11 August 2020

The Economic Impact Of Covid-19

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While global coronavirus cases surpassed 20 million and virus deaths around the world exceed 700,000, we are starting to see the full impact of shutdowns on economies across the globe.

South Africa

To save our Covid-weakened economy, Directors-general has suggested that almost all sectors of the economy be reopened, but strict social distancing‚ hand sanitisation and mask regulations remain.  If their recommendation is accepted by the NCCC and endorsed by cabinet‚ President Cyril Ramaphosa could address the nation before the end of the week to communicate the move to level 2.


Better-than-expected data arising from the first and second quarters of the year prompted financial services company Absa to revise down its forecast for the gross domestic product (GDP) contraction this year from 9.7% previously, to 8.3%.  The firm also warned that the economic recovery in H2 2020 is likely to be slower than previously expected as a result of extended lockdown measures and more localised disruptions to activity from ongoing Covid-19 outbreaks.


Positive news about various Covid-19 vaccines boosted investor sentiment, which played a role in the South African markets closing in the green yesterday.  Gains in the financial services sector saw insurance companies, Old Mutual and Discovery surge 6.8% and 5.8%, respectively, while banking firms Capitec Bank Holdings, Nedbank Group and FirstRand gained 4.1%, 3.9% and 2.7%, respectively.


The rand shed 19% against the dollar in the first half of the year, which is bad news for things like the price of imports and overseas travel, but it does make South Africa more competitive globally, supporting local exporters.


The JSE All Share index advanced 0.7% to close at 57,168.24.

 United Kingdom

The UK has officially entered into recession after the coronavirus pandemic caused the economy to contract by a record 20.4% between April and June this year, double the hit taken by Germany. However, it was above economists’ expectations of a 21.2% decline, and there were signs of a recovery as the economy bounced back 8.7% in June, also above expectations. 


It is the “largest recession on record”, the Office for National Statistics (ONS) said, and the first time a recession has been declared in the UK since the financial crash of 2008.


The pound was mostly unmoved against the dollar following the GDP data, and the FTSE 100 index advanced 1.79% and was 0.7% higher despite the plunging UK GDP.

Stocks stumbled in late trade Tuesday as a sell-off in tech shares continued and investors assessed the outlook for the economy amid a slowing in the number of new coronavirus cases and a lack of progress toward additional coronavirus aid from Washington.


According to Bruce Bittles, chief investment strategist at Baird, several factors likely played a role in the late-day sell-off, noting that the Dow and S&P 500, after seven days in a row of gains, were technically “overbought.” In addition, enthusiasm around Russia’s COVID-19 vaccine efforts faded throughout the day, he said, but said the most important factor was a sharp rise in Treasury yields that “surprised investors and caught some off guard.”​​​​​​​


Contributing to the Dow’s 214-point jump were JPMorgan Chase & Co. J, 0.24% and American Express Co., 0.01%, while Apple Inc., 2.07% was its biggest drag.


Gold collapsed, registering its biggest fall in seven years falling to $1,880 per ounce and US Treasury yields gapped, with the 10-year yield rising two basis points to 0.655%.


The S&P 500 index fell 0.8% to settle at 3,333.69, while the DJIA index declined 0.4% to close at 27,686.91. The NASDAQ index eased 1.7% to end the trading session at 10,782.82.

 United States

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Tensions between the US and China, concerns over the coronavirus pandemic and a discouraging lack of progress on talks over more economic aid for the US economy, have prompted investors to sell and lock in profits from recent gains, analysts said.


Hong Kong:  “The possibility that US fiscal stimulus won’t be enacted this month – or even in September – is weighing on equity markets in the region. A gap higher in bond yields in the US overnight has also negatively impacted valuations,” Isaac Poole, CIO at Oreana Financial Services, said.


In Asia, Australia’s S&P ASX 200 eased 0.44%, Hong Kong’s Hang Seng index edged down 0.2%, and South Korea’s Kospi was also marginally lower.


As the tech war with the US intensified, China’s CSI 300 underperformed the region with the benchmark tumbling 2.2%.  A US executive order banning China’s TikTok could prevent American app stores from offering the popular short-video app and make advertising on the platform illegal, documents showed.

Asia

Latest Commodity Prices

11 Augus 2020 (5:36 pm)

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PWM is a boutique wealth management company in South Africa providing bespoke investment services to affluent individuals

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Major Indices Rise Further As Economic Outlook Improves

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South Africa Moves To Alert

Level 2

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