The economic distress in the US came into greater focus today with the announcement by the Labour Department that more than 20.5 million jobs were shed in April. This prompted Michelle Meyer, head of economics at Bank of America, to state that unemployment is “literally off the charts”. The estimated job loss numbers in the nation are now 27 times worse than the worst month experienced in the 2008 Global Financial Crisis and the impacts are being compared to that of World War II in some instances. Meanwhile back in South Africa, the already poor unemployment rate is getting battered further, with Treasury estimating job losses this year at 7 million. Despite this, equity markets are green across the board today and for the week.
Last week we wrote about the disconnect between sharp equity market recoveries and harsh economic reality. Markets are apparently discounting a “V-shaped” recovery, but in our view the uncertainty of the path of the pandemic as expressed by leading epidemiologists, together with consumer behavioural changes, will pose huge challenges for corporate business models that are relying on a short-term recovery.
Our bias to holding quality companies remains, with this philosophy having served our clients well, both in the lead-up to and during the crisis.
- The total unemployment claim number in the US is standing at a record 22.6 million representing an unemployment rate of 14.7%. It is estimated that the April job loss number is 27 times higher than the worst monthly decline during the 2007 – 2009 recession, and 11 times higher than the previous record set in September 1945, when America demobilised at the end of World War II.
- Britain’s economy is expected to contract by 30% in the second quarter of 2020, as reported by the Bank of England. Over the year they anticipate a 14% decline, which would be the worst retraction of the British economy since 1706.
- UK house prices are expected to fall by 16% according to the Bank of England as a result of the economic upheaval caused by the coronavirus. This decline would be in line with that experienced during the 2008 Global Financial Crisis.
- Larry Fink, the CEO of BlackRock and adviser to President Trump on how to navigate the effects of the coronavirus pandemic, made a severe statement, that as bad as things have been for corporate America, it is likely to get worse. He said that multiple bankruptcies, empty planes, cautious consumers, and a corporate tax rate as high as 29%, will be some of the contributing factors.
- President Trump said that his coronavirus task force would be phased out in order to favour one that would focus on the economy. He later changed tack saying that the health-focused group will continue “indefinitely.”
- An increase in Chinese exports, as well as a surge in oil prices, were surprises for the week – setting Wall Street up for further recovery. The Nasdaq composite closed in positive territory for the year on Thursday, as big tech companies, like Amazon, Apple, and Microsoft, have benefited from the effects of the pandemic. These companies are sitting on piles of cash that will help protect them from the economic downturn, and internationally workers are being made to work from home, making them dependent on e-commerce.
- The All Blacks, the New Zealand Rugby Team, announced that it will cut its current staffing by half. This is to reduce costs in order to survive the coronavirus pandemic. They have anticipated a loss of $61 million in revenue for 2020 should no professional rugby be played.
- Treasury has estimated that South Africa’s Gross Domestic Product (GDP) could contract by 16.1% and more than 7 million jobs could be lost this year.
- South African business confidence slumped to an all-time low in April since the index started in 1985 – this being due to the economic impact of the nation-wide lockdown. A sentiment index compiled by the South African Chamber of Commerce and Industry fell to 77.8 from 89.9 the previous month.
- Edward Kieswetter, the SARS Commissioner, anticipates a revenue shortfall of R285bn for this financial year. That is 15% – 20% short of what the revenue service had expected to collect in the February Budget Speech
- British American Tobacco South Africa has discontinued legal action to have the ban lifted on the sale of tobacco products. This decision has come after it received a formal response to its letter sent to the National Coronavirus Command Council. The company said that it would rather, “pursue further discussions with the government on the formulation and application of the regulations under the Covid-19 lockdown”.
- South African new car sales fell to a record low in April – domestic vehicle sales dropped by 98.4% from a year earlier, to 574 units! That compares with an average monthly trade of more than 41 000 units over that last 20 years.
- Follow this link for an article written by Max Price, where he analyses why we do not know the current rate of infection in South Africa, and how this impacts our decisions about how to manage the pandemic.
- Follow this link for an article that provides the reasoning presented by a group of actuaries in a letter to President Ramaphosa outlining the humanitarian disaster of a sustained national lockdown. The link includes the letter sent to the President as well as the Panda (Pandemic – Data Analysis) Report.