VIDEO: Market Snapshot November 2020
Our Market Snapshot provides an overview of key events that influenced financial markets over the course of November 2020.
Global equity markets were broadly positive in November as investors welcomed the news of three prospective Covid-19 vaccines and their imminent global rollout. The news came in the wake of various countries, particularly those across Europe, re-imposing lockdown restrictions in a bid to combat a second wave of infections. Other factors contributing to the “risk-on” investor sentiment included Joe Biden’s US presidential election victory and the increased likelihood of a post-Brexit deal between the UK and the EU. In South Africa, the further reopening of the economy and global vaccine advancements helped lift the local bourse, despite a significant rise in new Covid-19 infections across certain parts of the country.
Looking at global equity market returns (all in US$), the MSCI All Country World Index returned 12.4% for the month. Developed markets outperformed emerging markets, with the MSCI World Index returning 12.8% and the MSCI Emerging Markets Index delivering 9.3%. The Bloomberg Barclays Global Aggregate Bond Index (US$) returned 1.8%, while the EPRA/NAREIT Global Property REIT Index (US$) produced 13.1%.
The spot price of Brent crude oil closed November 27.0% higher from the previous month at around US$47 per barrel. Precious metals were broadly positive in November, with platinum returning 13.0%, palladium 8.6 and gold the only outlier with -5.4% for the month. Industrial metals like copper and aluminium gained 14.6% and 10.7%, respectively.
In the US, risk appetite improved following Joe Biden’s presidential election victory, with the expectation that his administration will help boost economic growth and strengthen international alliances. President Trump has yet to concede defeat but will follow the formal transition process while his legal team challenges the validity of the outcome. The Dow Jones and S&P 500 reached all-time highs following news of successful trials of several coronavirus vaccines and the prospect of their imminent global rollout.
Traders welcomed comments from Federal Reserve Chairman Jerome Powell suggesting that the Federal Reserve (the Fed) would inject more money into the economy by expanding both its bond-buying programme and cheap loans to banks to support the economic recovery. Meanwhile, tensions between the US and China mounted after reports indicated that the Trump administration would add China’s top chipmaker, SMIC, and national offshore oil and gas producer, CNOOC, to the US sanctions blacklist.
Turning to economic indicators, the US unemployment rate dropped to 6.9% in October, compared to market expectations of 7.7%. Annual inflation fell to 1.2% in October, below market expectations of 1.3%. Manufacturing PMI jumped to 56.7 in November, pointing to the strongest expansion in factory activity since September of 2014, while Services PMI rose to 57.7 in November, beating market forecasts of 55.0.
Equities closed the month higher with the S&P 500 returning 10.9%, the Dow Jones Industrial 30 posting 12.1%, and the technology-heavy Nasdaq 100 delivering 11.1% (all in US$).
In South Africa, the SARB left the repo rate unchanged at 3.5% during its November meeting, stating that further easing was unlikely in the near term but hinting at increases in Q3 and Q4 of 2021. The economy is expected to shrink by 8% in 2020, compared to September's estimate of an 8.2% contraction, before rebounding by 3.5% in 2021 and 2.4% in 2022 (previously 3.9% and 2.6% respectively).
President Ramaphosa, meanwhile, announced the easing of certain lockdown restrictions, including the resumption of international flights and the return to normal alcohol trading hours. Investors also welcomed the news that the government had gazetted 50 strategic integrated projects valued at R340bn as part of its infrastructure development plans. The projects are focused on different targets including water and sanitation, energy and human settlements.
In less positive news, Moody’s and Fitch both downgraded SA’s sovereign credit rating further into “junk” territory. Moody’s lowered the country's rating to Ba2 from Ba1 with a negative outlook, citing further weakening in the country’s fiscal strength over the medium term as a main trigger, while Fitch cut the sovereign credit rating to BB- from BB and assigned a negative outlook, citing high and rising government debt as a main trigger behind the cut. Standard & Poor's maintained its credit rating for South Africa at BB- with a stable outlook.
In terms of economic indicators, Mining Production fell 2.8% y/y in September, marking the seventh consecutive month of declines in mining activity. PMI data, meanwhile, showed that the country’s private sector activity expanded for the first time in 18 months in October, while CPI rose to a seven-month high of 3.3% in October, above market expectations of 3.1%, but still well below 4.6% posted in February before the start of the pandemic.
The FTSE/JSE ALSI returned 10.5% in November. Industrials delivered 8.0%, Listed Property (SAPY index) returned 17.5%, Financials 17.1% and Resources 10.9%. The FTSE/JSE Capped SWIX All Share Index, which we use as the equity benchmark for most of our client mandates, returned 10.4%. SA bonds delivered 3.3% (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 appreciated against the major currencies, gaining 5.8% against the US dollar, 2.6% against the pound sterling and 3.3% versus the euro.
UK and Europe
In the UK, the economy expanded 15.5% q/q in Q3, partially recovering from the 19.8% contraction posted in the previous quarter and marking the strongest economic expansion on record. Sentiment was further supported by hopes of a post-Brexit trade deal, easing Coronavirus restrictions, and positive Covid-19 vaccine results. In other positive news, the Bank of England increased the size of its bond-buying programme by a larger-than-expected £150bn to £875bn, while the key bank rate is expected to remain steady at 0.1% through the rest of 2020, before being cut to -0.1% in 2021.
Turning to economic news, the unemployment rate in the UK increased to 4.8% for the three months ending September 2020, marking the highest jobless rate since the last quarter of 2016. Annual inflation increased to 0.7% in October of 2020 from 0.5% in September, above forecasts of 0.6%. Manufacturing PMI jumped to 55.2 in November, pointing to strong growth in factory activity and beating market forecasts of 50.5. Services PMI, meanwhile, dropped to 45.8 in November from 51.4 in the previous month, pointing to the steepest month of contraction in the service sector since May 2020.
Elsewhere in Europe, despite several countries across the region re-imposing partial lockdowns in November, European equity markets followed the UK by posting significant gains for the month. There remain positive signs of economic recovery within the region, with the Eurozone economy growing by 12.6% q/q in Q3, recovering from a record 11.8% slump in the previous period and marking the steepest pace of expansion since 1995. All major economies in the region posted record GDP growth for Q3, with France up 18.2%, Spain 16.7%, Italy 16.1%, and Germany 8.2%.
For the month, the UK’s FTSE 100 returned 16.4%, the German DAX 18.1% and France’s CAC 40 23.4% (in US$).
China and Japan
In China, investor sentiment was buoyed after data suggested that the economic recovery was continuing to pick up speed. Manufacturing PMI data rose to 54.9 in November, pointing to the seventh straight month of growth in factory activity and the strongest since November 2010, with both output and new orders increasing at the fastest rate in a decade. Meanwhile, employment grew at its fastest rate since May 2011. Annual inflation eased to 0.5% in October marking its lowest rate since October 2009, while the People's Bank of China (PBoC) left its benchmark interest rates unchanged for the seventh straight month in November in a bid to keep conditions accommodative for an economic recovery.
Sentiment, however, turned sour after the Trump administration indicated its intention to impose sanctions on China’s top offshore oil and gas producer, the CNOOC, and chipmaker, SMIC. Investors remain concerned as to whether more Chinese companies will be added to the US sanctions list before the conclusion of the US presidential transition.
In more positive news, China and Japan joined several Asia Pacific countries in the signing of a historical free trade agreement, the Regional Comprehensive Economic Partnership. The agreement, which took eight years of negotiations, is pegged to be one of the biggest free-trade deals in history, covering 30% of the world’s economic output.
Turning to Japan, the economy advanced 5.0% q/q in Q3, partially recovering from the record slump of 8.2% posted in the previous quarter. Meanwhile, Japan's consumer prices declined 0.4% y/y in October, the sharpest decline in more than four years, as the pandemic continued to place pressure on consumption.
Japan’s Nikkei 225 delivered 15.3%, the MSCI China 2.8% and Hong Kong’s Hang Seng 9.4% (in US$).