This week bore witness to various political leaders pursuing personal and party agendas above all else, risking the prosperity of their own countries in the process. From the closure of US and Chinese consulates, to President Trump’s protectionist election campaign, and President Xi Jinping’s clashes with India, Britain, Canada, and Australia, the scale of disruption in each region is potentially very high.
Meanwhile, in Zimbabwe, continued government interference in financial and currency markets has sent inflation soaring above 700%. And in South Africa, factional battles within the leading party were once again evident as President Ramaphosa bowed to pressure from the unions in deciding to close the country’s public schools for four weeks.
- Tensions between the US and China have been escalating. This week both countries demanded the closure of consulates in their respective countries. Although there is a lot of focus on China’s relationship with the US, China is also clashing with India, Britain, Canada, Australia, and others. Follow this link for more on how Xi Jinping’s campaign to stay in power has pit China against the rest of the world.
- European Union leaders have agreed to a groundbreaking stimulus package of €750 billion to save the bloc from the impact of Covid-19. A large amount of the money will be going to hard-hit member nations as grants, not as loans. The deal was led by Chancellor Angela Merkel of Germany and President Emmanuel Macron of France. The money will largely be raised by selling bonds collectively, not individually.
- US stocks retreated mid-week as US jobless claims rose for the first time since March. This ignited concerns that the post-lockdown recovery is slowing as Covid-19 continues to spread across the country. Many states have had to reimpose lockdown restrictions, which will, in turn, throttle many companies’ abilities to thrive. Initial jobless claims rose 109 000 to 1.42 million in the week ended July 18. The actual number of people collecting jobless benefits is reportedly 30 million.
- Dr Fauci has once again voiced that finding a vaccine or cure to Covid-19 will not be a simple or speedy event. While politicians, pharmaceutical companies, and the media tout that a vaccine is on its way, the rollout timeframe may disappoint. An enormous amount of learning, testing, setbacks, and collaboration are more likely than a public-ready launch of a vaccine early next year.
- Two potential Covid-19 vaccines have reached a new stage of development. The vaccines from Oxford University and Chinese Company CanSino have triggered immune responses without dangerous side effects.
- Tesla reported a net income of $104 million in its latest quarter. The profit was boosted by sales in Europe and China and the sale of regulatory credits to other carmakers. This means that the company now meets the criteria to be included in the S&P 500 Index.
- Government interference in Zimbabwe’s financial system and currency market continued to wreak havoc: The government closed the Zimbabwe Stock Exchange in June and the country’s inflation rate has now surged beyond 700%, prompting asset manager Allan Gray to slash its valuations for Zimbabwean stocks. More information on this saga can be accessed on the following link.
- President Ramaphosa buckled to union pressure once again when deciding to close the countries public schools for four weeks. The president ignored evidence from experts and scientists showing that schools can and must remain open, and instead listened to teachers’ unions and career politicians, yet again missing an opportunity to lead.
- The South African Reserve Bank (SARB) cut its repo rate by 25 basis points on Thursday, meaning that the rate has been cut by 300 basis points in 2020 in order to mitigate the economic impact of the Covid-19 pandemic. The rate is now at a record four-decade low of 3.5%. SARB Governor Lesetja Kganyago said that inflation is expected to be “well contained” over the medium term.
- Kevin Lings, the chief economist at Stanlib, has written an opinion piece on how there is scope for the repo rate to be cut further. He suggests that there may be another 25 basis point cut before the end of the year but that a significant and aggressive on-going reduction in interest rates does not appear likely. Follow this link for the article.
- The ANC’s National Working Committee meeting has been postponed citing “unforeseen circumstances”. It was anticipated that the members would debate the reinstatement of two Limpopo officials linked to the VBS heist.
- Tabaco products have been irrationally banned in South Africa since the beginning of lockdown which has caused an ongoing spike in cigarette prices on the black market. Professor Corné van Walbeek, director of the Research Unit on the Economics of Excisable Products has said that “The one lesson that we learn from the sales ban and the associated chaos in the market is that smokers are willing to pay a much higher price than the R25 to R45 per pack that they were paying before the lockdown. National Treasury should substantially increase the excise tax on tobacco products when the sales ban is lifted. Such a strategy will have good public health consequences and will allow the government to claw back the loss of revenue that it suffered during the lockdown”.
- Finance minister, Tito Mboweni, has said that the South African government has not committed to funding the restructuring of SAA. He said that decisions have not been made on how the funds would be sourced but that several options were being considered. A creditors meeting was held today where they decided to extend the deadline before the airline’s rescue plan can come into operation and be fully implemented.
- South Africa’s Covid-19 death rate has been called into question this week as data published by the South African Medical Research Council (SAMRC) showed 17 000 extra deaths from natural causes or a 59% increase from what would normally be expected between early May and mid-July. This suggests that more people may be dying in South Africa from Covid-19 than what the official numbers show.
- South Africa’s restaurant sector is facing collapse. Many took to the road this week to protest the restrictions placed by the government in an attempt to mitigate the spread of Covid-19. These restrictions have meant the closure of hundreds of restaurants and pubs and the losses of thousands of associated jobs. Follow this link for more.
Sources: Dynasty, Reuters, Bloomberg Markets, The New York Times, Daily Maverick, and Moneyweb, etc