Countries around the world are stepping up efforts to tackle the threat of the spread of coronavirus. The latest figures brought the total number of deaths in China to at least 722 with the total number of confirmed cases rising to 34,000. Most of the newly reported deaths, 81, occurred in Hubei Province, the heart of the outbreak. Many doctors believe that deaths and infections in China are undercounted because hospitals and laboratories are under severe strain to test for the virus.
These numbers have stoked worries about how China’s economy, the second-largest in the world, will be affected. The People's Bank of China cut a key interest rate this week and injected huge amounts of cash into markets in order to help take the pressure off banks and borrowers. Officials have also announced new tax breaks and subsidies designed to help consumers. If the virus keeps spreading, Beijing may have to find more ways to pump money directly into the economy.
Since the outbreak of SARS in 2003, China has become far more integrated into the global economy with its economy accounting for 16% of global output at present, in contrast to roughly 4% of world GDP in 2003.
Stocks in the US, Europe and most developed markets recorded solid gains over the week on the back of encouraging economic data out of the U.S. and hopes that the global economy would prove resilient in the face of the new coronavirus outbreak. Investors were also encouraged by China’s announcement later in the week that it was cutting tariffs on some U.S. imports, effective February 14, as part of the “phase one” trade deal.
January's jobs report showed that the U.S. economy added a solid 225,000 jobs, wage growth accelerated with employment at construction sites increasing by the most in a year amid milder-than-normal temperatures. Economists polled by Reuters had forecast payrolls would rise by 160,000 jobs in January.
Market Moves of the Week
The JSE ended three straight days of gains on Friday, as emerging markets continued to feel the effects of the coronavirus outbreak and the potential impact on Chinese growth. The rand weakened to a three-month low against the U.S. dollar on Friday, closing at R15.06 per dollar as a strong greenback weighed on emerging market currencies.
President Cyril Ramaphosa said on Friday that the government did not agree with plans to cut some of the struggling South African Airways' (SAA) domestic routes. The government believes the move to cancel the routes will cause market and customer uncertainty that may jeopardise the long-term future of the airline. State-owned SAA entered a form of bankruptcy protection in December and is fighting for its survival. It recently received a R3.5bn loan from the Development Bank of Southern Africa, which enabled it to continue flying while the business rescue practitioners prepare to restructure the company into what is hoped to be a sustainable business.
Cosatu has proposed a package to reduce Eskom’s debt from R450bn to R200bn through a special-purpose finance vehicle involving a social compact between the government, the Public Investment Corporation (PIC), the Development Bank of Southern Africa (DBSA) and the Industrial Development Corporation (IDC). The PIC is already exposed at Eskom to the tune of R95bn, and the Unemployment Insurance Fund (UIF) is holding R9bn of Eskom bonds. Cosatu proposes that the R104bn already committed to Eskom in the form of Eskom bonds be converted into worker equity. This will result in workers becoming shareholders in the power utility. President Cyril Ramaphosa is believed to be “favourably disposed” to the proposal.
Earlier in the week a South African court issued an arrest warrant for former president Jacob Zuma, after he skipped court on grounds of needing medical treatment, but the judge stayed the warrant until his corruption trial resumes on May 6.
On the stock market, the broader all-share ended the week up 2.13%, led higher by the industrial (+3.77%) and financial (+2.81%) sectors. Resources (+0.69%) ended the week slightly firmer.
Chart of the Week
The virus has killed two people outside mainland China, one in Hong Kong and another in the Philippines, and at least 25 countries have confirmed cases. The virus has prompted several governments to ban arrivals from China and urge their citizens to avoid travelling to the country.
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