Bulls n Bears Daily Market Commentary : 11 September 2018

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Bulls n Bears Daily Market Commentary : 11 September 2018

 


 

 


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Zimbabwe Stock Exchange Update

 

 

 

Market Turnover $2,132,684.67 with foreign buys at $1,135,962.37 and foreign
sales were $438,656.95. Total trades were 89.

 

The All Share index went down by a further 1.08 points  to close at 119.37
points. DELTA   dropped $0.0630 to close at $2.4360, CBZ   went down by
$0.0150 to $0.15000 while ECONET  decreased by $0.0072 to trade at $1.2000.
DAIRIBORD  also lost $0.0050 to $.1450 and  OLD MUTUAL  was $0.0040 lower at
$6.0101.  

 

Losses were partially offset by gains in ZIMRE HOLDINGS  which added $0.0036
to end at $0.0238, TURNALL  increased by $0.0034 to close at $0.0204 and
AFRICAN SUN   gained $0.0028 to close at $0.0878.

 <mailto:info at bulls.co.zw> 

 

 

Global Currencies & Equity Markets

 

 

 

Uganda

 

Uganda shilling weakens on strong demand from banks, importers

(Reuters) - The Uganda shilling        weakened on Tuesday on the back of
strong demand for dollars from banks beefing up their hard currency
positions and merchandise importers. 

 

At 1118 GMT, commercial banks quoted the shilling at 3,795/3,805, weaker
than Monday's close of 3,780/3,790.  

 

 

 

South Africa

 

Manufacturing data lifts S.Africa rand, stocks track metal prices lower

(Reuters) - South Africa’s rand firmed on Tuesday as emerging market
currencies broadly staged a rally against the dollar following a deep
selloff, with investors seeing an opportunity to buy the currency cheap.

 

Stocks were weaker on continued worries about the domestic growth outlook
and lower gold prices globally.

 

At 1400 GMT, the rand was 0.6 percent firmer at 15.1250 per dollar, a touch
softer than the session-best 15.0100 it reached as London traders came
online.

 

The rand was also boosted by better-than-expected manufacturing output data
which showed a 2.9 percent year-on-year expansion in July. Analysts polled
by Reuters had expected a 1.1 percent year-year-on-year increase.

 

Manufacturing contributes 13 percent of gross domestic product and 11
percent of employment and is seen as key to achieving the economic growth
that will help the country reverse record-high unemployment and avoid deeper
credit downgrades.

 

Government bonds were flat, with the yield on the benchmark paper due in
2026 rising 0.5 basis points to 9.215 percent.

 

On the stock market, the Top-40 index closed 0.99 percent to 50,042 points
while the broader all-share fell 0.95 percent to 56,174 points.

 

Gold and platinum producer Sibanye-Stillwater fell 4.23 percent to 8.84
rand, Gold Fields weakened 4 percent to 33.09 rand while Impala Platinum
fell 5.30 percent to 16.81 rand.

 

Gold and platinum prices came under pressure as risk-off sentiment hit
equities globally, in what some analysts say is a rotation after the sharp
risk-currency selloff.

 

The gold index fell 3.05 percent while the platinum index dropped 2.61
percent.

 

Further losses were curbed by Aspen Pharmacare which closed up 2.20 percent
to 271.55 rand after the drug maker said it was in discussions to sell its
global infant formula business. 

 

       <mailto:info at bulls.co.zw> 

 

 

 

Asia

 

Asia stocks slip to 14-month lows on simmering trade worries

(Reuters) - Asian stocks slipped to 14-month lows on Wednesday, as investor
confidence was chilled by the latest round of verbal threats in an
intensifying U.S.-China trade conflict.

 

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.3 percent,
plumbing its lowest levels since July 2017.

 

Hong Kong’s Hang Seng fell 0.5 percent and the Shanghai Composite Index
dropped 0.3 percent.

 

Tokyo’s Nikkei declined 0.4 percent and Australian stocks gave up 0.1
percent, while South Korea’s KOSPI shed 0.2 percent.

 

The mood was dimmed by the verbal sparring between Washington and Beijing as
the months-long escalation in trade tensions between the world’s two biggest
economies took their toll on riskier assets.

 

China told the World Trade Organization (WTO) on Tuesday it wanted to impose
$7 billion a year in sanctions on the United States in retaliation for
Washington’s non-compliance with a ruling in a dispute over U.S. dumping
duties.

 

Separately, U.S. President Donald Trump told reporters on Tuesday that the
United States was taking a tough stance with China.

 

Asian equities and the broader emerging markets have faced persistent
selling pressure over recent months in the wake of the trade tensions and
concerns about the crises in Turkey and Argentina. MSCI’s index of emerging
market shares has fallen to its lowest level since May 2017.

 

Still, other markets have shown resilience. Wall Street gained on Tuesday as
Apple led a jump in technology shares and a gain of more than 2 percent in
oil prices drove up energy stocks.

 

El-Erian expects the United States to eventually secure trade concessions.
He sees a 60 percent probability of “slightly fairer but and still free
trade,” a 25 percent possibility of a global trade war and 15 percent
likelihood of a “Reagan Moment” that significantly improves the landscape
for international trade.”

 

In currencies, the dollar index against a basket of six major currencies was
0.15 percent lower at 95.128, handing back the previous day’s modest gains.

 

The greenback, which had gained earlier on safe-haven demand, eased after
Canada signalled it was ready to make a concession to the United States to
resolve their talks over reworking the North American Free Trade Agreement
(NAFTA).

 

The euro dipped 0.1 percent to $1.1591

 

The Australian dollar was down 0.3 percent at $0.7100 after hitting $0.7085
on Tuesday, its lowest since February 2016, on concerns that any damage to
the Chinese economy from a trade war could hurt Australia’s exporters.

 

The pound eased 0.2 percent to $1.3008, pulling back from a one-month peak
of $1.3087 scaled on Monday as hopes over a Brexit trade deal with the
European Union subsided.

 

The trade woes pulled China’s yuan down for the fourth day in onshore trade,
weakening to a 2-1/2-week low of 6.88 per dollar.

 

MSCI’s emerging markets currency index retreated to its lowest since May
2017 on Tuesday, although some observers expect the downturn in these
currencies to eventually slow.

 

While still shaky, both the peso and the lira have pulled back from record
lows plumbed over the past month.

 

Crude oil stretched their gains from the previous day, when the market
rallied as U.S. sanctions squeezed Iranian crude exports and after U.S.
crude oil production in 2019 was forecast to grow at a slower rate than
previously expected.

 

Brent crude futures were 0.7 percent higher at $79.61 per barrel after
surging more than 2 percent on Tuesday.

 

 

 

 

 

 

 <mailto:info at bulls.co.zw> 

 

 

 

Commodities Markets

 

 

 

Gold prices slip on U.S.-Sino trade war fears

(Reuters) - Gold prices inched down on Wednesday after touching two-week
lows in the previous session, with investors staying away from bullion on
fears the U.S.-China trade war could escalate.

 

The trade conflict has prompted investors to buy the U.S. dollar in the
belief that the United States has less to lose from the dispute, making
dollar-priced gold more expensive for non-U.S. buyers.

 

FUNDAMENTALS

* Spot gold was down 0.1 percent at $1,196.21 an ounce at 0102 GMT, after
hitting its lowest since Aug. 24 at $1,187.21 on Tuesday.

 

* U.S. gold futures were mostly steady at $1,202.40 an ounce.

 

* Traders were bracing for a potential escalation in the Sino-U.S. row after
President Donald Trump said last week that he was ready to impose tariffs on
virtually all Chinese imports to the United States.

 

* Trump told reporters on Tuesday that the United States was taking a tough
stance with China, but he described trade talks with Canada as going well.

 

* China told the World Trade Organization on Tuesday it wanted to impose $7
billion a year in sanctions on the United States in retaliation for
Washington’s non-compliance with a ruling in a dispute over U.S. dumping
duties.

 

 

* Gold prices dropped more than 12 percent from a peak hit in April as the
metal lost its safe-haven status to the U.S. dollar, driving investors to
raise their bearish bets on Comex gold and liquidate gold exchange traded
funds.

 

* Expectations that the U.S. Federal Reserve will raise interest rates in
September have also made investors cautious on gold.

 

* Higher rates increase bond yields, making non-yielding bullion less
attractive, and tend to boost the dollar.

 

* The dollar index, which measures the greenback against a basket of
currencies, was down 0.1 percent at 95.129.

 

* Societe Generale said on Tuesday that it sees gold prices at $1,275 per
ounce in six months.

 

* Holdings of SPDR Gold Trust, the world’s largest gold-backed
exchange-traded fund, fell 0.03 percent to 745.18 tonnes on Tuesday from
Monday.

 

* Silver hit its lowest since January 2016 at $13.90 on Tuesday.

 

DATA AHEAD (GMT)

0900 Euro zone Industrial production July

 

 

Aluminium pricing tensions mount as alumina surges again: Andy Home

(Reuters) - The alumina price is on a charge again.

 

The CME cash contract, indexed against Platts’ assessment of the Australian
price, is currently quoted at $626 per tonne, just shy of the record $643
seen at the start of May.

 

In China spot prices are at their highest since December last year,
according to Shanghai Metals Market.

 

A walk-out by unionised workers at three Australian alumina refineries has
injected yet more uncertainty into an already problematic supply equation.

 

What has historically been a highly efficient part of the aluminium
production chain is experiencing an unprecedented degree of turmoil this
year.

 

There is the potential for short-term relief if the strike at AWAC’s
facilities ends and Norwegian producer Hydro can persuade the Brazilian
authorities to allow full operations at its Alunorte refinery.

 

However, a looming deadline for the lifting of sanctions on Russian producer
Rusal is fast approaching and China’s alumina production sector is being
rocked by environmental crackdowns.

 

It seems unlikely that the supply disruption premium is going to unwind
fully any time soon.

 

That in turn poses hard questions for aluminium smelters, given the impact
of such a high input price on operating margins.

 

Graphic on CME and Chinese alumina prices:

 

The Aug. 8 strike by around 1,500 workers at two bauxite mines and three
alumina refineries operated by AWAC, owned by Alcoa and Alumina Ltd, is the
new disruptor in an already disrupted supply chain.

 

The walk-out is now in its second month after members of the Australian
Workers Union voted late last week to reject a new proposed workplace
agreement.

 

AWAC has contingency plans to keep the operations running but conceded in a
Sep. 7 statement that the action had cost around 15,000 tonnes of lost
alumina output in August, a figure that is only likely to rise as the strike
continues.

 

The supply hit would have had little impact on a near 120-million tonne
market in other years.

 

But this year the market has already been roiled by the partial closure of
Alunorte, which with annual capacity of around six million tonnes is the
world’s largest single alumina refinery.

 

Ordered by a Brazilian court in February to cut run-rates by half, Hydro
appears to be inching towards a resolution of the dispute over alleged
pollution.

 

It has signed two agreements with the state government of Para, the site of
the refinery, covering extra investments for local communities.

 

The olive branch should be “an important step towards resuming operations”,
the company said, albeit without confirming any restart timeline.

 

If the green light is given, it would take Alunorte around one month to
return to full-capacity operation.

 

STRUCTURAL TENSIONS

While one supply source of alumina disruption edges towards resolution,
another one is returning.

 

The trigger for the super-charged rally of April and May was the imposition
of U.S. sanctions on Oleg Deripaska and his Rusal empire.

 

Although Rusal appears to be vertically integrated from bauxite through
alumina to aluminium, the market found out that the company’s internal
supply chain is a lot more complex.

 

Specifically, the Aughinish refinery in Ireland runs on bauxite supplied by
Rio Tinto, which in turn takes a sizeable part of the refinery’s alumina to
supply smelters in Western Europe.

 

It was the potential unravelling of that tolling arrangement that triggered
the rally to above $600 per tonne.

 

Things were calmed when the United States extended its sanctions deadline
until Oct. 23.

 

But the clock is now ticking and although the U.S. authorities have made
soothing noises, the sanctions remain in place.

 

This is already posing problems for the company’s metal customers as they
negotiate 2019 contracts, but it must be focusing minds at Rio Tinto as
well.

 

China, meanwhile, is playing a key balancing role, exporting higher than
usual amounts of alumina to help plug the gaps in the rest of the world.

 

But China’s alumina refineries are themselves experiencing structural
tensions rooted in the country’s clean-skies pollution measures.

 

Chinese bauxite flows have been disrupted by environmental inspections while
there is an increasingly hostile public reaction to building new plants. The
province of Liaoning cancelled five potential projects with cumulative
capacity of almost 30 million tonnes last month.

 

Moreover, there is the potential for more capacity curtailments over the
coming winter heating season.

 

Production disruption during last year’s winter smog restrictions sent
Chinese alumina prices soaring and they too are now marching higher.

 

PRESSURE ON SMELTERS

Alumina is the key metallic input to the aluminium smelting processing. A
rough rule of thumb is that it takes two tonnes of alumina to make a tonne
of refined metal.

 

Alumina is now around 30 percent of the price for aluminium, currently
quoted at $2,075 per tonne on the London Metal Exchange.

 

That ratio has historically been in the high teens, placing an extraordinary
amount of pressure on smelter margins.

 

The current divergence between a high and rising alumina price and a largely
stagnant metal price looks unsustainable.

 

Either the alumina price will have to come lower or the aluminium price will
have to start rising to reflect rising costs.

 

 

The bank, which is forecasting the price to average $2,300, $2,200 and
$2,000 over three-month, six-month and 12-month periods respectively, likes
“aluminium the most among the base metals over the next few months”.

 

Of course, things could change quickly, if the AWAC strike ends, Alunorte
returns to full capacity and the United States drops its sanctions on Rusal.

 

But this is the year that the alumina supply change has been really tested
for the first time in decades and it has proved to be much more brittle than
thought.

 

The alumina price may lose some of its heat if the unusual cocktail of
one-off supply hits is dispersed, but structural shifts in China may
translate into a higher and more volatile “fair value” price than has been
seen in the past.

 


 

INVESTORS DIARY 2018

 


Company

Event

Venue

Date & Time

 


 

 

 

 

 


 

 

 

 

 


 

 

 

 

 


 

 

 

 


 

 

 

 


 <mailto:info at bulls.co.zw> 

 


 

 


DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of
Faith Capital (Pvt) Ltd for general information purposes only and does not
constitute an offer to sell or the solicitation of an offer to buy or
subscribe for any securities. The information contained in this report has
been compiled from sources believed to be reliable, but no representation or
warranty is made or guarantee given as to its accuracy or completeness. All
opinions expressed and recommendations made are subject to change without
notice. Securities or financial instruments mentioned herein may not be
suitable for all investors. Securities of emerging and mid-size growth
companies typically involve a higher degree of risk and more volatility than
the securities of more established companies. Neither Faith Capital nor any
other member of Bulls ‘n Bears nor any other person, accepts any liability
whatsoever for any loss howsoever arising from any use of this report or its
contents or otherwise arising in connection therewith. Recipients of this
report shall be solely responsible for making their own independent
investigation into the business, financial condition and future prospects of
any companies referred to in this report. Other  Indices quoted herein are
for guideline purposes only and sourced from third parties.

 


 

 


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