Last week’s introduction to our news flash concluded that “the Omicron variant does not warrant a change in our view that the global economy is on a road – albeit bumpy – to a full recovery”.
As coronaviruses constantly mutate, they tend to lose their pathogenic intensity. Omicron seems to be following this path. Those who are vaccinated are seemingly in far less danger than during previous waves.
With these findings being increasingly absorbed by investors, the S&P Index had posted its biggest three-day rally of the year by Wednesday this week. Should Omicron concerns remain low, market commentators expect attention to shift back to the Fed and the outlook for growth and inflation.
In many ways, it has been yet another extraordinary year. At the time of writing, the S&P Index had returned 20.9% year-to-date. Almost unbelievably, the local JSE is not that far behind with a return of 17.5%, also as measured in dollars.
The world is now poised to enter its third year of the pandemic. In particular, the US is experiencing a booming economy and a continually mutating virus, but one Covid aftershock that’s starting to eclipse almost everything else is red-hot inflation which is forecast to climb further to 6.8% – the highest rate since Ronald Reagan was president in the early 1980s.
This will be our last news flash for 2021. We will resume with the latest global and local market updates and insights on Friday, 7 January 2022.
“Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.”
– Peter Lynch
“Investors have begun to recalibrate their assessment of the economic impact of Omicron, setting aside the worst fears triggered by news of the heavily-mutated variant about ten days ago.”
– Vanda Insights
Global News
- Pandemic developments have been the market’s main driver for almost two years, causing a crash in 2020 and then a sustained rally on the back of vaccination programmes and monetary stimulus that allowed an economic reopening. In late November, worries over the Omicron variant sent ripples through world stock indexes. However, most strategists expect the virus to become a sidenote next year.
- Promising news to emerge from Singapore is that the hunt for a single shot to defeat Omicron and all coronaviruses is nearing reality. Linfa Wang, a virologist who works out of Duke-NUS Medical School, a collaboration between Duke and the National University of Singapore, has shown test results that offered one of the strongest bodies of evidence that a universal coronavirus vaccine is indeed possible. Although the science is still in its early stages, the biggest challenge with developing a super-vaccine may be finding a way to pay for it.
- The US Senate voted Wednesday night to overturn President Joe Biden’s Covid-19 vaccine or testing mandate for private businesses with 100 or more employees. While it likely won’t become law since its chances of getting a vote in the House are uncertain, the effort demonstrates the bipartisan opposition in Congress to the federal government’s vaccine mandate for large employers.
- If the Federal Reserve meets expectations next week and announces a more aggressive unwind of the measures taken to boost the economy, it will mark an important policy shift for the US central bank and Chairman Jerome Powell. In fact, under Powell, the Fed has become well known for its abrupt changes in direction and the unprecedented levels of stimulus provided during the pandemic.
- Oil prices rose early on Tuesday for the second consecutive day as traders are cautiously optimistic the new Omicron Covid-19 variant would not lead to massive lockdowns around the world to the point of severely reducing global oil demand.
- Eurostat reported this week that Greece had the largest GDP growth rate in the third quarter of 2021 in the entire Eurozone. The statistics agency said Greece’s GDP increased a staggering 13.7% in the third quarter compared to last year. To put that in perspective, the average growth rate amongst EU countries was 3.9%.
- In Germany, lawmakers elected Social Democrat, Olaf Scholz, as chancellor on Wednesday, ending 16 years of conservative rule under Angela Merkel and paving the way for a pro-European coalition government that has promised to boost green investment.
- Japan will deny certain tax breaks to big companies that don’t increase pay, and boost deductions for those that do, as part of efforts to raise salaries in the country, a final draft of the ruling party’s annual tax reform plan showed on Wednesday. The carrot-and-stick approach underscores Prime Minister Fumio Kishida’s focus on distributing wealth to households, including urging firms whose profits have returned to pre-pandemic levels to raise pay by 3% or more.
- Alibaba Group will reorganise its international and domestic e-commerce businesses and replace its CFO, which comes as the tech giant grapples with an onslaught of competition, a slowing economy, and a regulatory crackdown. It will form two new units – international digital commerce and China digital commerce – which it said is part of efforts to become more agile and accelerate growth.
Local News
- After reaching a record high earlier this week, the JSE lost some ground and the rand weakened on Thursday as investors down-weighed the effects of the latest Covid-19 variant on the global economy and once again set their sights on US inflation. The JSE ALSI had retracted 0.27% to around 72 000 points by Thursday’s close, dragged down by precious metals – which were 0.61% lower – resources (-0.57%) and industrial metals and mining (-0.39%).
- The twin pressures of tighter Covid-19 lockdown restrictions and a spate of civil disorder in July led to the local economy contracting in the third quarter of 2021, Statistics South Africa said this week. After recording four consecutive quarters of growth, real GDP slumped by 1.5%, eroding some of the economic gains the country has made since the severe impact of Covid-19 in the second quarter of 2020.
- The IMF has warned that, without decisive action to remove obstacles to investment and reduce the government’s need to borrow, South Africa will be unable to create lasting growth or employment. The IMF expects the economy to come back from 2020’s 6.4% contraction, estimating that output will recover to about 4.6% in 2021. However, this is lower than the National Treasury’s forecast of 5.1%.
- National Director of Public Prosecutions, Shamila Batohi, has warned that arrests following a three-year judicial inquiry into state corruption will take time, as she announced plans to recruit a replacement for her top investigator who quit last week. A panel led by Acting Chief Justice, Raymond Zondo, is due to complete its graft probe this month. There have yet to be any high-profile convictions for corruption.
- Netcare, South Africa’s third biggest hospital operator by market value, will list on the A2X on 15 December, becoming the first in the industry to do so. Valued at R20.9 billion on the JSE, Netcare will retain its primary listing and bring the number of stocks on the alternative exchange to 59, with a combined value of more than R5 trillion.
- MTN has joined a growing number of South African companies to implement a vaccine mandate amid the battle with the fourth wave of Covid-19 and the new Omicron variant. Africa’s largest mobile network operator said employees who refuse vaccinations, without a valid reason, will be fired. The policy will start in January 2022.
- On the political front, prominent columnist Tom Eaton’s article in Monday’s Business Day argues that “you can’t fix the ANC and SA. The two are mutually exclusive. There is no future in which SA coexists with the ANC in any of its current forms.” Controversially, he states: “Luckily enough, Ramaphosa is still there. What he is doing, very quietly and often so slowly that it looks like he’s not moving at all, is killing the ANC. As the leadership remains in limbo in which we drift, he is pressing a pillow down onto the face of a gasping party and perhaps, just perhaps, saving South Africa in the process.”
- Peter Bruce, former editor of Financial Mail and Business Day, also wrote this week about prioritising growth ahead of consolidation. “The question is how? Where is the required dynamism? The answer I keep returning to is RW Johnson’s observation that you can have an ANC government, or you can have a growing industrial economy, but you cannot have both.”
Sources: Dynasty, Reuters, Bloomberg, News24, BusinessLive, BizNews, CNN, etc.
