Global financial markets have begun to question sentiments about so-called sustained global growth in the second half of the year, the Bureau for Economic Research (BER) is reporting in its Weekly Review.
Renewed virus outbreaks and intensifying supply-side bottlenecks are leading some to question the optimistic outlook, the Bureau says.
It adds that several countries, including the likes of the UK, which has been most successful in its vaccination drive, are experiencing a Delta-variant-driven rise in Covid-19 cases.
Muted response to ongoing optimism should also be seen against the emergence of a new variant in the Americas, the BER says.
“While the AstraZeneca and Pfizer vaccines have been proven to provide protection against serious illness and hospitalisations in the case of the Delta variant, other variants have also been identified.
“This includes the Lambda variant that is driving cases higher in Latin America. Amongst others, Japan, Thailand, the Netherlands and Israel have reimposed some Covid-19 restrictions.”
These developments all serve to slow the momentum of global economic recovery, the Bureau reports.
“As a result, in volatile trade, US Treasury yields declined sharply last week. Indeed, at certain stages during the week, the yield on the US 10-year Treasury was trading up to 20bps lower than the previous week.
“Despite rising on Friday, yields were still down for the week. This also contributed to the drag on local government bond yields, with the SA 10-year bond yield firmly below 9%.
“The growth jitters weighed on some key global stock markets, with the Nikkei in Tokyo declining by almost 3% over the week. Sentiment was dented by rising coronavirus cases in Tokyo, which forced the government to declare yet another state of emergency in the Japanese capital.
“This will be in place throughout the Tokyo Summer Olympics, implying that the games will be held without spectators. Staying in Asia, recent softer data prints prompted the People’s Bank of China to cut the reserve ratio requirement for commercial banks by 50bps on Friday, injecting sizeable liquidity into the banking sector.”
Second quarter GDP numbers for China, released last Thursday, will be in focus this week.
“Despite concerns that global growth may have peaked, reinforced by a weaker-than-expected monthly UK GDP print for May, the rand exchange rate ended the week slightly firmer against major currencies. However, this masks bigger moves earlier in the week when the local currency was under some selling pressure and weakened towards R14.40/$.”
