The Daily Brief

Market Update Thursday, 27 May 2021

Global Markets Asian shares retreated from two-week highs on Thursday and China started on the backfoot on fears central banks were closer to considering winding back their emergency stimulus while the dollar held at a one-week top.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.5% at 691.76, still not too far from Wednesday's high of 696.76, a level last seen on May 10. Chinese shares started weaker with the blue-chip index off 0.2%. Australian shares were flat while New Zealand's benchmark index stumbled 0.9%, extending losses for a second day in a row after the country's central bank on Wednesday signalled rate rises from next year. Japan's Nikkei was down 0.8%. E-Mini futures for the S&P 500 were down 0.2%.

Global equities markets have been supported by a concerted effort from major central banks who have pumped trillions of dollars in financial markets since last year while reiterating their lower-for- longer interest rate stance as they seek to cast any inflation rise as temporary.

Earlier this week, U.S. Vice Chair Richard Clarida said he believed recent inflation pressures would “prove to be largely transitory,” though he did add that policymakers will be at a point to begin discussing tapering in upcoming meetings. "While the efforts by various Fed speakers appeared to have assuaged market concerns, doubt remains," said GSFM investment strategist Stephen Miller.

"Clarida’s comments imply that the Fed may be a little bit more advanced than the 'not thinking about thinking' about monetary tightening that Chairman characterised as the Fed’s stance last year - but only just a bit." Overnight, the Fed Vice Chair for supervision, , suggested that at some stage it will become important for the Fed to discuss plans to tighten its asset purchase programme. "What that means is that after a period where monthly inflation reports have largely been side-lined as a market focus, that they once again assume primacy they once enjoyed as the statistical report that matters," Miller added.

On Wall Street, all three main indexes closed higher driven by consumer discretionary, communication services and financial sectors. The Dow was a touch firmer, the S&P 500 gained 0.2% and the Nasdaq Composite added 0.6%.

The dollar index was at a one-week top of 90.152. The euro fell to $1.2173, falling for a second straight session after the 's (ECB) Executive Board’s Director, Fabio Panetta said it was too early to taper its emergency bond buying programme. The New Zealand dollar was among the best performing currencies overnight. On Thursday, it retreated from a three-month top of $0.7317 to be last as $0.7270.

In commodities, gold prices fell below $1,900 per ounce, its appeal dimmed by a rebounding dollar and U.S. Treasury yields. Spot gold shed 0.2% to $1,892.06 per ounce after hitting its highest since Jan. 8 at $1,912.50. Oil prices were weaker too with Brent off 20 cents at $68.76 a barrel and U.S. crude down 19 cents at $66.02 a barrel.

Domestic Markets The South African rand raced to its firmest in 27 months on Wednesday aided by the dovish stance taken by the U.S. Federal Reserve in the face of fears of rising inflation.

At 1700 GMT, the rand was 0.63% firmer at 13.7800 per dollar, having earlier touched a session-best 13.7625, its strongest since February 2019, as a rally since the beginning of May was bolstered by further indications global lending rates would remain low. A host of Fed officials overnight echoed the sentiments of Chair Jerome Powell that a spike in inflation would be transient and ultra-easy policy continued to be warranted. Lower U.S. interest rates boost the appeal of riskier but high-yielding assets such as the rand. The rand was also boosted by news that ailing state power firm Eskom had reduced its mammoth 484 billion rand ($34.95 billion) debt by up to 20%.

"The rand has taken full advantage of the USD’s Fed-induced vulnerability through 2021, with the tidal wave of monetary support in the U.S. over the past year now exerting a long-expected debasement of the greenback," said at ETM Analytics. "As long as emphasises that near-term inflationary pressures will not trigger a tapering of monetary stimulus, capital spill- overs into relatively higher-yielding markets will continue at the expense of the USD."

Bonds ended a touch weaker, with the yield on the benchmark government bond due in 2030 up 1.5 basis points to 8.875%.

In the equities market, stocks were largely unchanged as investors digested a slew of mixed company results. The Johannesburg All-share index edged up 0.05%, while the Top-40 index was 0.02% weaker.

Dragging the blue-chip index was gold miner AngloGold Ashanti, which declined 3.96% after it said it would suspend its annual production and cost guidance for its Ghanaian Obuasi mine after operations were suspended when a miner went missing following an underground collapse. Mediclinic International Plc, owner of a chain of private hospitals in southern Africa, closed 5.39% firmer after it said it expected to deliver growth in revenue and core earnings across all its three divisions for the 2022 financial year. Corona Tracker

The number of new cases is distorted by cut-off times.

Source: Thomson Reuters

Market Overview

Notes to the table: • The money market rates are TB rates • “BMK” = Benchmark • “NCPI” = Namibian inflation rate • “Difference” = change in basis points • Current spot = value at the time of writing • NSX is a Bloomberg calculated Index

Important Note: This is not a solicitation to trade and CAM will not necessarily trade at the yields and/or prices quoted above. The information is sourced from the data vendor as indicated. The levels of and changes in the yields need to be interpreted with caution due to the illiquid nature of the domestic bond market.

Source: Thomson Reuters

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Disclaimer

The information contained in this note is the property of Capricorn Asset Management (CAM). The information contained herein has been obtained from sources which and persons whom the writer believe to be reliable but is not guaranteed for accuracy, completeness or otherwise. Opinions and estimates constitute the writer’s judgement as of the date of this material and are subject to change without notice. This note is provided for informational purposes only and may not be reproduced in any way without the explicit permission of CAM.