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 By the close of trade on Monday, the South African rand strengthened against the US dollar.  This came as Yield-seeking investors made tentative bets on the volatile currency.

  • Most of the time, investors are focused on two V’s: value and volatility. However, two other V’s will continue to dominate the month ahead for the investment climate: virus and vaccine. At the end of January, it seemed like many high-income countries had begun seeing leveling-off after the holiday-inspired surge. Economic-cramping restrictions will remain in place for the next several weeks, and many consider deepening and/or broadening restrictions. The IMF boosted this year’s outlook and sees world growth at 5.5%, up from 5.2% in October. If accurate, it would be the strongest growth since 2010’s recovery.
  • More than four-fifths of the world’s central banks (86%) are engaged in “some form of work” on a central bank digital currency (CBDC), up from “about one third” in 2019, according to a Bank for International Settlements (BIS) survey. Some 60% are actively conducting experiments or proofs-of-concept and 14% are moving into development and pilot phases, the survey found. “Central banks collectively representing a fifth of the world’s population are likely to issue a general purpose CBDC in the next three years.
  • On Monday, Secretary Janet Yellen spoke with Canadian Deputy Prime Minister and Finance Minister Chrystia Freeland. During the call, Secretary Yellen affirmed the importance of close collaboration between the United States and Canada on economic policy and national security. Secretary Yellen conveyed her priorities for bolstering recovery efforts and mitigating the impact of the COVID-19 pandemic, fighting inequality and creating jobs, and forcefully addressing the threat of climate change. The Secretary also discussed the importance of the U.S.-Canada trade relationship to both economies.
  • U.S. President Joe Biden on Monday threatened to reimpose sanctions on Myanmar following a coup by the country’s military leaders and called for a concerted international response to press them to relinquish power. Biden condemned the military’s takeover from the civilian-led government on Monday and its detention of elected leader and Nobel laureate Aung San Suu Kyi as “a direct assault on the country’s transition to democracy and the rule of law.” The Myanmar crisis marks a first major test of Biden’s pledge to collaborate more with allies on international challenges.
  • The U.S. Treasury slashed its estimated borrowing needs for the three months through March by more than analysts had anticipated, citing what it said was less spending than it expected before the start of the year. The Treasury’s estimates, released in Washington Monday, don’t reflect President Joe Biden proposed US$1.9 trillion package, and the department said the enactment of further COVID-19 relief could result in greater borrowing than it now projects. The Treasury now expects to borrow US$274 billion in January through March, some US$853 billion less than the Treasury projected in November, when it expected to borrow US$1.127 trillion in net marketable debt issuance over the quarter. The Treasury kept its cash balance estimate for the end of March at US$800 billion.
  • In the US, the ISM manufacturing activity slowed slightly in January, while a measure of prices paid by factories for raw materials and other inputs jumped to its highest level in nearly 10 years, strengthening expectations of a pick-up in inflation this year.
  • The Boston Federal Reserve Bank President, Eric Rosengren stated that the US economy is still deep in a recession and more fiscal relief will be needed to reach a full recovery and help some of the unemployed find jobs.
  • The yield on benchmark government bonds fell yesterday. The yield on 2026 bond fell to 6.62%. Further, the yield on 2023 bond declined to 4.61% while that for the longer-dated 2030 issue fell to 8.63%.

In early trade on Tuesday, the US dollar is trading lower against the South African rand at R15.0266, while the euro is trading lower at R18.1598.  The British pound has declined  against the South African rand to trade at R20.5875.

By the close of trade on Monday, the euro declined against most of the major currencies.

  • Europe’s economic pain is expected to worsen before it gets better, potentially boosting the popularity of populist leaders and the need for more action from the European Central Bank, analysts have said. While the International Monetary Fund upgraded its global growth forecasts last week, it said the outlook for the euro zone had deteriorated. The Fund cut its growth expectations for the region by 1 percentage point to 4.2% this year. Germany, France, Italy and Spain the four largest economies in the euro zone, all saw their growth estimates cut for 2021.  The eurozone manufacturing growth remained resilient at the start of the year, however, its pace waned from December as renewed lockdown measures across the continent, alongside supply shortages, hurt activity.
  • German retail sales plunged more-than-expected in December, as tightening lockdowns to curb the spread of COVID-19 stifled consumer spending in Europe’s largest economy.
  • In contrast, the country’s manufacturing PMI rose in January.

In early trade on Tuesday, the euro advanced against the US dollar to trade at $1.2122, while it has marginally weakened against the British pound to trade at GBP0.8866.