Week in Review: President Biden’s Inauguration

Global markets took comfort in President Biden’s inauguration as U.S. President this week - and with it, a smooth transition of power coupled with stimulus prospects. In focus is the $1.9 trillion fiscal-stimulus proposal from the new Biden administration. Republicans have however shown resistance to this sizable stimulus plan, concerned about the long-term sustainability of the government's deficit levels.

President Biden almost immediately signed sweeping actions to combat climate change after taking the oath of office, moving to rejoin the Paris accord and imposing a moratorium on oil leasing in the Arctic National Wildlife Refuge. The world spent a record $501.3 billion on renewable power, electric vehicles and other technologies in 2020 to further cut the global reliance on fossil fuels.

Staying with U.S. politics, former Federal Reserve Chair and Treasury Secretary nominee, Janet Yellen, told the Senate that the Biden administration won't pursue a weak dollar for competitive advantage. She also said the U.S. is "prepared to use the full array of tools" if China dumps products or erects trade barriers. At the same time, China said it hoped President Biden would “be successful in governing” and called for unity in a bid to reset relations with the U.S.

China’s economy officially grew by 2.3% in 2020. Fourth-quarter real GDP accelerated to 6.5% year-on-year, making China the only major economy to regain its pre-virus trend and show positive growth in 2020.

U.S. earnings season is well under way with over 23% of the S&P 500 releasing results. The likes of Goldman Sachs and Bank of America reported decent results. Netflix added 8.5 million new customers in the 4th quarter vs. just over 6 million expected by the market.  Next week will shed some light on company earnings and fundamentals.

Pharmaceuticals company, Johnson & Johnson announced that it has sufficient data from its Covid-19 vaccine trial to begin analysis soon. Meanwhile, Pfizer and BioNTech presented research showing that their Covid-19 vaccine is likely to protect individuals against the new variant of the coronavirus that emerged in the U.K.

Germany announced that it will be extending its tough lockdown restrictions until February 14. Equally, the Dutch government imposed the first nationwide curfew since World War II and Ireland will extend its lockdown, due to end on February 5, to March 5. UK Prime Minister Boris Johnson also told broadcasters that it is “too early” to say when the UK’s national lockdown will end.

U.S. markets ended the week in positive territory, with the Dow Jones (+0.59%), S&P 500 (+1.94%) and the Nasdaq (+4.19%) all ending the week in the green. Similarly, Japan’s Nikkei 225 Index (+0.39%) and China’s Shanghai Composite Index (+1.13%) were stronger, against relatively weaker performances from European markets, including the Euro Stoxx 50 (+0.08%) and FTSE 100 (-0.60%).

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Market Moves of the Week

Locally, the South African Reserve Bank announced on Thursday that it would keep the repo rate unchanged at 3.5%, in line with market expectations. The central bank was however more upbeat about growth, revising its forecasts for GDP in 2021 to 3.6% and predicting an expansion of 2.4% in 2022.

Earlier in the week, Stats SA released its inflation figures for December, with CPI coming in at 3.1% (year-on-year). For 2020, average annual inflation was 3.3%, the lowest recording in 16 years.

The JSE All Share Index ended the week up +0.69%, led higher by the industrial sector (+3.30%). This against weaker performances from the resource (-1.81%) and financial (-1.94%) sectors.

Market Moves of the Week - 24 Jan 2021
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Chart of the Week

As highlighted earlier, South African CPI extended its decline in December to 3.1%. If one considers South Africa’s 10-year real bond yield (nominal 10-year yield less average inflation) compared to other emerging markets, SA ranks extremely favourably in a world starved for yield.

Chart of the Week - 24 Jan 2021

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