Newsflow [08-11 May 2020]
On Friday, the JSE All Share Index closed higher by 1.96% or 983 points, while the Top 40 Index gain 2.09% or 965 points. Leading sectors were Gold Miners (+4.74%), Life Assurance (+3.55%) and Resources 10 (+2.56%) while the Healthcare, Telecoms and SA Property Sectors lagged by (-0.94%), (+0.36%) and (+0.02%) respectively.
Gainers and Declines (1-Day)
US Stocks Climb Despite Historic Job Losses
Wall Street closed deeply in the green on Friday despite a record 20.5 million jobs lost in April and an all-time high unemployment rate of 14.7%. Stocks rallied as investors bet on an eventual reopening of the economy and that tech companies will continue to drive growth. Meanwhile, WTI crude prices rose 5% to book the second weekly gain. On the corporate side, airline and cruise stocks outperformed the market, suggesting that sentiment is pricing that the worst is over on the health side. The Dow Jones gained 455 points or 1.9% to 24331. The S&P 500 climbed 49 points or 1.7% to 2930. The Nasdaq added 142 points or 1.6% to 9121. All three averages posted their first weekly advance in three. The Dow and S&P 500 were up 2.5% and 3.5% for the week, respectively, while the Nasdaq jumped 6%.
Brent Crude Posts Back-to-Back Weekly Gain
Brent crude settled at $30.97 a barrel on Friday in its second consecutive week of gains, after data showed producers in the number of oil and natural gas rigs in the US fell to a record low of 374 this week. Hopes for a recovery in fuel demand as more countries including Australia moved ahead with plans to gradually lift coronavirus-related lockdown measures also supported prices.
Canadian Stocks End Higher
The Toronto Stock Exchange’s S&P/TSX gained 133 points, or 0.9% to close at 14,967 on Friday, boosted by a rise in oil prices and amid signs of easing tensions between the US and China. Prime Minister Trudeau announced on Friday an extension of the emergency wage subsidy program beyond its originally scheduled date in June, aiming to encourage more employers to re-hire staff. Meantime, latest data showed the Canadian economy shed a record 1.99 million jobs in April, less than market expectations of a 4 million drop. For the week, the S&P/TSX rose 2.4%.
US Unemployment Rate Hits Record High
The US unemployment rate jumped to 14.7 percent in April 2020, the highest in the history of the series and compared to market expectations of 16 percent, as the Covid-19 crisis threw millions out of work. The number of unemployed persons rose by 15.9 million to 23.1 million, while the number of employed declined by 22.4 million to 133.4 million. The labor force participation rate decreased by 2.5 percentage points over the month to 60.2 percent, the lowest rate since January 1973.
Gold Drops After US Non-Farm Payrolls Data
Spot gold settled at $1,700 per ounce on Friday, after the US jobs report showed non-farm payrolls jumped by a record 20.5 million during April, less than market forecasts of a 22 million surge, and the unemployment rate hit an all-time high of 14.7%, below expectations of 16%. On Thursday, the metal hit is highest level since April 27th as the latest weekly rise in US jobless claims fed investor concerns about the economic impact of the coronavirus pandemic. The precious metal has been hovering around $1,700 an ounce and was little changed for the week.
European Stocks End Higher on Easing US-China Tensions
European equities closed higher on Friday, with the DAX 30 advancing 145 points or 1.4% to 10,904, as tensions between the world’s largest economies eased after top US and Chinese officials discussed their Phase 1 trade deal in a telephone call, with both parties agreeing to fulfill their commitments. Meanwhile, awaited the outcome of the Eurogroup video conference at which Eurozone finance ministers were set to discuss the economic situation in the bloc and the Pandemic Crisis Support package. Among single stocks, Siemens jumped 4.8% as the company announced cost-cut plans to deal with the impact of the coronavirus pandemic, after posting an 18% drop in industrial profits in the January-March period. For the week, the DAX 30 added 0.4%.
Brazilian Real Hits All-time Low
The Brazilian real was trading above 5.9 against the USD, a fresh all-time low, amid worries over a deep economic recession due to coronavirus pandemic, deteriorated fiscal position, political uncertainty and despite stimulus from the government and central bank. Latest data showed the annual inflation rate fell to over 21-year low of 2.4% in April, amid a drop in fuel prices. The Central Bank of Brazil slashed its benchmark interest rate by 75bps to an all-time low of 3% on May 7th, amid the covid-19 crisis. Expectations that the central bank will cut interest rates at the next meeting intensified as policymakers said that they are considering a final monetary adjustment, not larger than the current one, to complement the degree of stimulus needed to cushion the economy.
Coronavirus Cases Rise Above 3.91M
The number of people infected with the coronavirus across the world hit 3.91 million, of which at least 270 thousand people have died and 1.34 million people have recovered. In the US, the epicenter of the disease, the number of infections surpassed 1.29 million, around 33% of cases globally. Across the Atlantic, Spain, the worst-affected European country, registered more than 256 thousand cases, followed by Italy, the UK, France and Germany. The highest total for any country outside Europe or the United States was recorded in Russia, with more than 177 thousand confirmed infections. The US is the country with more deaths caused by the virus with over 76 thousand, followed by Italy, the UK, Spain and France.
China central bank signals more policy measures to support virus-ravaged economy
China’s central bank said on Sunday it will step up counter-cyclical adjustments to support the economy and make monetary policy more flexible to fend off financial risks. The first-quarter monetary policy implementation report from the People’s Bank of China (PBOC) did not repeat the central bank’s long-standing vow to refrain from “flood-like” stimulus to support growth, reinforcing signs of more policy measures. China’s long-term stable economic trend remains unchanged, despite the coronavirus outbreak, the central bank said. “But at present, challenges faced by China’s economic development are unprecedented, we must fully consider difficulties, risks and uncertainties,” it said.
The bank said it will keep liquidity ample, using both aggregate and structural policy measures, and continue to deepen interest rate reforms to help lower borrowing costs and allocate financial resources more efficiently in the economy. The central bank will also support the real economy, especially small and medium-sized enterprises, it said. “We should properly handle the relationship between stabilizing growth, ensuring employment, adjusting structure, preventing risks and controlling inflation,” the PBOC said. China’s economy contracted 6.8% in the first quarter from a year earlier, shrinking for the first time since at least 1992, as the coronavirus outbreak paralysed production and spending, raising pressure on authorities to do more to stop mounting job losses. The PBOC has already rolled out a raft of easing steps since early February, including cuts in reserve requirements and lending rates and targeted lending support for virus-hit firms. The central bank will continue to deepen the reform of the loan prime rate (LPR) regime and improve the monetary policy transmission mechanism to help lower borrowing costs, it said.
In August 2019, PBOC overhauled the benchmark lending rate mechanism by using the market-driven LPR to replace the previous benchmark bank lending rate.
It will keep growth of M2 and social financing in line with and slightly higher than nominal GDP growth, it said. It will deepen foreign exchange market reform, maintain yuan flexibility and keep the yuan basically stable, it said. China will also develop its financial markets to fuel growth and economic restructuring, the central bank said. The government will support fundraising by private firms through equity financing and bond sales, part of efforts to reduce the economy’s excessive reliance on bank lending.
Meanwhile, PBOC said it would promote “systemic” opening of its bond market, and will introduce more long-term investors. To protect investors, regulators will seek to unify disclosure rules for various types of credit bonds and improve the mechanism to deal with bond defaults. PBOC also vowed to foster a resilient, competitive and inclusive financial system, and continue to improve corporate governance at major financial institutions including commercial banks.
Trading Desk Analyst
Unum Capital (Pty) Ltd
An Authorised Financial Services Provider (FSP 564)