The Week Ahead

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The Week Ahead

US jobs

In the week ending Jan 8, the advance figure for seasonally adjusted initial claims was 230 000, an increase of 23 000 from the previous week's unrevised level of 207 000. The 4-week moving average was 210 750, an increase of 6 250 from the previous week's unrevised average of 204 500. The advance seasonally adjusted insured unemployment rate was 1.1 percent for the week ending Jan 1, a decrease of 0.2 percentage point from the previous week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending Jan 1 was 1 559 000, a decrease of 194 000 from the previous week's revised level. This is the lowest level for insured unemployment since June 2, 1973 when it was 1 556 000. The previous week's level was revised down by 1 000 from 1 754 000 to 1 753 000. The 4-week moving average was 1 721 500, a decrease of 77 000 from the previous week's revised average. This is the lowest level for this average since March 7, 2020 when it was 1 714 500. The previous week's average was revised down by 250 from 1 798 750 to 1 798 500

US other

US inflation continues to shock orthodox economists but comes as no surprise to the lay person who has to contend with spiralling costs on an everyday basis. Inflation accelerated to 7% in Dec 2021, the fastest pace since 1982, when Ronald Reagan was president and Paul Volcker was his US Federal Reserve (Fed) chairman. CPI year on year percentage change was 7.0% versus 6.8% in Nov and 7.0% estimated. Core CPI, which strips out fuel and food, rose by 5.5% versus 4.9% in Nov and 5.4 estimated. This sets the stage for a possible quickening in pace of interest rate rises in the US. The increase was driven by higher house prices and used vehicles with food costs also contributing. Energy prices, which were a key driver of inflation for most of 2021, fell in Dec. Wall Street now expects four US interest rate hikes this year and next, up from current Fed chair Jerome Powell's forecast of three hikes in Dec. This sentiment is echoed by St Louis Fed Bank President James Bullard, who suggested that four interest rate increases may be warranted this year. "I actually now think we should maybe go to four hikes in 2022. If we get a couple of rate-hike moves under our belt during the first part of this year then we'll be in better shape," said Bullard in an interview with the Wall Street Journal. Sales at US retailers, online and restaurants dropped by 1.9% month on month in Dec 2021, dampening the end of the holiday shopping season. Reuters reports that US retail sales dropped by the most in 10 months in Dec, likely the result of Americans starting their holiday shopping in Oct to avoid empty shelves at stores. Economists cautioned against reading the unexpected plunge in retail sales last month reported by the Commerce Department on Fri as a sign of weakness. Consumer spending remains underpinned by huge savings, rising wages as companies scramble for scarce workers as well as soaring household wealth. Still, the report and news of an unexpected decline in production at factories in Dec suggested the economy lost momentum at the end of 2021. That trend likely persisted into Jan amid spiralling Sars-CoV-2 infections, driven by the Omicron variant, which have disrupted businesses and schooling.

Doctors in Baltimore carried out the world's first transplant of a pig's heart to a human. The pig had been genetically modified to reduce the chance of its heart being rejected. Pigs' heart valves are already used in medical procedures. By Jan 14, Citigroup (NYSE: C ) staff in the US who are unvaccinated against the Sars-CoV-2 virus will be placed on unpaid leave and fired at the end of the month, unless exempt. This is according to a company memo seen by Reuters. So far, over 90% of US Citigroup employees have complied with the mandate. While Citigroup is the first Wall Street bank to enforce such a strict vaccine mandate, other major US companies, such as Google (NASDAQ: GOOGL ) and United Airlines, have also introduced "no jab, no job" policies. The S&P 500 closed 0.3% lower for the week at 4 662.85 on Fri 7 Jan. Year to date, the index is down 2.2% from its closing level on 31 Dec 2021 of 4 766.18. From its pandemic low of 2 237.4 on Mar 23 2020, the market is now 108.4% higher. US equity markets were on the back foot most of last week, especially as it became clear that the Fed may be about to embark on more profound interest rate hikes than initially anticipated. The higher-than-expected inflation print and the lower than anticipated retail sales print didn't help sentiment either.


According to Reuters, Chinese GDP growth is forecast to slow to 5.2% in 2022, and 5.2% in 2023. Inflation is seen at 2.2% in 2022 and 2.1% in 2023. The central bank is steadily ramping up policy easing to ward off a sharper downturn. The expected 2022 growth would be lower than the 5.5% analysts had forecast in a Reuters poll in Oct, underlining multiple headwinds facing the world's second-largest economy due to a property downturn, a crackdown on debt, tougher pollution measures and strict COVID-19 curbs which have hit consumption. GDP likely expanded by 8.0% in 2021, according to the median forecasts of 62 economists polled by Reuters, slower than an 8.2% rise seen in Oct's forecast but still the highest annual growth in a decade. Analysts attribute the solid 2021 expansion partly to the low base set in 2020, when the economy was jolted by COVID-19, which first emerged in China. The ensuing government lockdowns paralyzed activity across much of the country. But momentum cooled markedly over the course of last year. GDP in the fourth quarter likely grew 3.6% from a year earlier, which would be the weakest pace since the second quarter of 2020, slowing from 4.9% in Jul-Sep, the poll showed. On a quarterly basis, growth is forecast to rise to 1.1% in the fourth quarter from 0.2% in Jul-Sep, the poll showed. The government is due to release 2021 and Q4 GDP data, along with Dec activity data, on Mon Jan 17 at 0200 GMT. China's property developers are again under pressure on the news that lenders are tightening funding for real estate projects through local government financing vehicles (LGFVs). At least five state-run banks have imposed new restrictions this year on loans to weaker LGFVs seeking to buy land and develop new real estate projects, according to Bloomberg. Despite strict controls in an attempt to eliminate the Omicron variant, China has detected an Omicron case in a second port city, adding to concerns of a wider outbreak on Beijing's doorstep, Bloomberg reports. At least one person has been identified to have the more transmissible Omicron variant in Dalian, a city with a 7 million population. The patient showed no symptoms but tested positive after returning from college in Tianjin, where at least 137 other cases were detected last week. Chinese port congestion has intensified on stringent Sars-CoV-2 protocols. Shanghai port, the world's largest, is seeing increasing congestion as ships re-route from Ningbo. Ningbo has suspended various trucking services at its major port following a Covid outbreak, according to Bloomberg. A queue of ships has also formed at Shenzhen port, a major technology hub, and major freight port Dalian has started mass testing. Delays in China are expected to impact port congestion in Europe and the US. Tianjin, a city just 100 km from Beijing, was subjected to tighter restrictions, after the first locally transmitted cases of the Omicron variant in China were detected. The government is ramping up its zero-Covid strategy ahead of the Beijing Winter Olympics. Three port workers in Dalian, another northern city, were jailed for between 39 and 57 months for not wearing protective gear while handling cargo China's zero-Covid strategy will be tested to the limit in the upcoming Spring Festival. The authorities are desperately seeking a way to contain Omicron while allowing the majority of the population to travel over the Spring Festival. The danger for China is that while Omicron is believed to cause milder disease, it can still be fatal for people with underlying health conditions and comorbidities. Given the very substantial pollution suffered by many workers in China over many years coupled with high levels of heavy smoking and patchy healthcare, Omicron may prove to be rather more disruptive in China than in the UK where the traditional AstraZeneca (LON: AZN ) vaccine and booster appears to have been effective.


Gold regained some momentum on the highest US inflation print since 1982 last week as the US dollar weakened. Copper climbed to a two-month peak as supply concerns mounted and the US dollar weakened. Shanghai copper inventories are low at 29 000 tonnes, nearing their decade low of 27 000 tonnes in Dec. London Metal Exchange inventories are down 66% from Aug highs to 80 300 tonnes. Iron ore nears 3-month high as Brazilian miners suffer from heavy flooding. The iron ore price climbed to $131/tonne last week, its highest in 3-months. Major iron ore miners including Vale have halted operations in major mining state Minas Gerais, which produces 40% of Vale's total output. Iron ore futures have climbed 50% since mid-Nov. Expect iron ore prices to retreat as China slows down steel production for the Spring Festival and Winter Olympics. Steel works and other factories in Hubei and areas which might affect air quality for the Olympics will be closed or slowed for the games.


Embattled UK prime minister Boris Johnson's position took a turn for the worse last week when more news broke about alleged partying at number 10 Downing Street last year at the height of the pandemic. He was clearly on the ropes during prime minister's questions in the House of Commons last week as he ducked and dived over allegations that he attended a "bring your own booze party" in the garden of his official residence when the rest of the British population was allowed to meet only one other person outdoors and socially distanced at that. There is growing public revulsion at Johnson's perceived arrogant attitude during this pandemic and not just from the political opposition. There are mounting calls from within the ranks of his own Conservative Party to resign. The latest GDP print for the UK for Nov 2021 was released last Fri 14 Jan by the Office for National Statistics (ONS). According to the ONS, GDP is estimated to have grown by 0.9% in Nov 2021 and is above its pre-coronavirus pandemic level (Feb 2020) for the first time, by 0.7%. Services (0.7%), production (1.0%) and construction (3.5%) output all increased between Oct and Nov 2021; this means that services and construction output are both 1.3% above their pre-coronavirus levels while production remains 2.6% below. In the latest month, output in consumer-facing services grew by 0.8%, mainly because of a 1.4% increase in retail trade, while all other services rose by 0.6%; consumer-facing services are still 5.0% below their pre-coronavirus levels, while all other services are 2.9% above. According to the Budapest Business Journal, President Jnos 'der has set an Apr 3 date for Hungary's next general elections. The date is the earliest one allowed by law. The previous general election was held on Apr 8, 2018, resulting in a 2/3 supermajority for the right-wing Fidesz-KDNP coalition. This year, Prime Minister Viktor Orbn's most important challenger will be Mayor of Hdmez'vsrhely, Pter Mrki-Zay, who heads the "United for Hungary" joint opposition list. Polls conducted in Dec 2021 show varying results, ranging from a 14-point Fidesz lead measured by Irnyt to a 5-point opposition advantage measured by Republikon. Two smaller parties are currently hovering around the electoral threshold required to enter Parliament: right-wing nationalist party Mi Haznk (Our Home), and joke party Magyar Ktfark Kutyaprt (Hungarian Two-Tailed Dog Party). 'der also decided to set the date for a referendum to gauge support for safeguarding minors' exposure to sexual orientation in the classroom and in the media on the same day as the general elections. Hot on the heels of Britain urging its citizens to start thinking of the Sars-CoV-2 virus as an endemic illness somewhat akin to the seasonal flu, came Pedro Snchez, Spain's prime minister, the latest leader to call for a re-evaluation of Covid. "The situation is not what we faced a year ago," Sanchez said in a radio interview with Spain's Cadena SER last Mon. "I think we have to evaluate the evolution of Covid to an endemic illness, from the pandemic we have faced up until now," he added. Sanchez said it was time to open the debate around a gradual reappraisal of the pandemic "at the technical level and at the level of health professionals, but also at the European level." In an article in the UK's Investment Week magazine, well-known UK fund manager Terry Smith has attacked Unilever (LON: ULVR ) for being "obsessed" with sustainability, after it was one of the worst performing firms in his portfolio. Smith's 29bn Fundsmith Equity fund, the UK's largest retail vehicle, underperformed in 2021, which he defended in his annual letter to investors. Smith attacked Unilever and PayPal (NASDAQ: PYPL ) in the letter, writing that "Unilever seems to be labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business". "A company which feels it has to define the purpose of Hellmann's mayonnaise has in our view clearly lost the plot. The Hellmann's brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert - salads and sandwiches)" he added. Smith also defended his purchase on Amazon (NASDAQ: AMZN ) in October, after having ignored the business for more than a decade. He wrote that rather than give a lengthy rationale for buying the business he once described as "barely profitable", he would instead "summarise it with a quote from the economist (and successful fund manager) John Maynard Keynes who said, "When the facts change, I change my mind."


People arriving from the UK will no longer need an essential reason to enter France from Fri 14 Jan as long as they are vaccinated, according to the French government. The French authorities decided restrictions were no longer required since the Omicron variant was now widespread in both countries. Despite the easing of travel restrictions in the latter half of 2021, Heathrow airport said that its passenger numbers were lower last year than in 2020, when lockdowns were first rolled out. Flights to Asia, where some borders remain shut, were down by 40%. The emergence of Omicron in Dec led to a wave of cancellations.

Rest of World

According to Reuters, emerging economies must prepare for US interest rate hikes , the International Monetary Fund (IMF) said last week, warning that faster than expected Fed moves could rattle financial markets and trigger capital outflows and currency depreciation abroad. In a blog published Mon 10 Jan, the IMF said it expected robust US growth to continue, with inflation likely to moderate later in the year. The IMF is due to release fresh global economic forecasts on Jan. 25. It said a gradual, well-telegraphed tightening of US monetary policy would likely have little impact on emerging markets, with foreign demand offsetting the impact of rising financing costs. But broad-based U.S. wage inflation or sustained supply bottlenecks could boost prices more than anticipated and fuel expectations for more rapid inflation, triggering faster rate hikes by the US central bank. "Emerging economies should prepare for potential bouts of economic turbulence," the IMF said, citing the risks posed by faster-than-expected Fed rate hikes and the resurgent pandemic. "Faster Fed rate increases could rattle financial markets and tighten financial conditions globally. These developments could come with a slowing of US demand and trade and may lead to capital outflows and currency depreciation in emerging markets," senior IMF officials wrote in the blog. It said emerging markets with high public and private debt, foreign exchange exposures, and lower current-account balances had already seen larger movements of their currencies relative to the US dollar. The IMF said emerging markets with stronger inflation pressures or weaker institutions should act swiftly to let currencies depreciate and raise benchmark interest rates. It urged central banks to clearly and consistently communicate their plans to tighten policy and said countries with high levels of debt denominated in foreign currencies should look to hedge their exposures where feasible. Governments could also announce plans to boost fiscal resources by gradually increasing tax revenues, implementing pension and subsidy overhauls, or other measures, it added. According to the Buenos Aires Times, Argentina raised its benchmark interest rate for the first time in over a year as it faces calls from the IMF to tighten its monetary policy. The Argentine Central Bank lifted the key Leliq rate to 40 percent from 38 percent, a level that had remained for over a year even with annual inflation running at around 50 percent. The bank's unorthodox approach until now had contrasted with a wave of rate hikes by central banks across the globe, seeking to battle accelerating inflation. IMF officials urged Argentina in Dec to implement an "appropriate" monetary policy as part of talks for a new programme to reschedule payments on about US$40 billion owed to the lender. They specifically called for interest rates to exceed inflation. "The rate hike is a step in the right direction, but too timid to matter," said Adriana Dupita, an economist with Bloomberg Economics. "The Central Bank will need to raise the rate further if it intends to use monetary policy to tackle inflation - with or without a deal with the Fund." Russia's 10-year government bond yield fell by almost 2% to reach its lowest value since Mar 2020, pushing the yield higher than 9%. This was as a direct result of mounting concerns regarding a potential invasion of Ukraine.

South Africa

The JSE All Share Index (Alsi) closed 1.6% higher at 75 160 on Fri 14 Jan. From its recent low point of 37 693 on Mar 19 2020, it has risen by 99.4%. Year to date, it is up by 2% from its close of 73 709.39 on Dec 31 2021.

The Fragile Five + Russia Country GDP Growth (%) Inflation (%) Unemployment (%) Interest Rates (%)

The Fragile Five + Russia

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