Our Market Snapshot provides an overview of key events that influenced financial markets over the course of January 2021.
Global risk improved somewhat in January on the back of upwardly revised global growth projections and the prospect of significant stimulus in the US. The International Monetary Fund and World Bank increased its growth projections for the global economy to 5.5% and 4.0% in 2021 and 4.2% and 3.8% in 2022 respectively. However, concerns over the availability and rollout of Covid-19 vaccines weighed on investor sentiment, particularly in developed markets, with the US and EU significantly behind their first vaccines targets. In South Africa, the government announced its phased-approach to the distribution of the vaccines, confirming that the country had secured around 42m doses as of the end of January. Meanwhile, the SARB kept interest rates steady as widely expected.
Looking at global equity market returns (all in US$), the MSCI All Country World Index returned -0.4% for the month. Emerging markets outperformed developed markets, with the delivering 3.1% and the returning -1.0%. The Bloomberg Barclays (LON:) Global Aggregate Bond Index (US$) returned -0.9%, while the Global Property REIT Index (US$) produced -0.3%.
The spot price of closed January 7.9% higher from the previous month at around US$55 per barrel. Precious metals were mixed, with platinum returning 1.2%, 1.8%, aluminium 0.5%, gold -2.5% and palladium -1.3% for the month.
In the US, concerns over a spike new infections and disruptions to the rollout of Covid-19 vaccines weighed on investor sentiment in the already-expensive equity market. As of the end of December, less than 5 million first vaccines had been administered, well below the 20 million target set under the Trump administration. The Federal Reserve (the Fed) left the target range for its federal funds rate unchanged at 0-0.25% during its January meeting (in line with market expectations), and maintained its QE programme at $80bn in Treasuries and $40bn in Mortgage-Backed Securities, reiterating its commitment to using its full range of tools to support the US economy. Meanwhile, President Biden unveiled his proposed $1.9trn stimulus plan to help boost the economy.
Turning to economic indicators, for Q4 2020 increased by an annualised 4% q/q, slowing from a record 33.4% expansion in Q3. remained stubbornly high after 140,000 jobs were unexpectedly cut in December, with initial claims still above 700,000 per week. The unemployment rate for December came in at 6.7%, well above pre-pandemic levels of around 3.5%. In more positive news, manufacturing PMI increased to 59.2 in January from 58.3 in December, the steepest expansion in factory activity on record and well above market forecasts of 56.5.
Equities closed the month broadly lower with the returning -1.0%, the posting -2.0%, and the technology-heavy closing the month marginally higher at 0.3% (all in US$).
In SA, the SARB kept its benchmark repo rate unchanged at a 3.5% during its January 2021 meeting, assessing the risks to the outlook for growth and inflation to be balanced and adding that the slow economic recovery would help keep inflation below the midpoint of the target range. SA’s economy is now expected to contract by 7.1% in 2020, compared to November’s estimate of an 8% decline, before rebounding by 3.6% in 2021 (previously 3.5%). The latest inflation forecasts point to a 3.3% increase in 2020 (compared to 3.2%) and 4% in 2021 (previously 3.9%).
In other news, concerns over the country’s escalating debt levels and uncertainty around the Covid-19 vaccination rollout weighed on investor sentiment. The government announced its rollout plan of the Covid-19 vaccine following mounting pressure from opposition parties and various sectors of society, with the first batch of 1 million doses of AstraZeneca (NASDAQ:) vaccines expected to arrive on 1 February. Meanwhile, President Ramaphosa launched a R1.2bn fund aimed at boosting the recovery of the tourism industry. The Tourism Equity Fund will be used in particular to help black entrepreneurs start businesses and projects within the sector.
The FTSE/JSE ALSI returned 5.2% in January. The standout performers were Industrials with 8.4% and Resources with 5.1%. Detracting from performance were Financials with -2.6%, and Listed Property (SAPY index) with -3.2%. The FTSE/JSE Capped SWIX All Share Index, which we use as the equity benchmark for most of our client mandates, returned 3.1%. SA bonds were marginally positive at 0.8% (as measured by the FTSE/JSE All Bond Index), while SA inflation-linked bonds returned 2.0% and cash (as measured by the STeFI Composite) delivered 0.3%.
Finally, the depreciated against the major currencies, losing 2.6% against the US dollar, 3.1% against the pound sterling and 1.7% versus the euro.