Bulls n Bears Daily Market Commentary : 05 August 2020

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Bulls n Bears Daily Market Commentary : 05 August 2020

 


 

 

	
 


 
<https://www.icaz.org.zw/Shared_Content/Events/Event_Display.aspx?EventKey=W
INTER20&WebsiteKey=b11170c6-d941-42bf-a9af-c4a345ef4547> ZSE commentary

 

ZSE southward trek continues


Selling pressure continued in the mid-week session to see all the benchmark
indices closing pointing southwards. The mainstream All shares Index was
2.72% softer at 1616.38pts with the Industrials shedding 2.70% to end at
5304.62pts. The Top Ten Index was the main casualty amongst the Indices
succumbing 4.17% to see it ending at 1084.19pts as profit taking took its
toll in heavy caps. The Mining Index also followed suit on a 3.32% dip to
settle at 3618.74pts. Activity aggregates improved with volumes enhancing
36.29% to 2.47m shares, yielding a value outturn of $22.67m which was 84.91%
up from previous session. OKZIM propelled the volumes exchanged after
claiming 17.31% while, Meikles led the value aggregates with a 17.04%
contribution. Overall, twenty-eight counters were active in the session as
seventeen traded in the negative against five that went up, leaving the
remaining six to trade unchanged. Mining house RioZim led the losers of the
day after plunging 20% to settle at $6.4000 on waning demand.

 

Conglomerate Innscor and beverages group Delta helped drag the Top Index
further down as the duo lost 14.84% and 9.49% to close at $17.7075 and
$17.7327, respectively. Powerspeed eased 10.67% to end at $1.0362 while,
Masimba was 9.42% down at $1.2500. Other heavy cap losses were seen in
Econet, Cassava and Padenga. Mitigating losses were gains seen in Meikles
which topped with a 4.01% lift as it settled at a vwap of $13.007. Seedco
trailed after ticking up 2.08% to $18.3750 on scrappy shares with AFDIS
adding 0.34% to $18.3000. Edgars rose 0.22% to $0.8500, reversing its
yesterday’s losses while, OKZIM completed the winners set with a negligible
0.05% to $4.9984, albeit closing well offered.-EFE Securities

 

Global Currencies & Equity Markets

 

South Africa

 

South African Rand Consolidation Range Takes Shape on Charts amid Dollar
Pains

The Rand advanced against a vast majority of major developed and emerging
market rivals Wednesday after a sustained period of underperformance,
leaving behind it on the charts the appearance of a narrow USD/ZAR range
that Rand Merchant Bank suggests will govern the South African unit into
year-end. 

South Africa's Rand advanced against all major currencies as well as all
large emerging market currencies except the Indian Rupee Wednesday as a
more-than month-long run of depreciation appeared to near its end. The Rand
has fallen against all major currencies in the last month and every one of
its large emerging market rivals except for the Russian Rouble and Turkish
Lira. 

 

Wednesday's Gains came amid more broad based weakness in the Dollar and
upbeat sentiment among investors that helped lift stock markets in Europe
following what had been a wobbly Asia session.

 

USD/ZAR was turning lower having hit 17.50 previously and in turn GBP/ZAR
was retreating from its recent high of 22.75.

 

"The local currency continues to follow the week’s weakening trend, but
there are some signs early in the day that this could be slowing down. South
Africa’s RESI10 should see positive movements today in the wake of gold’s
strength, which could keep the domestic equity market’s performance for the
week in the green," says Siobhan Redford, an economist at Rand Merchant
Bank. "The real economy, however, continues to show weakness." 

 

 

Redford notes a decision by Consol to suspend investment in South Africa due
to a national ban on the sale of alcohol as a negative omen for the economy.
Consol is the latest in a growing line of multinational firms to pull
investment from or reconsider involvement in the country over the ban, which
has been highly controversial among South Africans, at a time when the
continent's now-second largest economy needs every penny of investment it
can get. 

 

South Africa and many other emerging markets were already on shaky
foundations even before the coronavirus escaped China's borders but the
pandemic has stoked further economic challenges and financial hardship,
partly explaining why so many developing world currencies have depreciated
in recent months even with the U.S. Dollar unravelling at a rate of knots.  

 

"Emerging market financial conditions bottomed out in May, but many EMs
still have some ground to cover. China is doing well, but others are
struggling," says Tamara Basic Vasiljev, a senior economist at Oxford
Economics. "Recent dollar weakening has bypassed EMs completely, with all
their currencies depreciating significantly against the dollar. This can
pose a problem for those that are heavily exposed to cross-border and
domestic FX-denominated debt." 

 

Flows resulting from the nascent Dollar exodus have bypassed emerging
markets and mainly benefitted European currencies but with the latter now at
two or even three-year highs and investors still out of love with the
greenback, further emerging market currency depreciation might be unlikely.

 

But with the global economy still dogged by fears of a second wave as
outbreaks continue to grow in developing countries, a sustained recovery may
also be unlikely in the short-term.

 

 

This argues for range-bound emerging market exchange rates, which is exactly
what was envisaged for the South African currency in Rand Merchant Bank's
latest quarterly review of forecasts. RMB forecasts a narrow 16.50-to-17.50
range for USD/ZAR into year-end, which would also confine the Pound-to-Rand
rate to a similarly narrow range in the absence of outperformance by
Sterling in the major currency sphere. Others are also looking for 17.0 to
exert a gravitational pull on the South African unit. 

 

"The domestic currency is in a consolidation phase currently, after running
into overbought territory in recent weeks, with the rand expected to average
R17.00/USD this quarter," says Annebel Bishop, chief economist at Investec.
"The global economic recovery is not firmly underway, and will not be linear
nor synchronised. Instead the global economy will see some individual
economies lead in their recovery from the Covid-19 lockdowns and resultant
economic slumps, while other economies will lag...The uneven nature of the
recovery will continue to trip up market sentiment, and so cause EM currency
volatility." 

 

Investec forecasts a USD/ZAR rate of 17 by the end of September and a
Pound-to-Rand rate of 20.70, implying a modest recovery in the coming weeks,
with both numbers falling to 16.50 and 20.44 respectively by year-end.

 

The bank says risk appetite will be key for the Rand, with the mood among
investors likely to be heavily influenced in the short-term by whether U.S.
lawmakers agree an extension of enhanced welfare benefits for the unemployed
and beyond there, tensions between the U.S. and China. 

 

Kenya

 

Kenya central bank has 'plenty of firepower', governor says

(Reuters) - Kenya’s central bank governor said on Thursday that policymakers
still had plenty of firepower left to limit the damage to the country’s
economy from the coronavirus crisis.

 

Policymakers cut the benchmark lending rate by a total of 125 basis points
at the onset of the crisis, lowered cash reserves for commercial banks and
allowed them to restructure distressed loans.

 

Njoroge said good weather had boosted production volumes and exports of key
crops like tea.

 

A rebound in exports of flowers, as well as projected higher production of
other crops like maize and higher production of cement, promised a quicker
economic recovery than earlier anticipated, he said.

 

“All these point to strong growth in 2020 despite COVID,” he said, adding
that the bank’s economic growth forecast would be released soon.

 

He lowered the current account deficit forecast for this year to 5.1% of GDP
from the previous forecast of 5.8%.

 

He cited a better-than-expected performance in hard cash sent by Kenyans
living abroad, known as remittances, and the rebound in farm exports.

 

The central bank now expects remittances to grow by 1% this year, an
improvement of its initial forecast of a drop of 12.3% due to COVID-19.

 

The central bank was not concerned by the recent depreciation of the
shilling, which is down 6.3% against the dollar this year to date.

 

 

The bank’s Monetary Policy Committee has gone back to meeting to review
rates every two months, it said, after it started meeting every month in
March because of the coronavirus crisis.

 

 <mailto:info at bulls.co.zw> 

 

 

 

America

 

Weak dollar no boon for emerging markets this time

(Reuters) - Typically a boon for emerging markets, this year’s plunge in the
U.S. dollar may fail to boost the developing world’s prospects as the raging
pandemic hits economic activity, increases poverty and exposes weak
policymaking.

 

The greenback plummeted by its most in a decade in July and U.S. Treasury
yields fell to record or multi-year lows, pressured by a soaring COVID-19
caseload and Federal Reserve pledges to keep monetary policy loose.

 

Such a backdrop would normally help emerging markets suck in foreign
investment with the lure of higher bond yields and faster economic growth,
but this time looks different.

 

Even leaving aside idiosyncratic stories such as Turkey, where a plunging
lira is increasing the risk of a financial crisis, there are signs the
developing world may not be able to capitalise on dollar weakness the way it
has in the past.

 

MSCI’s emerging equity index has bounced 40% from its March trough but it is
heavily weighted towards China and East Asia, where the economic recovery
appears strongest. Returns on emerging debt since end-March trail those on
debt issued by Germany and the United States. Luis Costa, emerging markets
strategist at Citi, said that although the environment appeared positive for
riskier assets, investors should not be complacent.

 

“There will be bumps in the road because we know there are so many other
underlying stories, especially when it comes to emerging markets and these
stories are actually negative.”

 

Those doubts show up in investment flows. Since April, emerging market
hard-currency bond fund inflows have lagged those into ‘junk-rated’ U.S. and
European company debt, which is benefiting from government bond-buying
support.

 

Debt denominated in emerging market currencies has fared even worse.

 

Contrast that with the first quarter of 2018 when the dollar slipped 2.5%,
less than the around 3.0% decline so far this year, and emerging market
funds absorbed $118 billion.

 

Investors no longer feel compensated for the risks.

 

South Africa is the latest developing nation to lose its investment grade
credit rating, while interest rates across emerging markets have fallen - by
an average of 64 basis points this year.

 

U.S. high-yield corporate bonds offer investors a pick up of almost 100 bps
over emerging sovereign dollar debt , while local currency emerging debt
yields are around 4.4%, down from 6% in early-2018.

 

Meanwhile, Societe Generale strategist Jason Daw has warned clients that
August, when liquidity is typically thin, could be a “dangerous” time.

 

Turkey’s 2018 lira meltdown, China’s 2015 yuan devaluation and Russia’s 1998
default were all August events.

 

CURRENCIES, CUTS, COVID

The dollar’s decline boosted the euro 5% in July, the pound 6% and the
Australian dollar 3.6%. Emerging currencies strengthened just 1.4%.

 

That weakness raises concerns about borrowers’ ability to repay external
debt, with Moody’s reckoning 13.7% of junk-rated EM corporate bonds may
default in the year to March 2021. In the sovereign space, Argentina,
Lebanon and Ecuador have already defaulted.

 

As the coronavirus spreads rapidly across India, South Africa, and Latin
America, Oxfam has warned that without room to cushion the economic blow
with extra spending, as wealthier nations have done, some countries may see
poverty rise to levels last seen three decades ago.

 

Rising debt and stagnating reform had already left emerging markets ill
prepared for the pandemic with Manik Narain, head of EM strategy at UBS,
noting their growth premium over the developed world, a key performance
driver, went into reverse in the Jan-March quarter.

 

 

 <mailto:info at bulls.co.zw> 

 

 

 

Commodities Markets

 

 

Gold strides further above $2,000, dollar weakens

(Reuters) - Gold pushed further past $2,000 on Wednesday in the face of a
weak dollar and expectations of more stimulus measures for the
pandemic-ravaged global economy, while stocks in Europe and on Wall Street
rallied on encouraging corporate earnings.

 

Oil prices rose to their highest since early March on a big drop in U.S.
crude inventories and on the weak dollar, which was pushed lower by data
showing euro zone business activity returned to modest growth in July.

 

The final Composite Purchasing Managers’ Index (PMI) from IHS Markit climbed
to 54.9 from June’s 48.5, better than a 54.8 flash estimate, indicating
significant improvement consistent with the continued easing of lockdowns,
analysts said.

 

Gold set a new record after scaling $2,000 for the first time on Tuesday, as
investors seek a store of value on fears government stimulus in response to
the pandemic will trigger inflation, devalue other assets and keep bond
yields low.

 

Spot gold prices rose 1.53% to $2,049.00 an ounce, after earlier reaching a
record $2,055.1006.

 

The dollar standard of the past 50 years is under open question because of
the enormous amount of increased money supply by the Federal Reserve, said
Ryan Giannotto, director of research at alternative ETF provider
GraniteShares.

 

Gold has gained nearly 35% so far in 2020 and is one of the year’s
best-performing assets.

 

A surprise quarterly profit from Walt Disney Co and a slate of upbeat
results from healthcare companies lifted sentiment on Wall Street, while
European shares rose on a slate of positive results. Disney shares jumped
10.4%.

 

In Europe, the broad FTSEurofirst 300 index added 0.38% at 1,417.72.

 

The Dow Jones Industrial Average rose 1.25%, the S&P 500 gained 0.72% and
the Nasdaq Composite added 0.45%.

 

MSCI’s benchmark for global equity markets rose 0.93% to 564.47. Emerging
markets stocks rose 1.26%.

 

The dollar extended losses after U.S. private payrolls growth slowed sharply
in July, pointing to a loss of momentum in the labor market and overall
economic recovery as new COVID-19 infections spread across the United
States.

 

The ADP National Employment Report showed private payrolls increased by
167,000, far less than an increase of 1.5 million economists polled by
Reuters had forecast. U.S. Treasury yields rose after the report, halting
their recent trend lower.

 

The dollar index fell 0.557%, with the euro up 0.79% to $1.1893.

 

The Japanese yen strengthened 0.21% versus the greenback at 105.49 per
dollar.

 

The U.S. government bond yield curve steepened as the prospect of increased
supply in longer-dated debt dampened prices following the Treasury
Department’s announcement that it would borrow more this quarter than
previously anticipated.

 

The 10-year U.S. Treasury note rose 4 basis points to yield 0.5526%.

 

Oil prices rose. Brent crude futures rose $1.54 to $45.97 a barrel. U.S.
crude futures gained $1.55, to $43.25 a barrel.

 

 

Copper up on demand hopes, sliding inventories

(Reuters) - Copper prices rose on Wednesday as expectations of stronger
economic growth and demand due to central bank and government stimulus, a
lower dollar and sliding stocks boosted sentiment.

 

Benchmark copper on the London Metal Exchange traded up 1.1% at $6,523 a
tonne in official rings. Prices of the metal, used widely in the power and
construction sectors, hit a two-year high of $6,633 a tonne hit in the
middle of July.

 

DEMAND: China accounts for nearly half of global copper consumption
estimated at around 24 million tonnes this year.

 

China’s factory activity expanding at the fastest pace in nearly a decade in
July has supported prices of industrial metals in recent days, as has an
improvement in manufacturing activity in the euro zone and the United
States.

 

DOLLAR: A lower U.S. currency makes dollar-denominated metals cheaper for
holders of other currencies, which could mean higher demand. This is a
relationship used by funds to generate buy and sell signals from numerical
models.

 

INVENTORIES: Copper stocks MCUSTX-TOTAL in LME registered warehouses at
122,450 tonnes are at their lowest since the middle of January and down more
than 50% since May.

 

Also reinforcing the idea of a tight LME market are cancelled warrants —
metal earmarked for delivery — at nearly 60% of total copper stocks.

 

SPREADS: However, the narrowing premium for the cash over the three-month
copper contract CMCU0-3 suggests the flow of metal leaving LME warehouses
may soon come to an end.

 

OTHER METALS: Three-month aluminium was up 0.5% at $1,778.5 a tonne, zinc
gained 1.8% to $2,381.5, lead rose 1.4% to $1,907, tin added 0.9% to $17,932
and nickel climbed 1.2% to $14,287. 

 

 

 

 

 

 

 


 

INVESTORS DIARY 2020

 


Company

Event

Venue

Date & Time

 


 

 

 

 

 


Zimbabwe

National Heroes Day

Zimbabwe

10  August 2020

 


Zimbabwe

Defence Forces’ Day

Zimbabwe

11  August 2020

 


CBZ

AGM

Virtual

14  August 2020 | 6pm

 


 

 

 

 

 


 

 

 

 


 

 

 

 


 <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
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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
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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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