Market and economic wrap - The ugly face of inflation
The Covid vaccine rollout continues across the country – with 35m vaccinations currently completed since February 2021. We have had 3 560 000 people infected with Covid and 92 453 deaths. Covid infections continue to rise with the discovery of the new Omicron variant. Although the new Omicron variant is spreading quickly it seems the disease is not as severe as previous strains. The Health department has announced booster shots are now available for all people, and a second shot for children. The government lifted the curfew, increased the size of outdoor gatherings to 2000 and allowed liquor licences to trade into the early hours.
Other stories have been grabbing the headlines the past few weeks. Talks continue between the US, NATO and the Russians – over on-going tensions in the Ukraine. Russia has been building up its forces over the past month, with over 100 000 troops on the Ukrainian border. They insist that Ukraine cannot become a member of NATO nor that that NATO cannot have any troops positioned in new Nato member countries along the Russian border. Nato I feel will never agree to this – so we watch this space with interest. Boris Johnson is under continuous pressure on many fronts – a recent poll showing that 40% of Conservative MP’s would like a new leader to take them into the next elections. There is continued heat around a Downing Street party held in 2020 breaking Covid regulations and the UK is experiencing over 250 000 new Covid cases a day. President Biden of the US made a damning speech against ex-President Trump on the 6 January – the 1-year anniversary of the storming of Capitol Hill – the first time he has so vocally spoken up about Trump’s non acceptance of the election results. At home, we have had a busy few week. Sadly, the parliament buildings in Cape Town were set alight by an arsonist, with severe damage being caused to both the old and new assembly buildings. We saw President Ramaphosa speak on 8 January in Polokwane, marking the 110 year birthday celebrations of the ANC. He made it clear that it was a time for renewal of the party and the end of corruption. He emphasised that the NEC stood by their “step-down” decision whereby party members implicated in corruption need to relinquish their leadership roles. We now await his State of the Nation address, to be delivered for the first time now in the City Hall of Cape Town.
Global equities were mixed in early 2022. In the US, the Dow Jones, the NASDAQ and S&P500 lost 0.3%, 4.5%, and 1.9% over the past week. The Japanese Nikkei was slightly weaker, European markets were stronger. The FTSE 100, French CAC and German Dax all gained around 2.5%. Over the past four weeks, most major bourses strengthened except for the S&P500.
The benchmark Brent crude oil price rose by a hefty 5.6% over the past week, with both Gold and platinum prices falling.
The major central banks took centre stage in December. The US Fed decided to accelerate the tapering of bond purchases in response to mounting inflationary pressure. This place the Fed in a position to raise interest rates sooner than that was planned. Policymakers expect three rate hikes in 2022, followed by another four to five hikes in 2023, ultimately taking the Fed Fund Rate to around 2% to 2.25%
The Bank of England increased its Bank Rate by 15 bps to 0.25%. However, the European Central Bank (ECB) left its policy essentially unchanged, still considering the rise in inflation as mostly ‘transitory’.
The rand regained lost ground over the last three days after depreciating sharply over December. Market commentators believe the recent rally was driven by speculation of faster and steeper interest rates hikes by the SARB, starting later this month. Over the past four weeks, the rand strengthened by 2.5% and 2.3% against the US dollar and euro, but was little changed against a stronger British pound. Money market rates rose in anticipation of tighter domestic monetary policy, while long bond yields remained relatively steady. Equity prices also strengthened, with the JSE all-share index (ALSI) up 3.1% over the past four weeks, supported by solid gains in financials and resources. In contrast, industrials declined by 0.9%.
The Nedgroup Investments Multi-Manager Team would like to welcome everyone back to work and wish you all a successful and prosperous 2022.
Stay safe and stay healthy.
Till next time.