Week in Review: Race for the White House Intensifies

Major U.S. indices snapped a three-week winning streak as investors focussed on third-quarter corporate earnings, the next coronavirus aid bill as well as the fast-approaching November 3rd presidential election.

President Donald Trump and Democratic rival Joe Biden debated on Thursday for the last time in the hope of swaying undecided voters into their respective camps. The President adopted a more restrained tone than in the first debate. Polling numbers continue to favour a Biden victory although there has been a small positive movement in Trump’s direction of late, however, the gap is still wide and a “blue wave” ( Democrats winning not just the White House but also the Senate, and holding the House) seemingly the more likely outcome in 9 days’ time.

White House officials and Democrats continued their negotiations over an estimated $2 trillion coronavirus relief package with both parties expressing optimism over the week but with no deal as yet.

On the earnings front, with more than one-quarter of companies on the S&P 500 having reported through to Friday, 84% of them beat analysts’ forecasts, according to FactSet. Nearly 170 S&P500 companies are scheduled to report earnings next week including tech heavyweights Apple, Amazon and Facebook.

In Europe, shares were also down on the week as the economic outlook turned gloomier amid a large second wave of coronavirus infections prompting some governments to restrict travel and leisure. The pan-European STOXX 50 Index ended the week 1.44% lower as did the UK’s FTSE 100 Index losing 1.00%. The pound strengthened on the back of news that the EU and UK agreed to embark on an intensified phase of Brexit talks in the hope of finalising a timeous post-Brexit trade deal, if an agreement is not concluded by January 2021, EU and UK businesses will default to World Trade Organization rules and face higher costs and barriers to trade.

Asian markets were mixed, with the Shanghai Composite Index closing 1.75% lower and Japan’s Nikkei 225 ending the week 0.45% stronger. On the economic front, China reported its economy expanded 4.9% in the third quarter from a year earlier, China is the only major economy expected to grow in 2020.

In company news, the Ant Group (“Ant”) which is backed by Chinese e-commerce giant Alibaba plans to list simultaneously in Hong Kong and on Shanghai’s STAR Market in the coming weeks. Ant is the parent company of Alipay, China’s largest mobile platform. The IPO could be the world’s largest initial public offering, surpassing the record set by Saudi Aramco’s $29.4 billion float last December.

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Market Moves of the Week

The JSE all share gained 0.53% for the week with financials (+11.5%) and the listed property sector (+5.59%) performing strongly over the week. The rand reached an intra-day best of R16.1422/$ on Friday, closing the week at R16.20/$.

In the week ahead, SA’s Minister of Finance, Tito Mboweni is scheduled to deliver the Medium-Term Budget Policy Statement (MTBPS) on Wednesday, 28 October. In his recent “adjustment budget” in June which replaced the February Main Budget, Minister Mboweni forecast debt to GDP to reach over 80% this year, up from the just over 65% predicted in February.

Investors will be focussed on the country’s current debt trajectory as well as the government’s ability to deliver a budget with fiscal sustainability and more specifically what budget cuts will be undertaken (notably to the public sector wage bill) to contain the country’s ballooning debt. The funding challenges faced at so many failing state-owned enterprises (“SOE’s”) like SAA will also be a key focal point.

South African finances have been in a fragile position for some time, with the economic impact of recurrent power cuts, rampant corruption, rising unemployment and the loss of the last investment-grade rating earlier this year having been exacerbated by the recent coronavirus outbreak.

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Chart of the Week

China’s economy grew by 4.9% in the third quarter compared with a year earlier, accelerating from growth of 3.2% growth in the second quarter, the National Bureau of Statistics (NBS) announced on Monday. The world’s second-largest economy has recovered strongly after contracting by 6.8% in the first quarter of 2020. In its latest forecast the International Monetary Fund (IMF) said it expected China’s economy to grow by 1.9% this year, making it the only G20 economy projected to expand in 2020.

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