The Week Ahead

US jobs

In the week ending Jan 15, the advance figure for seasonally adjusted initial claims was 286 000, an increase of 55 000 from the previous week's revised level. The previous week's level was revised up by 1 000 from 230 000 to 231 000. The 4-week moving average was 231 000, an increase of 20 000 from the previous week's revised average. The previous week's average was revised up by 250 from 210 750 to 211 000. The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending Jan 8, an increase of 0.1 percentage point from the previous week's unrevised rate. According to Reuters, the number of Americans filing new claims for unemployment benefits jumped to a three-month high last week, likely as a winter wave of COVID-19 infections disrupted business activity, which could weigh on job growth in Jan. The third straight weekly increase in jobless claims reported by the Labor Department on Thu 20 Jan was also influenced by unfavourable seasonal factors after the holidays. But coronavirus cases, driven by the Omicron variant, are subsiding and the seasonal factors, the model used by the government to iron out seasonal fluctuations in the data, are seen normalizing soon, suggesting the recent surge in applications is a blip. The advance number for seasonally adjusted insured unemployment during the week ending January 8 was 1 635 000, an increase of 84 000 from the previous week's revised level. The previous week's level was revised down by 8 000 from 1 559 000 to 1 551 000. The 4-week moving average was 1 664 250, a decrease of 55 250 from the previous week's revised average. This is the lowest level for this average since Apr 27, 2019 when it was 1 663 500. The previous week's average was revised down by 2 000 from 1 721 500 to 1 719 500.

US other

According to Bloomberg, Intel (NASDAQ: INTC ) plans to spend $20 billion on a chipmaking hub on the outskirts of Columbus, Ohio, which the company expects to grow to be the world's biggest silicon-manufacturing site. The chipmaker will begin construction of two fabrication plants on a 1,000-acre site in New Albany, which it expects to be operational by 2025. Time magazine reported the plans earlier, citing an interview with CEO Pat Gelsinger. He said the Santa Clara, California-based company will use the location as a hub to research, develop and manufacture its most advanced chips and will have the option to expand to 2,000 acres and up to eight fabrication plants. Intel's boss has been vocal about the need to build more chip factories in the U.S. and Europe, areas where manufacturing of the vital electronic components has declined precipitously. Gelsinger has argued that a rebalancing of production is needed to reverse its increasing concentration in East Asia. He has pointed to the pandemic-induced supply chain crunch and increasing geopolitical tension between China and the U.S. as evidence that Western governments need to find the cash to persuade chipmakers to relocate. Microsoft (NASDAQ: MSFT )'s $68.7 billion acquisition of Activision Blizzard (NASDAQ: ATVI ) may yet fall foul of regulatory challenges, as the buyout would make Microsoft the world's third largest gaming operator by revenue. Expect to see challenges from antitrust organisations in the US, which are monitored and enforced by the Federal Trade Commission.

The S&P 500 closed 5.7% lower for the week at 4 397.94 on Fri 21 Jan. Year to date, the index is down 7.7% 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 96.6% higher. Both the S&P 500 and the Nasdaq experienced sharp losses last week, with the Nasdaq showing its worst week since the start of the pandemic in Mar 2020. The Nasdaq is now formally in correction territory, having fallen by over 14% from its Nov 2021 peak. The S&P 500 closed below its 200-day moving average for the first time since Jun 2020. All eyes are now firmly fixed on the FOMC meeting next week. Investment guru and arch-bear Jeremy Grantham, co-founder and CEO of GMO, believes that the US equity market is in a "superbubble and he reckons it may be about to burst. His latest newsletter contains some memorable quotes, some of which are reproduced below; "In a bubble, no one wants to hear the bear case. It is the worst kind of party-pooping. For bubbles, especially superbubbles where we are now, are often the most exhilarating financial experiences of a lifetime." "This time last year it looked like we might have a standard bubble with resulting standard pain for the economy. But during the year, the bubble advanced to the category of superbubble, one of only three in modern times in U.S. equities, and the potential pain has increased accordingly. Even more dangerously for all of us, the equity bubble, which last year was already accompanied by extreme low interest rates and high bond prices, has now been joined by a bubble in housing and an incipient bubble in commodities." "As bubbles form, they give us a ludicrously overstated view of our real wealth, which encourages us to spend accordingly. Then, as bubbles break, they crush most of those dreams and accelerate the negative economic forces on the way down. To allow bubbles, let alone help them along, is simply bad economic policy." "Today in the U.S. we are in the fourth superbubble of the last hundred years". "The most important and hardest to define quality of a late-stage bubble is in the touchy-feely characteristic of crazy investor behavior. But in the last two and a half years there can surely be no doubt that we have seen crazy investor behavior in spades - more even than in 2000 - especially in meme stocks and in EV-related stocks, in cryptocurrencies, and in NFTs." "What is new this time, and only comparable to Japan in the 1980s, is the extraordinary danger of adding several bubbles together, as we see today with three and a half major asset classes bubbling simultaneously for the first time in history. When pessimism returns to markets, we face the largest potential markdown of perceived wealth in U.S. history."

China

The People's Bank of China cut one of its main interest rates last week. The reduction was small, but a signal to markets that officials are prepared to act to stabilise the economy amid Covid and difficulties in the housing market. The main lending rate for mortgages was also cut. China's GDP grew by 4% in the fourth quarter, year on year, the slowest pace since the depths of the pandemic. The economy officially grew by 8.1% for the whole of 2021. According to the South China Morning Post, Lithuania's exports to China suffered a near-total collapse in Dec, amid a blazing row over the Baltic state's support for Taiwan. Chinese government customs data released on Thu Jan 20 showed shipments from Lithuania to China dropped by 91.4 per cent last month from a year earlier. Compared to Nov 2021, the drop was 91.1 per cent, offering support to Lithuanian exporters' complaints that they have been frozen out of the Chinese market in recent weeks. The dispute centres on Lithuania's decision to host a controversially named diplomatic mission from the self-ruled Taiwan, which Beijing regards as part of its territory. Such presences are commonly called Taipei Representative Offices. According to European Union sources, Beijing continues to deny a coordinated campaign, instead saying that businesses have decided not to buy goods from countries that have "attacked China's sovereignty". The Chinese government says Lithuania is in breach of the EU's one-China policy, a charge vehemently denied by both Vilnius and Brussels.

Commodities

Oil prices hit a seven-year high, as markets tried to assess whether demand will outpace supply this year. Brent crude traded well above $88 a barrel; the price has risen by 13% since the start of the year. Copper climbed to just under $10 000/tonne last week, with prices being driven by a double rate cut from the People's Bank of China, new Chinese state rail infrastructure plans and a likely acceleration in special purpose debt issuance to raise new investment in the first quarter. Meanwhile, London Metal Exchange (LME) nickel price jumped 5.4% to $24,410/tonne last week, past its Aug 2011 highs and up to $27,787/tonne in China. Indonesian plans to add an export levy on nickel products is a driver as has been regulations on adding value to ores in country. Shanghai nickel stocks appear critically low at just 4,711 tonnes while LME inventories are close to a 2-year low of 94,800 tonnes. Imports of recycled steel to China hit 553 000 tonnes in 2021, following Beijing's approval of raw material inflows after a 2-year gap. China had banned foreign waste products from Jan 2018 and ferrous scrap from Dec 2018. 70.4% or 389 000 tonnes of the total was contributed by Japan. China imported an additional 95,915 tonnes of scrap from South Korea. The iron ore price continues to strengthen, though it remains well below its 2021 peak, thanks mainly to Chinese stimulus plans and a major restocking period in China before the Lunar New Year. Chinese iron ore prices have continued to climb, up 2.8% to $135/tonne late last week, its highest in 3 months. The People's Bank of China's stimulus efforts are expected to boost infrastructure spending, in turn boosting steel demand. Analysts expect further rate cuts and lowering of lending benchmarks in China as the property sector downturn continues. Another factor pushing the iron ore price higher is Brazilian mining companies suffering from heavy flooding. Large 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. The price of orange-juice futures surged, after this year's orange crop in Florida was forecast to be the smallest since 1945. The Sunshine State's orange groves are plagued with tree lice. Orange prices are also sensitive to a drought in Brazil, which has hurt citrus production there. The overall demand for orange has lost some zest in recent years, as consumers switch to low-sugar drinks.

Global Trade

According to Marine Link, The Baltic Exchange's dry bulk sea freight index fell for a tenth straight session on Thu Jan 20, touching its lowest level in about a year, on waning demand across all vessel segments. The overall index, which factors in rates for capesize, panamax and supramax vessels, fell 96 points, or 6.1%, to 1,474, its lowest since Feb 2021. The capesize index dropped 195 points, or 15.9%, to 1,031, its lowest since Feb 12 last year. "Big ships are still suffering from the typical January dip after a very brutal start to the year," shipbroker Fearnleys said in a weekly note, referring to the capesize segment. Average daily earnings for capesize vessels, which transport 150,000-tonne cargoes such as iron ore and coal, dropped by $1,622 to $8,547.

UK/Europe

Britain's annual inflation rate, as measured by the rate of change in the consumer price index ( CPI ) rose to 5.4%, its highest level since Mar 1992. Food prices are rising at their fastest rate since 2008. Energy costs are also spiking and are expected to rise even higher when the regulator's price cap is lifted in Apr. According to Reuters, financial markets now price in a more than 90% chance that the Bank of England (BoE) will raise its main interest rate to 0.5% on Feb 3. Last month it became the world's first major central bank to tighten policy since the start of the Sars-CoV-2 pandemic. Two-year British government bond yields, which are sensitive to financial markets' interest rate expectations, came within a whisker of their highest level since 2011. British inflation is widely expected to peak in Apr when regulated household energy bills look set to increase by around 50%. Last month the BoE forecast a peak of around 6%, but now some economists see 7% as more likely. Inflation was just 0.6% in Dec 2020, and the BoE repeatedly had to revise up its forecast last year. A new inflation forecast is due on Feb. 3. The last one in Nov showed inflation staying above its 2% target until mid-2024. Rising inflation is also turning into a political problem for Prime Minister Boris Johnson's government, which faces calls from the opposition and charities to offset the rise in energy bills, which comes at the same time as a tax increase on wages to fund higher health and social care spending. And it's not just in Britain where rising energy prices are hurting. According to Reuters, EDF (PA: EDF )'s shares slumped as much as 25% last week and were set for their worst day of trading on Euronext Paris after the French government ordered the utility to sell more cheap nuclear power to rivals to limit the rise in electricity prices. EDF, which is 80% owned by the French government, said the move would cost the company up to 8.4 billion euros ($9.64 billion) and dropped its 2022 earnings guidance. Three months ahead of a presidential election, President Emmanuel Macron's government is facing mounting public pressure over the rising cost of living. Not only was Britain's GDP growth better than expected in Nov, but GDP exceeded pre-pandemic levels in that month. Economists are urging caution ahead of the release of the next set of GDP results, as they will fall prey to the effect of the government's so-called "Plan B" to tackle the rise of the Omicron variant from early Dec 2021. Nevertheless, it was a strong result in Nov, according the the government statistics office, the Office for National Statistics (ONS). The ONS Chief Economist Grant Fitzner said "The economy grew strongly in the month before Omicron struck, with architects, retailers, couriers and accountants having a bumper month." GDP expanded by 0.9% between Oct and Nov, which was higher than economists' expectations and meant the economy was 0.7% larger than in Feb 2020, just before the start of the Sars-CoV-2 pandemic. British prime minister Boris Johnson hung on doggedly to power last week, as more of his formerly loyal Conservative members of parliament called on him to resign. Johnson's blustering and risible explanations of why his residence at number 10 Downing Street held a party when the rest of the country was in a strict lockdown ("nobody told me" it was against the rules) have not gone down well. David Davis, a former minister and fellow Brexiteer, quoted words that have been used only twice before in the House of Commons (HoC) but which have significant historical resonance. Davis told Johnson "You have sat too long here for any good you have been doing. In the name of God, go". He was paraphrasing Leo Amery who told arch appeaser Neville Chamberlain in 1940 in the HoC in May 1940 "Depart, I say, and let us have done with you. In the name of God, go." Chamberlain was gone within days and was replaced as prime minister by Winston Churchill. Both Davis and Amery were paraphrasing English dictator Oliver Cromwell, who on 20 April said to the entire assembled parliament in the HoC "It is not fit that you should sit here any longer. You have sat here too long for any good you have been doing lately. In the name of God go." Of course Johnson, a noted classical scholar, would have known both of these quotes and the reasons behind why they were made in parliament. But in true Johnson fashion, he pretended not to understand. If Johnson manages to survive the next few weeks, it will be nothing short of miraculous. The knives are out for him within and outwith his own party and the police may even be involved as well. The Economist puts it very well in this week's cover story entitled The Parable of Boris Johnson, some extracts of which are shown below; "Tory MPs will measure the lapse in judgment of a serial transgressor against an 87-seat working majority that Mr Johnson conjured out of nothing, his success in bringing about Brexit, a world-class vaccine programme and a gift for making the political weather. Donald Trump still dominates the Republican Party, despite his part in the attack on Congress a year ago. Are sausage rolls and sauvignon blanc really a sacking offence? For Britain's sake, they should be. One reason is that the relentless partying is evidence of Mr Johnson's sense of entitlement, which holds that there is one rule for him and his people and another for everyone else. Double standards at the top tend to corrupt the whole of public life. More important, it raises two other of Mr Johnson's attributes that plague post-Brexit Britain. They are traits the country needs to overcome if it is to thrive. The first is Mr Johnson's childish lack of seriousness about the business of government. Downing Street's fightback this week, supposedly under the title "Operation Red Meat", launched a fusillade of Tory-pleasing pledges to abolish the BBC licence fee and stop asylum-seekers from reaching Britain across the English Channel. The government says it will get the Royal Navy to police the seas and send applicants away, reportedly to be processed in Ghana or Rwanda. None of that bluster survived the briefest encounter with reality. This lack of seriousness has infected the government. This week the Tories took credit for the fact that Britain has the fastest annual growth rate in the G7 and that output regained its pre-pandemic level in November, ahead of forecasts. But they have not grappled with Brexit's probable long-term hit to productivity, of about 4%. Over five years, Britain's growth rate has been poor. Inflation, which reached 5.4% in the 12 months to December, a 30-year high, means real average weekly pay is less than in 2007. Business investment is lower than before the referendum. Treating voters as dopes to be bought off with bombast is a feature of the demagoguery that Mr Johnson rode to power. It is an example of the contempt with which populist leaders treat the people they govern. So, alas, is the other trait that has infected post-Brexit Britain: lying in politics. Mr Johnson has crumbled because he repeatedly failed to tell the truth to Parliament and the nation about Downing Street's bacchanals. First he declared that his staff did not hold parties. When that was disproved, he denied knowing about them. When it emerged that he had been at one, he said he had not realised they counted as parties. And when it was claimed that he had been warned they did, he seemed to suggest that he misunderstood the rules his own government had drafted. It is a pattern that stretches back to his time as a journalist, when he lied to his editors; to when he was an editor, when he lied to his proprietor; and to when he was a shadow minister, when he lied to his party's leader. The untruths go beyond one self-absorbed man. Where populism thrives, it subordinates the facts to tribalism." Credit Suisse (SIX: CSGN ) chairman Antnio Horta-Osrio resigned last week after the bank's board reportedly found that he broke Sars-CoV-2 quarantine rules by going to the finals of Wimbledon in Jul last year. According to the Financial Times, he also attended the Euros football final at Wembley stadium the same day. The Swiss bank had organised corporate hospitality at both events, but Horta-Osrio took family members to both events after other guests were unable to use the tickets, the Financial Times said. He attended Wimbledon and the final of the European Championship in Jul at a time when the UK's pandemic restrictions required him to be in quarantine. Horta-Osrio also breached Swiss Covid restrictions when, according to Reuters, he flew into the country on 28 Nov but left on 1 Dec. Swiss rules meant he should have quarantined for 10 days upon his arrival.

Tourism

London's Heathrow Airport has called on the UK government to immediately remove testing for fully vaccinated passengers. This comes as the airport revealed that at least 600 000 passengers cancelled travel plans from Heathrow in Dec due to Omicron and the uncertainty regarding government travel restrictions. This was not the end of the year that the airport had hoped for, after welcoming only 19.4 million passengers in 2021 - less than a quarter of 2019 and lower than 2020 levels. The airport also urged the government to adopt a "more predictable" plan for future variants of concern that involves restrictions only to passengers from high-risk destinations and allows for home quarantine rather than at a hotel. It added that there is "significant doubt over the speed at which demand will recover", with IATA forecasting that passenger numbers will not return to pre-pandemic levels until 2025 "provided that restrictions are removed at both ends of a route and that passengers have confidence that they will not return rapidly". Heathrow CEO John Holland-Kaye said "There are currently travel restrictions, such as testing, on all Heathrow routes - the aviation industry will only fully recover when these are all lifted and there is no risk that they will be reimposed at short notice, a situation which is likely to be years away."While this creates enormous uncertainty for the CAA in setting a new 5 year regulatory settlement, it means the regulator must focus on an outcome that improves service, incentivises growth and maintains affordable private financing." As it stands, pre-departure tests have been scrapped while Day 2 PCR tests have been replaced with lateral flows.

Rest of World

Following the unprecedented unrest that erupted in Havana's streets in July last year, the communist dictatorship in Cuba started a series of show trials in the capital last week to deal with the insurgents, many of whom are just teenagers. Expect harsh penalties from the repressive regime. The global job market will take longer to recover from the Sars-CoV-2 pandemic than had been thought, according to the International Labour Organisation. Its latest forecast estimates that there will be 52 million fewer jobs in 2022 compared with 2019, and that a full recovery in 2023 "remains elusive". On Sat 22 Jan, staff in both the US and Germany embassies in Ukraine were requested to leave ahead of a possible invasion by Russia.

South Africa

The SA Reserve Bank's Monetary Policy Committee meets to decide on the repo rate next Thu Jan 27. Expect a 25 basis point rise to 4% in the repo rate. The JSE All Share Index (Alsi) closed 0.4% lower at 74 834.5 on Fri 21 Jan. From its recent low point of 37 693 on Mar 19 2020, it has risen by 98.5%. Year to date, it is up by 1.5% from its close of 73 709.39 on Dec 31 2021.

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

JSE listed company results out this week;

• 27 January 2022 - Kumba Iron Ore
• 28 January 2022 - MiX Telematics , Steinhoff

Economic data releases this week;

• 25 January 2022 - SA Leading Business Cycle Indicator November
  
  
• 27 January 2022 - SA PPI , SARB MPC Repo Rate Decision , US GDP Q4
• 31 January 2022 - M3 Money Supply , PSCE December

• 26 January 2022 - US FOMC Rates Decision

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