Well it’s budget day and the “patient” is on the operating table hemorrhaging blood and the odds are stacked! There is a shortage of blood, untrained assistants around the theater table and the clock is ticking. That’s pretty much where SA finds itself today.
The country battles record-high unemployment, depressed economic growth, the likelihood of tax revenue shortfalls, and grim warnings that South Africa is marching towards a downgrade by Moody’s, the last major ratings agency to still assess SA’s sovereign debt at investment grade.
Moody’s Investor Service is the sole major global ratings agency that has not yet downgraded SA’s sovereign credit rating to junk. In a recent Bloomberg survey, of 19 surveyed economists surveyed, 14 expected Moody’s to downgrade the country to junk this year. Nine of those said it would happen in the first half in 2020.
If Moody’s joins S&P and Fitch in downgrading SA to junk, the country’s bonds will be forced out of the large Citigroup World Government Bond Index, leading to an outflow of billions of Rands.
By the close of trade on Tuesday, the South African rand weakened against the US dollar.
- The world woke up Wednesday, to the reality that the coronavirus epidemic is going to have a much bigger impact on the global economy than investors and policy makers had assumed. Just how big, no one really knows. Last week, it seemed as if financial markets believed that COVID-19 would be contained. But new cases in Italy, South Korea and Iran over the weekend undermined that belief. The World Health Organization tried to reassure the public on Monday, saying the disease was not yet a pandemic because it was not spreading in an uncontained way.
- Panic selling continued to hit the financial markets on Tuesday as investors head for the exit. The Dow Jones Industrial Average lost another 800 points which is approximately 3%. Germany confirmed another case of coronavirus, this time from a patient who visited Milan while Switzerland reported its first case also from Italy. Europe’s open borders is becoming a serious problem for virus containment and according to the US’ Center of Disease Control, a pandemic is inevitable. They expect the virus to spread in the US and warned that it could take 12 to 18 months before a vaccine is developed, though human trials
- In the US, consumer confidence edged up in February, suggesting a steady pace of consumer spending that could support the economy despite growing fears over the fast-spreading coronavirus.
- US home prices rose more-than-expected on an annual basis in December.
- The Federal Reserve (Fed) Vice Chairman, Richard Clarida, stated that it was still too soon to tell what the impact of coronavirus might be and added that the central bank will respond accordingly.
- On the global front, the US Department of Health & Human Services called for $2.50bn of additional federal funds to help combat the coronavirus.
The yield on benchmark government bonds ended lower yesterday. The yield on 2021 bond declined to 6.27% while that for the longer-dated 2030 issue fell to 8.80%.
In early trade on Wednesday, the US dollar is trading 0.1% higher against the South African rand at R15.2351, while the euro is trading marginally lower at R16.5551. The British pound has marginally gained against the South African rand to trade at R19.7920.
By the close of trade on Tuesday, the euro advanced against most of the major currencies.
- The German gross domestic product (GDP) remained stagnant in 4Q19, as shrinking exports held back the nation’s economic activity.
In early trade on Wednesday, the euro has slipped 0.1% against the US dollar to trade at $1.0867, while it has marginally weakened against the British pound to trade at GBP0.8364.