Week in Review: Biden Presses Ahead with a $1.9 Trillion Stimulus Plan

Global equity markets posted their best weekly gains since November, with major indexes also closing at fresh record highs. U.S. Fiscal-stimulus expectations and progress on global vaccine distribution continue to underpin the bullish market narrative. U.S. fourth- quarter earnings season is also well underway, with over 59% of companies already reporting results.

President Biden pushed ahead with his proposed $1.9 trillion stimulus plan, despite not receiving Republican support. This came after U.S. lawmakers cleared the way for passing his stimulus plan with only Democratic votes. The move, in theory, allows them to enact the package without any Republican votes. Biden cited a weak U.S. jobs report as justifying his decision.

The January jobs report disappointed, as the U.S. economy only added 49,000 jobs. U.S. unemployment fell to 6.3% in January from 6.7% a month earlier. However, the driver of this decrease was as a result of less people searching for jobs.

For the fourth- quarter, 59% of S&P 500 companies have reported results, with 81% of them reporting better than expected earnings and 79% reporting better than expected revenue growth. Most prominently, this week shares in Google parent Alphabet rose sharply on Wednesday after the company beat earnings and revenue estimates on better-than-expected advertising growth.

AstraZeneca's COVID-19 vaccine was found to be 82% effective even with three months between shots. It also reported that its vaccine is equally effective against the more-transmissible, UK variant. The World Health Organization continues to plead with countries to share coronavirus vaccine doses, pointing out that more than three-quarter of administered vaccinations are in just 10 countries. Israel counted more than 55% of its population as having received at least one shot, with the U.K. now at 15% and the U.S. at 10%. The EU and China are at 3% and 2% respectively.

The eurozone’s economy contracted less than expected in the fourth quarter, with GDP declining by 0.7%. France and Italy’s economies shrank the most, while GDP expanded 0.1% in Germany and 0.4% in Spain. For 2020, the Eurozone contracted by 5.1%.

The BoE kept its interest rate steady at 0.1%, meeting market expectations. Moreover, the central bank has told British banks that they should take whatever steps are necessary to prepare their systems for negative interest rates, opening up a pathway for the central bank to use this additional policy tool to encourage more lending.

Equity markets posted a strong week of gains. In the U.S., the Dow Jones (+3.89%), S&P 500 (+4.65%) and Nasdaq (+6.01%) were exceptionally strong, whilst the Euro Stoxx 50 (+5.01%), FTSE 100 (+1.28%) Nikkei 225 (+4.03%) and Shanghai Composite (+0.38%) Indices were also all stronger. The Brent Crude price narrowed in on $60 a barrel this week, trading at a 12-month high. This follows on from OPEC+’s decision to keep oil production below demand, as the global economy recovers from the COVID-19 pandemic.

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Market Moves of the Week

President Ramaphosa announced on Monday evening that the total ban on alcohol sales would be lifted again as part of an easing of Covid-19 restrictions. While Ramaphosa kept the country on level 3 lockdown, he shortened the time of the curfew, eased some restrictions on gatherings and reopened beaches.

The JSE All Share Index ended the week up +2.91%, led higher by the financial (+7.70%) and industrial (+2.76%) sectors. The resource sector (+0.59%) was relatively weaker as soft commodity prices including gold (-1.87%) weakened.  By Friday close, the rand was trading at R14.85 to the U.S. Dollar, strengthening against all of the major developed currencies this week.

Market Moves for the Week - 7 Feb 2021
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Chart of the Week

South African stocks have made their best start to the year since 2012. A global appetite for riskier assets has propelled emerging market inflows including the Johannesburg Stock Exchange (JSE).  Even after a strong start to the year, South African stocks still offer enticing valuations: they trade at the biggest discount to other emerging market shares since 2005 when Bloomberg started tracking the data.

Chart of the week - 7 Feb 2021

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