unicorn Capital, Resource Generation, Alviva
      • 3 September 2020
        • Fortress Reit, MAS, Impala Plats, Truworths
        • 4 September
          • Capital & Regional, RMB Holdings

          Economic data releases this week;

          • 1 September 2020
            • Abs Mfg PMI August, NAAMSA New Vehicle Sales August
          • 3 September 2020
            • Standard Bank PMI August, SA Current Account Q2
            • 7 September 2020 2020



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