An end of an era as South Africa’s National state of disaster officially expires

An end of an era as South Africa’s National state of disaster officially expires

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Some 25 months after South Africa first entered into a coronavirus lockdown, the State of Disaster will officially lapse on Tuesday morning. The move comes amid encouragement from both scientific and economic experts, and for the first time since March 2020, South Africa will essentially be ‘lockdown-free’. However, does not mean that this is the end of South Africa’s battle against COVID-19. Some measures will remain for the foreseeable future, as a number of virus mitigation strategies will instead be covered under the National Health Act. 

In other domestic news, Moody’s Investors Service upgraded its outlook on SA’s credit rating to stable from negative on Friday night (while maintaining the rating at two notches below investment grade). The agency cited an improved fiscal outlook due to government’s consolidation efforts and positive external developments (in the form of higher commodity prices) as the key reasons behind the improved outlook. In terms of the local market performance last week, the JSE all-share index followed global equity markets, ending the week 2.1% stronger. On the currency front, the rand lost some momentum over the week on the back of lower commodity prices, while the continued uncertainty surrounding the Russian-Ukraine conflict added further pressure on the currency. 

On the international front, last week saw Russia largely withdraw from northern Ukraine but continued to build up troops in the east and south. While there was some initial positive feedback from talks between Ukraine and Russia early last week, it seems there is little resolve, with the conflict in many parts of Ukraine set to still drag on. While European markets managed to end higher in yesterday’s trading session, these markets traded mostly mixed during the day on news that Western powers are preparing more sanctions against Russia, this following allegations of civilian massacres in Ukrainian towns. 

An interesting financial market movement over the past week was the inversion in part of the US yield curve. This does not happen often and the inversion in the 2-year and 10-year Treasury curve early in the week, and again following the US jobs report (which was strong enough to solidify views that the Fed is on an aggressive rate-hiking path) was the first since 2019.The 2-year and 10-year yields, form the main part of the yield curve watched by traders, and this inverted once again in yesterday’s trading session. 

An inversion is generally interpreted as a bearish signal as future interest rates are most likely to be lower than nearer-term rates under conditions of weaker economic activity. So yes, historically, yield curve inversions have occurred prior to recessions, however this is not always the case, and it can take up to a year for the recession to set in. in a recent note, Goldman Sachs highlights that it is also important to take into account that the curve may be more prone to inversions today given low absolute yields, quantitative easing, and elevated inflation. This may help to explain why global equity markets generally shrugged off the inversion signal last week.  

Against this backdrop, global equities rallied earlier in the week on news of Russia's intent to de-escalate the war in Ukraine. However, gains were limited as Russia continued its attack one day after announcing it would reduce military activity in Ukraine’s capital city. In the US, the NASDAQ ended the week 0.7% higher, while the S&P 500 gained a slight 0.1%. European markets finished the week stronger, with the French CAC and German Dax adding 2% and 1%, respectively, while the FTSE 100 ended the week 0.7% stronger. However, All major equities (except the FTSE 100) remain deeply in the red for the first quarter. 

The week ahead is expected to be quiet in terms of data releases on both the local and global front. With that said, the minutes from the latest Federal Reserve meeting will as always receive attention from the markets. The main focus will, however, likely remain on the situation in Ukraine.