7 October 2020

THE LONG ASCENT

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What Made The Headlines ...


President Cyril Ramaphosa will present the country's long-awaited economic recovery plan on Thursday, ahead of the Medium-Term Budget Policy Statement this month.  Analysts said Ramaphosa's announcements could be a deal-breaker for the battered economy, with investors keen to see whether it will be bold and decisive. The recovery plan is expected to cover the government's policies on privatisation, infrastructure investment, and energy security, as well as the localisation of manufacturing and mass employment programmes.

It has been two months since the government's R200-billion Covid-19 loan guarantee scheme underwent a makeover to improve its reach to struggling small businesses during the pandemic and according to the latest figures by Basa, additional loans worth less than R1-billion were distributed by the end of September.  This brings the value of loans approved and disbursed since the scheme's introduction to R16.08-billion.

Out of 44,912 loan applications that banks have received, only 11,677 have been successful.  Approximately 8,982 are being assessed, while the balance has been rejected.

The scheme initially focused on businesses with an annual turnover of less than R300-million, and that was in good standing with their banks before the lockdown.  Under the amended scheme, businesses' annual turnover requirement fell away, allowing for small businesses to apply for loans of up to R100-million. The government urged banks to ease their creditworthiness assessments to vet qualifying companies, but at the same time, continue the practice of responsible lending.

Fixing economies after Covid-19 is a global challenge.  The International Monetary Fund and World Bank are expected to meet this week to thrash out suggestions to survive a recession and push the Group of 20 largest economies to extend a freeze in debt payments from the poorest countries.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva said last week that global economic activity suffered an unprecedented fall in the spring when 85% of the global economy was in lockdown for several weeks. "We continue to project a partial and uneven recovery in 2021.  While there has been some improvement, downside risks remain high," she said.

Other news this week:  the Trump administration submits a report on potential Hong Kong sanctions, and U.S. Supreme Court nominee Amy Coney Barrett begins her confirmation hearings

South Africa

An unfavourable time, bad politics, and poor leadership has made catching up to the global economy improbable.  According to a report by Fin24, South African Finance Minister Tito Mboweni warned that a fiscal crisis looms for the nation, which was already in a recession before the global pandemic deepened its economic slowdown.  He said any failure by South Africa to take measures could bring on a crisis as early as 2024, pointing to the economic meltdown experienced in Argentina as an example. Mboweni said his mid-term budget, due later this month, wouldn't be popular as it would "deal with" issues like the heavily indebted national airline and other state-owned enterprises.


The South African Chamber of Commerce and Industry's Business Confidence Index (BCI) dipped marginally to 85.7 index points in September after improving to 85.8 in August. The Covid-19 pandemic and subsequent lockdown impacted the business climate worse than the global recession of 2007/8, with the BCI well below the average level of 113 in 2009, Sacci says.

South Africa's manufacturing output contracted 10.8% year-on-year in August after shrinking by a revised 10.2% in July, the statistics agency said on Monday. However, the output, also called factory production, was up 3.6% in August month-on-month and expanded 20.7% in the three months to the end of the eighth month of the year, Statistics South Africa said. 

Officials, led by Deputy Auditor-General Tsakani Ratsela, told members of Parliament last week that the Unemployment Insurance Fund (UIF) is running out of money due to paying out Covid-19 Temporary Employer-Employee Relief Scheme (Ters) benefits.  On the flipside, the UIF has recovered R3.2 billion in Ters funds, which was  paid in error.  Fund spokesperson Makhosonke Buthelezi said some companies received overpayments worth billions of rands, with an estimated R1 billion paid to individuals who were not supposed to receive the payout.  "In all cases, employers realised that the fund had overpaid them, and returned the money."

A group of more than 80 civil society organisations, including COSATU and SAFTU, have demanded that the government "extend the period of socio-economic relief to the poor."  The group is concerned that the Covid-19 Social Relief of Distress special grant of R350 and the caregivers grant of R500 will come to an end this month. They have issued a joint statement that they have made publicly available for further signatories and support.  The #PayTheGrants campaign proposes that both grants be increased to R585 per month, a figure they base on the food poverty line, and be extended for at least five months until the end of financial year 2020/2021. 

Private Equity Investor Neoma Africa Fund will pay publishing and printing group, Caxton, R493 million for its' stakes in Octotel and RSAWeb.  Caxton invested in RSAWeb in 2013 and Octotel 2016, providing the business with capital to enable it to roll out fibre-to-the-home in the Western Cape. By the end of 2019, Octotel had connected more than 100,000 homes. According to its 2019 financial statements, Caxton owns 23% of the two companies.


Europe

London's blue-chip index opened 0.5% lower on Tuesday, at 5,970 points. The mid-cap FTSE 250 shed 0.7%.

U.K. growth in August disappointed, up 2.1% vs. 4.6% estimates, meaning that the GDP was still more than 10% below pre-COVID-19. Construction led the growth, whereas manufacturing lagged. Services only rose 2.4% vs. 5% expected. The trade deficit rose from £7.8bn to £9bn.

The latest figures from the Office of National Statistics (ONS) showed that redundancies increased by 113,000 on the year, and a record 114,000 on the quarter, to 227,000.

The U.K. prime minister, Boris Johnsson, will address the nation and unveil a three-tiered Covid-19 alert system for England, as rising cases pushes the country towards what the government called a "critical juncture." The most stringent restrictions are expected to force bars, pubs, and gyms to close.

In Europe, Germany's Dax and France's CAC fell 0.4% and 0.5% respectively. The pan-European Stoxx 600 shed 0.3%. Fashion retailer, French Connection, warns of more stores closing as it slumps to a £12.2m interim pre-tax loss as lockdown restrictions hammer sales.

The World Trade Organization (WTO) is expected to publish a confidential ruling allowing Europe to impose tariffs on U.S. goods worth $4 billion a year, confirming a decision first reported by Reuters.  The tariffs echo duties on $7.5 billion of European goods including wine granted to the United States over European aid for Airbus.

Whilst Trump was hit by a wave of bad polls in marginal states: Florida, Pennsylvania, Wisconsin, Nevada, Iowa and Ohio, markets seemed to be warming up to a Biden presidency, generally valuing the higher stimulus more than the higher marginal taxes. Presumably, also, the prospect of a clear-cut outcome, without weeks of wrangling and Supreme Court fights, is a positive for risk appetite.

U.S. stocks climbed to an almost six-week high amid a rally in some of the world's largest technology companies.  Amazon.com Inc. soared ahead of its Prime Day while Apple Inc. surged as the tech giant is set to embrace 5G as one of its most significant additions to this year's iPhones. Twitter Inc. rallied on an upgrade at Deutsche Bank, which also boosted its price estimates for other companies that derive their revenue from digital advertising such as Facebook Inc. and Alphabet Inc.

Investors are digesting several major corporate events that are likely to set the tone for the next trading session, including earnings results from JPMorgan Chase, which produced better-than-expected earnings but delivered slightly weaker-than-expected revenues. BlackRock Inc. said that its quarterly profit rose by 22% as investors flocked to its suite of investment funds amid a volatile period, with a dramatic rise in equity markets.

Pharmaceutical giant Johnson & Johnson says its Covid-19 vaccine study has been temporarily halted after a clinical trial participant experienced an unexplained illness.  The pause means the enrollment system has been closed for the 60,000-patient clinical trial while the independent patient safety committee is convened.

Oil prices settled about 3% lower on Monday as force majeure at Libya's largest oilfield was lifted, a Norwegian strike affecting production ended, and U.S. producers began restoring output after Hurricane Delta.

United States

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China was closed most of the week for Golden Week in China and re-opened on Friday with a bang and a stronger currency. Chinese foreign exchange reserves were a little lower, at $3.14trn vs. $3.16trn. The unofficial Caixin services PMI rose from 54.0 to 54.8, which added to the string of very strong PMIs in China.

45% is the proportion of China's 1.4 billion people who travelled during China's eight-day Golden Week holiday. They spent $69.5-billion, but that's a 21% drop-off in trips and a 30% decrease in spending from last year.

Chinese domestic equities are worth more than $10 trillion for the first time since 2015, when a record crash erased half the market's value in months and saddled millions of investors with losses.

The world's second-largest stock market has added $3.3 trillion since a low in March, helped by Beijing's policies to encourage trading, a flurry of new listings that arrived with eased rules, and the strengthening yuan. Stocks have been close to the $10 trillion milestone since July, when China's government acted to tame a speculative rally that had suddenly pushed a gauge of large caps near a 12-year high.

The country's total market capitalisation is now $10.04 trillion and just shy of the all-time high, according to data compiled by Bloomberg as of Monday. The U.S. has the world's most valuable stock market at $38.3 trillion.

The Australian dollar slid amid reports that China has suspended purchases of Australian coal.  The government is seeking information from Beijing on reports that state-owned energy providers have been told to stop using Australian coal, and ports ordered not to offload the goods. A ban would escalate tensions between the two countries just as China's economy picks up steam.


Asia

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