Once again, markets this week were ignited by optimism that a potential vaccine to the coronavirus may have been discovered. Each time there is a glimmer of potential for Covid-19 preventive medication, markets tend to soar, but these fluxes are not based on fundamental tenets. Even if a cure were to be developed, approved, and rolled out in the near future, the global economy would remain significantly damaged, with appropriate policy responses, time and renewed consumer (and business) confidence being the essential ingredients to provide a clear line of vision into current valuations.
To continue with this theme of pricing disconnects which we have covered in our recent News Flashes, we have included a link to an article in last week’s New Yorker, which quotes Jerome Powell, the Chairman of the Federal Reserve, that “the recovery may come more slowly than we think”. The article also quotes Yale Economist Robert Shiller, who suggests that “investors are responding to a widely shared narrative that there will be a ‘V-shaped’ recovery, which is often more emotionally compelling and resonant than an argument about valuation or something else.”
- For an opinion piece by John Cassidy from The New Yorker entitled, Have the Record Number of Investors in the Stock Market Lost Their Minds? Follow this link.
- China has imposed a new national security law on Hong Kong. This law would give the Chinese Communist Party more control over the semiautonomous territory and is meant to suppress dissent in the city. The law has effectively banned sedition, secession, and subversive actions. This may ignite, once again, the pro-democracy protests that crashed the metropolitan area’s economy last year and increased the strain in US-Chinese relations.
- Over the last couple of weeks, tension has been building between the US and China. This week President Trump accused the Chinese Leader, Xi Jinping, of orchestrating a “disinformation and propaganda attack on the United States and Europe”. Additionally, a US aide suggested that Beijing dispatched airline passengers to spread the infection worldwide.
- The World Health Organisation has agreed to begin an inquiry into the global response to the pandemic. The resolution calls for an “impartial, independent, and comprehensive evaluation”.
- There was excitement this week that Moderna Inc had produced a coronavirus vaccine. This excitement dissipated after a report from the health publication Stat highlighted the early nature of the trial. The waxes and wanes of the market based on whether or not a treatment for the coronavirus is discovered reveals a bigger problem in terms of how the media reports on medical findings. Moderna shares closed 10% down on Monday from their record high.
- The European Union is working on a green recovery strategy from the Covid-19 pandemic. This would mean that every sector would be given a “green recovery road map” along with financial aid, to accelerate the bloc’s move to a low-carbon economy.
- Chinese doctors have said that Covid-19 has manifested differently among patients in the second wave of cases. This suggests that the virus is changing which complicates the effort to find a cure and to slow down the spread.
- Brazil has become the new Covid-19 epicentre. The country contributed to 13% of new cases globally over the past week and it looks as though things are set to get worse – the country does not have a health minister after two ministers departed following conflicts with President Jair Bolsonaro.
- Dr Glenda Gray, a member of the Ministerial Advisory Committee (MAC) and chairperson of the South African Medical Research Council (SAMRC), has broken rank from the government’s mantra, suggesting that the phased exit from the lockdown is nonsensical and unscientific, but that non-pharmaceutical interventions (NPI), such as handwashing, wearing masks, social distancing, and prohibitions on gatherings, should remain in place. It is a fascinating and compelling article – follow this link for more
- The South African Reserve Bank yesterday cut its key lending rate by 50 basis points, which is now sitting at a historical low of 3.75%. The bank also predicted that South Africa’s GDP would contract by 7% this year – Dynasty expects a higher level of contraction based on other economists’ estimates.
- The South African rand reached levels that were pre-lockdown, and pre-Moody’s downgrade this week. At the time of writing the rand was R17,69 to the US dollar after being at R19.26 at the height of the crisis. There has been an increase in confidence across global markets that the worst of the coronavirus crisis is over, encouraging investors to return to riskier currencies.
- Although South Africa is succeeding in flattening the curve of the Covid-19 outbreak, modelling shows that infections in the country could intensify to 54 000 by the end of May, which would bring with it a higher death rate. The Health Minister has said that post lockdown measures are key in curtailing the spread of the virus.
- South Africa has experienced resistance against its strict lockdown restrictions. This has instigated conversations about how the regulations would be relieved, causing much confusion. Gauteng Premier David Makhura said that Gauteng should move to lockdown level three at the beginning of June, but also said that the final decision lies with the National Coronavirus Command Council.
- However, some areas in Gauteng are not publishing Covid-19 infection numbers because as Gauteng Health MEC Dr Bandile Masuku says, “it increases stigma, it increases discrimination, and increases prejudice.”
- The Western Cape is experiencing the highest numbers of reported cases of Covid-19 and may be required to maintain level four restrictions.
Sources: Dynasty, Reuters, Bloomberg Markets, The New York Times, Daily Maverick, and Moneyweb, etc