VIDEO: Market Snapshot January 2021
Our Market Snapshot provides an overview of key events that influenced financial markets over the course of January 2021.
Global risk improved somewhat in January on the back of upwardly revised global growth projections and the prospect of significant stimulus in the US. The International Monetary Fund and World Bank increased their growth projections for the global economy to 5.5% and 4.0% in 2021 and 4.2% and 3.8% in 2022 respectively. However, concerns over the availability and rollout of Covid-19 vaccines weighed on investor sentiment, particularly in developed markets, with the US and EU significantly behind their first vaccines targets. In South Africa, the government announced its phased-approach to the distribution of the vaccines, confirming that the country had secured around 42m doses as at the end of January. Meanwhile, the SARB kept interest rates steady as widely expected.
Looking at global equity market returns (all in US$), the MSCI All Country World Index returned -0.4% for the month. Emerging markets outperformed developed markets, with the MSCI Emerging Markets Index delivering 3.1% and the MSCI World Index returning -1.0%. The Bloomberg Barclays Global Aggregate Bond Index (US$) returned -0.9%, while the EPRA/NAREIT Global Property REIT Index (US$) produced -0.3%.
The spot price of Brent crude oil closed January 7.9% higher from the previous month at around US$55 per barrel. Precious metals were mixed, with platinum returning 1.2%, copper 1.8%, aluminium 0.5%, gold -2.5% and palladium -1.3% for the month.
In the US, concerns over a spike new infections and disruptions to the rollout of Covid-19 vaccines weighed on investor sentiment in the already-expensive equity market. As at the end of December, less than 5 million first vaccines had been administered, well below the 20 million target set under the Trump administration. The Federal Reserve (the Fed) left the target range for its federal funds rate unchanged at 0-0.25% during its January meeting (in line with market expectations), and maintained its QE programme at $80bn in Treasuries and $40bn in Mortgage-Backed Securities, reiterating its commitment to using its full range of tools to support the US economy. Meanwhile, President Biden unveiled his proposed $1.9trn stimulus plan to help boost the economy.
Turning to economic indicators, GDP for Q4 2020 increased by an annualised 4% q/q, slowing from a record 33.4% expansion in Q3. Unemployment remained stubbornly high after 140,000 jobs were unexpectedly cut in December, with initial claims still above 700,000 per week. The unemployment rate for December came in at 6.7%, well above pre-pandemic levels of around 3.5%. In more positive news, manufacturing PMI increased to 59.2 in January from 58.3 in December, the steepest expansion in factory activity on record and well above market forecasts of 56.5.
Equities closed the month broadly lower with the S&P 500 returning -1.0%, the Dow Jones Industrial 30 posting -2.0%, and the technology-heavy Nasdaq 100 closing the month marginally higher at 0.3% (all in US$).
In SA, the SARB kept its benchmark repo rate unchanged at a 3.5% during its January 2021 meeting, assessing the risks to the outlook for growth and inflation to be balanced and adding that the slow economic recovery would help keep inflation below the midpoint of the target range. SA’s economy is now expected to contract by 7.1% in 2020, compared to November's estimate of an 8% decline, before rebounding by 3.6% in 2021 (previously 3.5%). The latest inflation forecasts point to a 3.3% increase in 2020 (compared to 3.2%) and 4% in 2021 (previously 3.9%).
In other news, concerns over the country's escalating debt levels and uncertainty around the Covid-19 vaccination rollout weighed on investor sentiment. The government announced its rollout plan of the Covid-19 vaccine following mounting pressure from opposition parties and various sectors of society, with the first batch of 1 million doses of AstraZeneca vaccines expected to arrive on 1 February. Meanwhile, President Ramaphosa launched a R1.2bn fund aimed at boosting the recovery of the tourism industry. The Tourism Equity Fund will be used in particular to help black entrepreneurs start businesses and projects within the sector.
The FTSE/JSE ALSI returned 5.2% in January. The standout performers were Industrials with 8.4% and Resources with 5.1%. Detracting from performance were Financials with -2.6%, and Listed Property (SAPY index) with -3.2%. The FTSE/JSE Capped SWIX All Share Index, which we use as the equity benchmark for most of our client mandates, returned 3.1%. SA bonds were marginally positive at 0.8% (as measured by the FTSE/JSE All Bond Index), while SA inflation-linked bonds returned 2.0% and cash (as measured by the STeFI Composite) delivered 0.3%.
Finally, the rand depreciated against the major currencies, losing 2.6% against the US dollar, 3.1% against the pound sterling and 1.7% versus the euro.
UK and Europe
In the UK, concerns over the negative impact of a third national lockdown outweighed the prospect of a massive fiscal stimulus plan in the US, with PM Johnson extending the lockdown in England until at least 8 March. Travel stocks were among the worst performers after the UK imposed stricter border controls to curb the spread of the pandemic. Meanwhile, the UK became the first region in Europe to surpass 100,000 Covid-19 related deaths. Rollout of Covid-19 vaccines appeared to be on track after official data showed that nearly 9 million people in the UK had already received their first vaccination, pushing the pound to a near three-year high against the US dollar. Inflation edged up to 0.6% in December from 0.3% in November, manufacturing PMI fell to 52.9 in January from 57.5 in December, while retail sales edged up 0.3% in December following an upwardly revised 4.1% fall in November.
In the EU, drugmaker AstraZeneca faced legal action from the EU Commission over delays in the production and supply of Covid-19 vaccines. The Commission came under heavy criticism after unveiling its plan to restrict the export of vaccines made inside the bloc, a move that would see the EU sitting with an excess supply of vaccines while other countries, particularly in Africa, struggled to secure sufficient numbers. Meanwhile, the pandemic continued to weigh on investor sentiment as countries across Europe battled with record infections, extended nation-wide lockdowns, and delays with the vaccination rollout. In other news, the ECB left its main interest rate at 0.0% and maintained its Pandemic Emergency Purchase Programme quota at EUR1.85trn until at least March 2022.
For the month, the UK’s FTSE 100 returned -0.3%, the German DAX -3.3% and France’s CAC 40 -3.3% (in US$).
China and Japan
In China, the People's Bank of China (PBoC) left its benchmark interest rates steady for the ninth straight month, keeping its one- and- five-year loan rates unchanged at 3.85% and 4.65% respectively. In other news, investors began showing some degree of optimism that US-China relations would improve. The change in sentiment came as President Joe Biden began his presidential term in the US, pledging to return the US to multilateralism and revive alliances undermined under the Trump administration. Turning to economic indicators, CPI increased 0.7% in December, up from -0.6% in November, while manufacturing PMI fell to a seven-month low of 51.5 in January from 53.0 in December.
In Japan, the Bank of Japan (BoJ) left its key short-term interest rate unchanged at -0.1% and maintained the target for the 10-year Japanese government bond yield at around 0%. GDP for the next fiscal year was revised higher from 3.6% to 3.9%, reflecting the effects of the government's measures to offset the economic impact of the pandemic. The BoJ reaffirmed it would not hesitate to take additional easing measures if necessary. Meanwhile, Japan's deflation continued to intensify, with CPI declining 1.2% in December after falling 0.9% in the previous month, marking the sharpest drop since April of 2010.
Japan’s Nikkei 225 delivered -0.6%, the MSCI China 7.4% and Hong Kong’s Hang Seng 3.9% (in US$).