Newsflash: The First Cut is the Deepest

Newsflash: The First Cut is the Deepest
Source: Bloomberg, *time of writing 06h30, 2020-03-20

The South African Reserve Bank MPC meeting unanimously decided to cut the Repo rate by a full 1% which was more than the market on average expected. This is largest cut since 2013. This cut will help relieve some pressure on households and businesses but will not cure the economy or stimulate growth. Inflation is expected to remain subdued even with the currency weakness, helped by the low oil price. The SARB expect inflation figures of 3.8%, 4.6% and 4.4% for the next 3 years.

Our economy is expected to contract by -0.2% in 2020 and expand by 1% in 2021. The SARB sees the global economy to still have a 1.1% growth in 2020. In reaction to the rate cut, banking shares fell significantly, with the worst being Capitec down -38%.

Eye of the Storm

Trading on US markets was calmer than it has been in a week. The S&P 500, which has shed $9 trillion in value, recorded a move of at least 4%, for eight straight days, something not seen since the Great Depression. On Thursday, it gained 0.5%, its smallest move since February. Investors are taking a breath, but more volatility is expected as infection rates continue to rise exponentially.

Coronavirus Numbers Update

Source: Center for Systems Science and Engineering (CSSE) at Johns Hopkins University
south africa flagTotal Cases: 150: Gauteng 76, Western Cape 46, KZN 22, Mpumalanga 5, Limpopo 1
Local transmission (no travel history): 15; Gauteng 9, Western Cape 2, KZN 3, Mpumalanga 1