Bulls n Bears Daily Market Commentary : 20 August 2019

Wed Aug 21 04:24:25 CAT 2019

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Bulls n Bears Daily Market Commentary : 20 August 2019

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Zimbabwe Stock Exchange Update

Market Turnover ZWL$ 2,473,735.68 with foreign buys at ZWL$ 1,678,938.75 and
foreign sales were ZWL$ 1,384,000.00 Total trades were 125.

The All Share index lost 1.01 points to end at 177.71 points. OLD MUTUAL
LIMITED lost a further $1.0477 to close at $19.0000, SIMBISA BRANDS  went
down by $0.0511 ending at $0.8489 and INNSCOR AFRICA eased $0.0394 to trade
at $2.000. CASSAVA SMARTECH also traded $0.0083 lower at $1.2888 and OK
ZIMBABWE   lost $0.0061 closing the day at $0.3775.

Trading in the positive: PPC advanced by $0.0757 to trade at $2.1757. SEEDCO
INTERNATIONAL LIMITED added $0.0473 to close at $2.1998 and ZIMPLOW LIMITED
gained $0.0175 to close at $0.5200.ECONET WIRELESS also traded $0.0028
higher at $1.2980 and ART CORPORATION was $0.0006 higher at $0.0906.

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  Global Currencies & Equity Markets

Kenya

Kenyan shilling holds steady against the dollar

(Reuters) - The Kenyan shilling held steady against the dollar on Tuesday
due to thin hard currency demand from importers and some banks cutting their
long dollar positions to meet the central bank's shilling reserve ratio
requirements, traders said. 

At 0818 GMT, commercial banks quoted the shilling at 103.10/30 per dollar,
the same as Monday's close. 

South Africa

South Africa's rand pauses recent slide, stocks down

(Reuters) - South Africa’s rand firmed on Tuesday, pulling back from an
11-month low as long dollar investors took profits and awaited 

further clues on the outlook for the global and local economy.

Stocks closed weaker, dragged down by local retailers.

At 1520 GMT the rand was 0.89% stronger at 15.3325 per dollar.

The rand has lost more than 7% since Aug. 1, battered by local and global
issues, breaking through a succession of technical milestones on its way to
15.50, 

a pivot-point last reached in September 2018 that has triggered stop-losses
held by importers and opened the path to a deeper retreat.

But on Tuesday the currency’s slide paused. A paucity of data, low
liquidity, and fresh hopes that a world recession will not materialise
attracted buyers.

The focus now turns to the Jackson Hole seminar where U.S. Federal Reserve
chair Jerome Powell is expected to speak, and to a Group of Seven summit to
be 

held in France this weekend for clues on what steps policymakers will take
to bolster growth.

Locally, South Africa’s statistics agency publishes July inflation figures
on Wednesday, and, while limited price growth this year saw the central bank
cut 

lending rates last month, a recent bout of currency volatility may reignite
bets that the cutting cycle will be short-lived.

In equities, the broader All-Share index was down 0.2%, while the benchmark
Top-40 index declined 0.21%.

Leading the blue chip decliners was South African retailer Shoprite, which
fell more than 9.25% to 126.86 rand after missing its full-year earnings
forecast.

Supermarket chain Pick n Pay shed 5.7% to 56.84 rand, while food and
clothing group Woolworths declined 3.4% to 52.10 rand.

In fixed income, the yield on the benchmark 10-year issue dropped 4.5 basis
points to 8.39%. 

       <mailto:info at bulls.co.zw> 

America

Dollar firms, stocks soar on ECB rate cut expectations

(Reuters) - U.S. and European stocks surged on Friday on expectations the
European Central Bank will cut interest rates but the dollar pared gains
against the euro after a report said the German government was prepared to
take on new debt to lift the economy.

The dollar hit a two-week high against the euro as expectations of ECB
stimulus weighed on the single currency and bullish data showing a jump in
U.S. homebuilding permits to a seven-month high also helped lift the
greenback.

But German and other euro zone government bond yields rose late Friday on a
Der Spiegel report. Borrowing costs had plumbed new lows throughout the week
as investors unnerved by the prospect of European recession piled into safer
assets.

The euro rebounded to pare most losses after Der Spiegel magazine said the
German government would be prepared to ditch its balanced budget rule and
take on new debt to counter a possible recession.

Germany’s Finance Ministry declined to comment on the report.

There has been a rising drumbeat of news recently from German politicians
and businesses calling for a stimulus program, said Karl Schamotta, director
of global markets strategy at Cambridge Global Payments in Toronto.

The German 10-year bund yield rose to a negative 0.688%, having earlier hit
a record low of negative 0.727%. Rates turned negative in March and have
trended lower since May.

The rebound in equity markets buoyed investor sentiment, though it is hard
to say the recent rout has found a floor despite cheaper prices, said Yousef
Abbasi, global market strategist at INTL-FCStone Financial in New York.

U.S. banks are likely to get cheaper because European banks are likely to do
so if the ECB does not put together a credible off-set plan for further
negative rates for banks, he said.

Technology shares led Wall Street’s advance but U.S. stocks posted a third
straight week of declines, battered by the U.S.-China trade row and an
“inversion” of 2- and 10-year bond yields that sparked fears of a recession.

MSCI’s gauge of stock performance in 47 countries gained 1.18% and its
emerging market rose 0.69%. In Europe, the FTSEurofirst 300 index of leading
regional shares closed 1.23%.

The Dow Jones Industrial Average rose 306.62 points, or 1.2%, to 25,886.01.
The S&P 500 gained 41.08 points, or 1.44%, to 2,888.68 and the Nasdaq
Composite added 129.38 points, or 1.67%, to 7,895.99.

The euro earlier slid to $1.1090, shy of a two-year low it set two weeks
ago, on reports the ECB’s Olli Rehn had suggested Thursday that a
significant easing package was needed in September.

The dollar index rose 0.06%, with the euro down 0.15% to $1.1089. The
Japanese yen weakened 0.23% versus the greenback at 106.35 per dollar.

The German 10-year bund posted a fifth straight week of declines, Italy’s
10-year bond yield set its biggest weekly fall since late 1997 and the
decline in Spanish 10-year yields were the largest since at least 1994.

The benchmark 10-year U.S. Treasury notes fell 9/32 in price to push yields
up to 1.5589%.

Crude oil prices recovered from two days of declines after data on Thursday,
showing a rise in U.S. retail sales, helped ease recession concerns. A
bearish outlook from OPEC capped gains.

Brent crude rose 41 cents to settle at $58.64 a barrel while U.S. crude
settled 40 cents higher at $54.87 a barrel.

U.S. gold futures settled down 0.5% at $1,523.60 an ounce.

 <mailto:info at bulls.co.zw> 

Commodities Markets

Gold reclaims $1,500 mark as focus turns to Fed

(Reuters) - Gold rose back above $1,500 an ounce on Tuesday, rebounding from
the previous day’s sharp losses as investors switched focus to the minutes
of the U.S. Federal Reserve’s latest meeting, which will be closely watched
for clues on further interest rate cuts.

Spot gold was up 0.6% at $1,503.75 per ounce by 1236 GMT, after falling to a
near one-week low of $1,492.10 on Monday. U.S. gold futures gained 0.2% to
$1,513.80 an ounce.

Monday’s correction followed a sharp price rally earlier this month that
took gold to six-year highs, largely on the back of concerns over the
U.S.-China trade war and expectations for further cuts in U.S. interest
rates.

The minutes from the U.S. central bank’s July policy meeting are due on
Wednesday, with investors also keeping a close eye on the central bank’s
Jackson Hole seminar and this weekend’s Group of Seven summit.

Traders see about an 83.8% chance of a 25 basis-point interest rate cut by
the Fed in September.

Lower U.S. interest rates put pressure on the dollar and bond yields,
increasing the appeal of non-yielding bullion.

The dollar index hit a more than two-week high on Tuesday, boosted by
slightly higher Treasury yields.

Equity markets around the world gained as hopes for stimulus in major
economies tempered fears of a global recession.

The shift in sentiment towards riskier assets contributed to a more than
1.2% drop in gold prices on Monday, its biggest daily percentage decline in
a month. But prices are still up nearly 17% this year and more than $80 so
far this month.

On the technical front, spot gold may test support at $1,483 per ounce, a
break below which could cause a fall to $1,467, according to Reuters
technical analyst Wang Tao.

Among other precious metals, silver rose above the key $17 mark, gaining
nearly 1% to $17.03 per ounce.

Palladium climbed 0.8% to $1,485.01 an ounce after hitting a more than
two-week high of $1,487.18 earlier in the session. Platinum eased 0.1% to
$849.52. 

Tiny tin market sounds a recessionary warning note: Andy Home

(Reuters) - Fears of a global recession are rising.

Industrial metals such as copper are struggling to make any price headway as
funds take an increasingly negative view of where the global manufacturing
economy is heading.

The tiny tin market seems to be already trading as if recession were a
reality.

London Metal Exchange (LME) tin lurched sharply lower at the beginning of
July and has kept falling ever since, touching a fresh three-year low of
$16,255 per tonne on Monday.

That’s lower than the Global Financial Crisis sell-off in 2009 and the price
is now approaching the decade’s lows seen over the 2015-2016 metallic bear
market.

Core demand weakness is coming from the semiconductor sector, where cyclical
downturn is exacerbated by the current trade tensions between Japan and
South Korea.

In textbook commodity market fashion, the price slump appears to have
wrong-footed producers, at least one of which has been boosting output
significantly.

STOCKS BUILD

The slide in the tin price has been accompanied by rising LME warehouse
stocks, which have rebuilt from just 740 tonnes at the start of May to a
current 6,175 tonnes.

The increase in inventory has taken place from an extremely low starting
point and was initially spurred by another of the LME tin contract’s
periodic spread contractions.

The cash-to-three-months spread CMSN0-3 flexed out to $340-per tonne
backwardation at one stage in May, the high cash premium sucking metal into
the LME warehouse system.

However, the inflows have continued even as the spread tightness has
dissipated. That spread closed Monday valued at a marginal backwardation of
just $5 per tonne but stocks jumped again this week on the back of 1,620
tonnes being warranted at Singapore and Malaysia’s Port Klang.

What might have been viewed as a one-off stocks reaction to LME tightness is
starting to look more problematically structural.

Nor has there been any obvious linkage with the two main sources of refined
tin in the Western market.

Indonesian exports were actually down by 13%, or almost 6,000 tonnes, in the
first seven months of this year.

Net exports from China have increased but only by just over 2,000 tonnes in
the first half of 2019.

DEMAND WEAKNESS

Tin’s problem right now is rooted in demand weakness.

Although commonly associated with packaging, tinplate actually accounts for
only around 14% of global usage, according to the International Tin
Association.

By some margin the largest end-use for tin is soldering in semiconductors,
representing around 47% of global usage.

It’s a sector that is currently facing its own headwinds.

Global semiconductor sales fell 14.5% year-on-year in the first half of
2019, according to the Semiconductor Industry Association (SIA).

“Year-to-date sales were down across all regional markets and semiconductor
product categories,” noted John Neuffer, SIA president and chief executive.

Against such a backdrop the current trade dispute between South Korea and
Japan couldn’t have come at a worse time.

A long-simmering disagreement over World War II reparations by Japan has
spilled into current trade policy with Japan announcing export restrictions
to its Asian neighbour last month.

Although the two countries have multiple shared supply chains, analysts at
Citi argue that the semiconductor sector is the most exposed to any
escalation of the trade dispute.

South Korea’s import dependency on Japanese semiconductor components was 31%
in 2018, according to the bank. (“Japan and South Korea Trade Tension 101”,
Aug. 19, 2019).

Disruption to the semiconductor supply chain could also have knock-on
effects on other countries such as China and Hong Kong, which sourced 21% of
their semiconductor imports and 48% of memory-chip imports from South Korea
last year.

SUPPLY RESPONSE

The collapsing tin price is already generating a supply response in China.

The country’s tin producers are now actively cutting production, according
to the ITA’s Beijing branch, which estimates national output fell by 8% in
the January-July period.

China’s smelters are trapped between a crumbling price and lower supplies of
raw material from Myanmar.

Myanmar has emerged as a major new source of tin concentrate over the course
of this decade but there are already signs that output in the Wa mining
region has peaked with volumes and grades falling.

China’s imports of tin concentrates, just about all of them from Myanmar,
slumped by 28% in the first half of the year.

The decline in Myanmar’s flows of concentrates to China remains a bullish
supply driver.

Unfortunately for the tin price, however, another major producer has been
ramping up production.

PT Timah, the largest Indonesian tin producer, said in July it was going to
more than double output to 70,000 tonnes this year after receiving
permission to buy raw materials from independent miners operating in its
concession.

The company reported a jump in first-quarter tin production to 16,302 tonnes
from 5,361 tonnes in the year-earlier period.

Sales rose too but not to the same extent, leading to a significant build in
inventory over the first quarter.

Timah said refined tin inventory at the end of March was 8,594 tonnes
compared with 3,198 tonnes a year earlier.

The company’s second-quarter filing is still pending but subdued national
exports suggest no significant drawdown in those stocks since March.

SHANGHAI BEARS

Tin, it’s worth noting, is too small a market to attract the attention of
most big fund managers, although there will inevitably be smaller momentum
players feeding off the price decline.

The worrying message from the London market is that this is not a
financially-driven but rather a fundamentally-defined sell-off.

There is more speculative activity on the Shanghai market, judging by recent
spikes in open interest and trading volumes. And at the moment it seems to
be playing tin from the short side.

That may promise some short-term relief if the Shanghai bears decide
collectively to take some profits. But they could just as easily double down
on their bear bets, which would promise a lot more producer pain ahead.

Weak demand, too much production and a falling price are currently the
defining features of the tiny tin market.

If that sounds likes a recessionary combination, then it probably is.

INVESTORS DIARY 2019

Company

Event

Venue

Date & Time

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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
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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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