Monthly Market Commentary – April 2020

While broad equity indices continued the relief rally, many indices appear to be overbought in the short-term and momentum is slowing. Globally technology/biotechnology and healthcare stocks remain well bid and are the only fundamental and earnings growth winners from the current events. Emerging Market Equities remain a sorry sight in USD terms. The Bloomberg Commodity Index has now lost 75% in value since its 2008 highs – and therefore looks cheap. The Gold Bullion price needs to hold 1680 to remain constructive, while it needs to clear 1775 to be in full bull territory according to technical indicators. The US Bond Market forward rates indicate negative interest rates for the US in 2021. The SA forward rates indicate a further 90 bps in SA interest rate cuts over the next 12 months. SA Bonds rallied hard over the last week and have outperformed SA Equities in the short-term and over the last 5 – 6 years. A lack of leadership in SA is concerning as the SA economy is not top of the minds of the Government and its leadership. There is no indication of any respite for SA incorporated businesses.

SA Drivers

SARB cuts Rates | Importancy High

SARB cut interest rates 100bps in an unscheduled MPC meeting (14 April) to 4.25%. This follows -25bps in Jan & -100bps on 19 March 2020. Market expecting further rate cuts considering a deep economic recession & benign inflation: low oil prices, weak consumer, low GDP growth, lower international food prices (over supply). A weak Rand will have a muted impact later in the forecast period. CPI contained well below target mid-point, 2020 forecast 3.7%.

Fitch and S&P Downgrade SA again | Importancy Medium

A supply glut and lack of storage capacity sent the price of the WTI May contract well below $0 for the first time in history on Monday 20 April. The May contract was up for expiry on Tuesday 21 April. The fall is both fundamental in nature as well as technical. The significant fall in oil prices provides indications of the severe lack of demand given the Coronavirus pandemic.

SA GVT R500bn Relief | Importancy High

CR announced the second phase of economic response pledging R500bil to support social and economic relief – 10% of SA GDP. Primary focus areas include: health, hunger relief, social distress, distressed municipalities, business & worker support. R500bil broken down: R130bil from current budget, remainder from local sources, global partners & international financial institutions.

SAA Liquidated / Land Bank Defaults | Importancy Medium

Pravin Gordhan reiterated that the bloated SOE would be liquidated and job losses would be inevitable. Union representatives are considering court action. It is expected that a new airline would emerge from the failed SAA. The Land Bank defaulted on short-term obligations during April due to significant liquidity pressure. Treatment of the debt by asset managers was different with some writing down the debt immediately and others preferring to wait for guidance through the market.

 

Asset Class Total Returns – ZAR

Global Drivers


Oil below $0 | Importancy Medium

A supply glut and lack of storage capacity sent the price of the WTI May contract well below $0 for the first time in history on Monday 20 April. The May contract was up for expiry on Tuesday 21 April. The fall is both fundamental in nature as well as technical. The significant fall in oil prices provides indications of the severe lack of demand given the Coronavirus pandemic.

The Fed | Importancy Medium

Having made numerous monetary policy announcements in March, the Federal Reserve affirmed their current interest rate and quantitative easing programmes at its April meeting. The Fed made it clear that rates won’t rise until the economy is back on track to full employment and inflation returns. The decision was widely expected.

US Q1 GDP | Importancy High

The early indicator for US Q1 GDP growth was an annualised shrinkage of 4.8%, below market expectations and the sharpest contraction since Q4 2008. Unemployment jumped from 3.5% in February to 4.4% in March and weekly jobless claims figures (to 25th April) show the number of people claiming unemployment benefits has now surpassed 30 million since the start of the COVID crisis.

Coronavirus | Importancy High

Infections went above 3 million in April with the number of deaths recorded at 234,000 at the end of the month. Coronavirus (COVID – 19) cases and deaths appeared to be near or past their peaks in a number of developed markets and China continued to open up its economy further. The COVID-19 pandemic will most likely continue to have a strong effect on global markets in the months to come.

Euro Area GDP | Importancy High

Euro Area Q1 2020 GDP growth was recorded as a 3.8% contraction, below the market expectations with Spain, Italy and France contracting by the largest amount on record. France is now in a technical recession (consecutive quarters of negative GDP growth).

 

Asset Class Total Returns – USD

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