Week in Review: Ramaphosa’s Recovery Plan

President Ramaphosa addressed a joint sitting of Parliament on Thursday to unveil South Africa’s economic reconstruction and recovery plan. Infrastructure and mass employment programs emerged as central to the president’s 5,523 word address. Noteworthy takeaways included promoting greater private sector participation, increasing the electricity generation capacity of the economy by 11,800 megawatts by 2022, with half of this new power generation capacity coming from renewables; and the announcement of a R100-billion program over the next three years with the aim to create 800,000 job opportunities before the end of the 2020/21 financial year.

The attention now turns to how South Africa’s Government plans to finance these ambitious goals, with finance minister Tito Mboweni expected to release details in his medium-term budget on 28 October. The tabling of the budget was originally scheduled for the 21st of October, but minster Mboweni requested a one week delay earlier this week. This is the second year in a row that the MTBPS would be pushed back a week at Mboweni's request. Last year's statement was postponed because of “international commitments” by the finance minister and President Cyril Ramaphosa.

The International Monetary Fund (IMF) forecasts that the global economy will shrink by 4.4% in 2020, compared with its June prediction for an economic contraction of 4.9%. For 2021, the IMF is now anticipating growth of 5.2%, down from 5.4% in a prior update. According to the IMF’s data, China will win the post-pandemic rebound. In addition to being the only major economy projected to expand this year, the country's share of global growth will expand to 26.8% in 2021.

The JSE All Share Index ended the week down -0.25%, led lower by the financial (-2.37%) and resource (-0.84%) sectors. The industrial sector was stronger, ending the week up +0.82%. The USD Dollar strengthened against most currencies this week, resulting in the rand trading at R16.55 to the U.S. Dollar by Friday market close. The rand strengthened against the Euro (-0.39%) and Pound Sterling (-0.42%).

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Market Moves of the Week

On the global front, stock markets continue to hope for a U.S. fiscal stimulus plan. On Tuesday, the Republican led Senate stated that they were only prepared to bring a USD 500 billion package to a vote - far below the USD 2.2 trillion that House Democrats were demanding. President Donald Trump immediately criticised his own Republican led Senate’s package as too meager.

UK Prime Minster Johnson’s self-imposed Brexit deadline on 15-16 October has come and gone without a deal. Johnson said the UK should get ready for a no-deal exit from the European Union (EU) on December 31, but media reports suggest that Merkel is trying to facilitate a compromise.

A second wave of COVID-19 infections continues to gain momentum in the U.S. and Europe, with the U.S. recording its first confirmed case of reinfection with the virus. Pauses in trials of both Johnson & Johnson’s vaccine and Eli Lilly’s antibody treatment due to possible adverse reactions was an added blow to coronavirus worries.

The week marked the unofficial start of U.S. earnings season, with 31 S&P 500 companies reporting third-quarter results. Analysts polled by FactSet and Refinitiv currently expect overall third-quarter earnings for the S&P 500 to fall over 20% on a year-on-year basis.

Global equity markets posted mixed returns this week. In the U.S., the Dow Jones Industrial Average (+0.07%), S&P 500 (+0.19%) and Nasdaq (+0.79%) were mildly stronger. China’s Shanghai Composite Index (+1.96%) also managed to end the week in positive territory. European markets including the FTSE 100 Index (-1.61%) and Euro Stoxx 50 (-0.84%) were softer along with the Nikkei (-0.89%).

Market Moves of the Week - 18 Oct 2020
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Chart of the Week

The IMF released their October 2020 World Economic Outlook this week, and have revised up their global growth expectation for 2020 by 0.8% to -4.4%, but lowered their 2021 projection by a modest -0.2%. During the past three months, the world growth outlook has been helped by much better than expected economic data from the U.S., but also parts of the Euro-area and China. Relative to July 2020, the IMF kept their SA GDP growth forecast for 2020 unchanged at -8.0%, but revised down their 2021 SA growth forecast from 3.5% to 3.0%.

Chart of the week - 18 Oct 2020

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