Bulls n Bears Daily Market Commentary : 14 August 2020

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Bulls n Bears Daily Market Commentary : 14 August 2020

 


 

 


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ZSE commentary

 

Market losses extend


The market’s southward trajectory since the reopening continued with all the
indices closing today’s session in the red. The mainstream All Share Index
dropped 0.91% to end at 1369.24pts with the Industrials easing 0.81% to
4502.15pts. The Top Ten was 0.81% softer at 867.02pts while, The Minings
lost 4.08% to 2878.08pts on the back of losses sustained in Bindura. Turnall
topped the fallers of the day after succumbing 12.44%, as it closed at
$4.0800 while, property concern ZPI slumped 10% to close at $0.7200. SeedCo
was 7.72% down at $15.9728 with banking group FBC losing a further7.49% to
$10.5000. Axia was 7.13% down to $4.2526 and completed the top five losers.
Other losses were registered in Econet, Meikles and Cassava. Overall,
thirty-nine counters were active in the session as twenty-one fell against
thirteen risers, leaving the remainder of five to trade unchanged.

 

Mitigating the losses for the day were gains led by TSL which surged 20% to
$4.0800, with Fidelity following on a 19.96% charge to end at $27.9500. ZHL
reversed previous losses on a 16.67% gain to $2.4500 while, ZB Financial
Holdings added 8.33% to $13.0000, Apparel retailers Edgars rose 7.84% to
$0.8600. Delta and CBZ were amongst the risers set after putting on 0.19%
and 4.26% to settle at $15.9347 and $20.5522 apiece. Volumes exchanged
enhanced 179% to 14.23m shares, yielding a value outturn of $69.01m which
was 76.05% up from yesterday. Mash drove the volume aggregate after claiming
56.23%, while, Delta and CBZ anchored the value aggregate with a combined
contribution of 54.16% to the total. Foreign purchase accounted for 1.38% of
the turnover spend while, disposals claimed 22.28% of the same.efesecurities

 <mailto:info at bulls.co.zw> 

 

Global Currencies & Equity Markets

 

South Africa

 

South Africa's rand edges higher in subdued trade

(Reuters) - South Africa’s rand edged higher on Friday in subdued trade,
with the currency’s rally this week slowed by the resumption of nationwide
power cuts and more evidence that the domestic economy remains under
pressure.

 

At 0630 GMT the rand was 0.2% firmer at 17.3825 per dollar, not far off a
close of 17.4000 on Thursday.

 

On Thursday, state power utility Eskom implemented nationwide rolling
electricity blackouts, cutting up to 2,000 MW from the national grid. The
company said the power cuts, or load shedding, would continue on Friday.

 

Data on Thursday showed South Africa’s mining output fell 28.2% year-on-year
in June.

 

With the economy already in recession before the coronavirus lockdown, and
set for a deep contraction for the whole of 2020, demand for the rand and
domestic bonds has largely been supported by the high yield on offer due to
high interest rates.

 

The central bank has however cut rates by 300 basis points this year.

 

The cuts are in-line with other emerging markets, but the weak economic
outlook leaves the rand open to large reversals driven by global events,
especially the tensions between China and the United States.

 

 

 

Nigeria

 

Nigerian’s should expect “a significant devaluation” to N550/$1 – Goldman
Sachs

Goldman Sachs believes Nigeria will devalue past N500 between 12-18 months.

 

Published 20 hours ago on August 13, 2020By Chike Olisah Naira, Unify
exchange rates to foster economic growth – NISER , OFFICIAL: Banks charge
N368 per dollar for debit card transactions

A leading global investment banking firm, Goldman Sachs Group, this week,
predicted that a significant devaluation of the naira is expected within the
next 12 to 18 months.

 

The investment firm believes this will help bring about “the desired
balance” required to stabilize the currency. This was contained in an
exclusive Bloomberg Terminal report published on Bloomberg. However,
Bloomberg cited the link in an article reviewing the state of Nigeria’s
equities market.

 

 

According to Bloomberg, “Goldman Sachs Group Inc. this week said a
significant devaluation of the naira is likely in 12 to 18 months to
stabilize Nigeria’s external accounts. An exchange rate of 500-550 per
dollar should bring about the desired balance
. compared with a current rate
of about 407”. Bloomberg

 

Nigeria’s one year forward trades at N408.21/$1.

 

Nigeria’s Forex Challenges

Nairametrics reported during the week that the central bank had devalued the
official exchange rate to N380/$1 from N360.1/$1. The adjustment occurred on
Thursday, August 6th, 2020. The adjustment is thought to be a move towards
unification of the multiple exchange rate windows

 

GTBank 728 x 90

The CBN has adjusted the official exchange rate twice this year. The first
one was from N307/$1 to N360/$1 and then just last week, from N360/$1 to
N380/$1. At the NAFEX market were the exchange rate is determined by market
forces, the exchange rate trades between N388-N390 though turnover remains
thin. The SMIS window currently exchanges forex at N380.69/$1 and BDC
segment N447/$1. The parallel market exchange rate has averaged N475/$1 more
recently.

 

Last month, the Nairametrics tracker indicates only $937 million was
exchanged in July at the NAFEX market compared to $875 million in June.
Forex analysts suggest pent up demand for forex is between $1.5 billion to
$5 billion some of which include dividends and investments waiting to be
repatriated out of Nigeria. CBN Governor Godwin Emefiele has promised to
meet this demand when economic activities pick up in the country.

 

What this means: According to Nairametrics Research Team, whilst Goldman
Sachs projection is shared by some hawkish analysts a lot is still yet to be
considered. A reopening of the economy and return to full economic
activities could change the demand and supply dynamics.

 

The direction of the exchange rate will be determined by oil prices, growth
in the global economy, and Nigeria’s forex policies. The last time, Nigeria
wrestled back from an exchange rate above N500/$1 the CBN created the I&E
window allowing foreign investors to trade forex freely. The CBN also
offered high-interest rates for OMO bills allowing foreign investors to keep
their forex within the country.

 

The exchange rate disparity is currently due to low forex supply at the BDC,
SMIS, and NAFEX markets respectively. These scarcity is forex is caused in
part by the Covid-19 pandemic which has kept foreign investment out of the
country limiting the supply available to the government. If this situation
improves, then we could see a convergence between the parallel market to the
NAFEX market with the former strengthening towards the latter.

 

However, a further devaluation could occur if forex scarcity persists and
corporates find it difficult to purchase forex at the NAFEX(I&E) window
driving up demand at the black market.

 

 

 

 

 

 <mailto:info at bulls.co.zw> 

 

 

 

EMERGING MARKETS

 

Currencies sapped by firm dollar, Turkish lira hits record low

(Reuters) - Emerging market currencies fell on Friday as the dollar firmed
on bleak data from China, while Turkey’s lira hit a record low as its
outlook worsened after the central bank’s informal measures to stabilise the
currency proved to be temporary.

 

The lira weakened as far as 7.3660, going beyond a previous all-time low of
7.3650 hit a week earlier, and remained one of the worst performing emerging
market currencies, losing 19% against the dollar this year.

 

Investors worried about the risk of rising inflation and even a balance of
payments crisis, all amid concerns over depleted reserves, costly state FX
interventions and a trend of Turks buying foreign currencies.

 

The central bank said this week it would halt cheaper funding that had
allowed primary dealers to borrow well below its policy rate, which only
provided tentative support to the currency.

 

Other developing world currencies were knocked down by a bounce in the U.S.
dollar after data showed China’s retail sales slipped in July, denting
expectations for a modest rise on wariness about the coronavirus, while the
factory sector’s recovery struggled to pick up pace.

 

The MSCI’s index for emerging market stocks was still set to rise for a
fourth straight week, while its currencies counterpart also tracked weekly
gains.

 

Investors are now waiting for a meeting between U.S. and Chinese officials
over the weekend about their Phase 1 trade deal amid deteriorating relations
between the world’s two largest economies.

 

South Africa’s rand slipped against the dollar, along with the Russian
rouble, while currencies in central and eastern Europe, including Hungary,
Poland, Romania and the Czech Republic, were mostly flat against the euro.

 

Istanbul stocks slipped 1.3%, declining the most among regional peers.

 

Some Turkish companies are rethinking growth as the lira’s slide to record
lows has hiked costs and delayed investment plans for some who borrowed in
foreign currencies.

 

 

 

 

 <mailto:info at bulls.co.zw> 

 

 

 

Commodities Markets

 

Politics trumps aluminium as U.S. reimposes Canadian tariffs: Andy Home

(Reuters) - The United States will reinstate tariffs on imports of Canadian
primary aluminium this weekend.

 

This is not unexpected despite a ferocious rearguard lobbying campaign by a
broad spectrum of U.S. consumers.

 

Aluminium has been a pillar of the Trump Administration’s “America First”
trade agenda from the start. Along with steel it was early designated a
sector critical for national security, leading to the imposition of 10%
tariffs on imports in 2018.

 

Unfortunately, the pillar is wobbling.

 

Alcoa is curtailing its Ferndale smelter in the state of Washington,
reducing the number of domestic operating plants to six. Century Aluminum,
which operates three smelters and has led the lobbying charge against
Canadian imports, has just announced a quarterly loss of $26.9m.

 

Another smelter casualty in a U.S. election year would be a public relations
disaster.

 

However, Canada is being made the scapegoat for market forces determined
first and foremost by China, the world’s largest producer and exporter of
aluminium.

 

This trade skirmish between Western allies reinforces the sense of missed
opportunity in tackling China’s growing dominance of the global supply
chain.

 

BATTLE OF THE SURGE

The reimposition of tariffs on Canadian primary unalloyed aluminium is down
to what President Trump described as “a surge” of imports since Canada was
exempted in May last year.

 

Pro- and anti-tariff lobbyists have waged statistical war over this apparent
“surge”.

 

Canada has historically been the largest supplier of primary aluminium to
the U.S. market with volumes fluctuating significantly between 2.00 and 2.50
million tonnes over the last five years.

 

This historical volatility allows both sides to use the same data to come up
with diametrically different conclusions.

 

But even if there has been a “surge” of imports in recent months, it’s been
driven by market rather than tariff forces.

 

Demand imploded in the United States in the first half of 2020 as lockdowns
and quarantine measures hit both automotive and aerospace sectors.

 

Aluminium smelters responded by maintaining throughput but switching
production from customer-tailored alloys to “commodity-grade” metal. This
can be sold more easily to the merchant market or to the market of last
resort, namely the London Metal Exchange (LME).

 

The last global crisis of 2009 saw huge amounts of metal migrate towards LME
warehouses in Detroit.

 

A similar pattern is emerging this time. Although LME warehouses in Detroit
currently hold no warranted metal, aluminium is accumulating in the
statistical shadows.

 

The LME’s new report on shadow stocks shows 120,000 tonnes sitting in
Detroit at the end of June, up from 67,000 tonnes at the end of March.
That’s metal that is being stored under contracts referencing LME delivery.
There may be still more outside of that reporting net.

 

There are no LME delivery locations in Canada and it is quite possible that
some of the import “surge” has simply been metal heading for exchange
storage and financing rather than competing with U.S. production.

 

It’s telling that the Trump Administration has slapped tariffs back only on
unalloyed metal, presumably because alloy imports have fallen during the
demand meltdown.

 

US CONSUMERS PAY THE PRICE

The market has been quick to price in the Canadian tariff move.

 

U.S. consumers pay both the basis LME price and a premium for Midwest
delivery. The latter, traded on the CME as an index linked to S&P Global
Platts’ assessment of the domestic market , has surged from 8 cents per lb
in May to over 15 cents.

 

This is pretty much the level identified by analysts at Citi as the required
price to incentivise imports to the U.S. domestic market, which remains,
tariffs or no tariffs, dependent on flows of both primary aluminium and
products. (“The Aluminium Book: A New Era for Aluminium”, Aug 2, 2020).

 

U.S. consumers have to absorb this higher price, whether they buy tariffed
or tariff-free metal. They even pay it if they use domestically-sourced
scrap, as can manufacturers have discovered to their cost.

 

This is the way tariffs work. Any producer of any commodity will seek the
highest potential price afforded by trade restrictions.

 

As a grouping of U.S. users ranging from the Beer Institute to the National
Association of Trailer Manufacturers noted in a July 20 letter to the White
House, “this money goes to the seller, not the Treasury, and payment of the
premium is non-negotiable.”

 

NO VIABLE STRATEGY

It’s a price worth paying, according to the Coalition for a Prosperous
America (CPA), a vocal proponent of Trump’s “America First” trade policies.

 

The CPA concedes that China’s huge flow of exports has been the root problem
for U.S. producers in recent years but no-one has come up with “a viable
strategy for reducing China’s oversupply,” according to CPA chief economist
Jeff Ferry, writing in support of renewed Canadian tariffs.

 

In truth, though, the United States has missed two prime opportunities to
tackle China’s over-production.

 

The previous administration’s parting shot on the issue was a full-blooded
complaint to the World Trade Organization (WTO), which could have formed the
platform for the sort of multilateral pressure that led to China cutting 150
million tonnes of steel production capacity.

 

However, this administration doesn’t do the WTO or anything associated with
President Barack Obama.

 

The second opportunity came from the Commerce Department’s landmark January
2018 report finding that aluminium was critical to national security and
that import restrictions were needed.

 

One option suggested was penal tariffs of 23.6% on imports from China,
potential transhipment countries Hong Kong and Vietnam, as well as Russia
and Venezuela.

 

The U.S. could have directed its considerable trade firepower at the source
of the global oversupply problem.

 

Rather, President Trump chose the path of blanket tariffs at 10%, rounding
up Commerce’s suggested 7.7% duty and paving the way for the sort of
friendly-fire dispute currently playing out with Canada.

 

Canada has already vowed to respond in kind to the reimposition of tariffs
on its exports, which is how trade restrictions tend to multiply.

 

Both U.S. and European aluminium sectors are launching ever more
anti-dumping cases against specific aluminium products as they play
whack-a-mole with Chinese exports.

 

The European Union has just initiated a probe into imports of Chinese
flat-rolled products.

 

The U.S. Commerce Department last week determined in favour of
countervailing duties on imports of alloy sheet from Bahrain, Brazil, India
and Turkey. This is product in all likelihood displaced by Chinese exports
in other regional markets.

 

What’s missing is a “viable strategy”.

 

A change of administration might just possibly give the United States a
third opportunity to tackle China head-on about its aluminium dominance.

 

But time is running out.

 

China’s huge and still-growing aluminium smelter sector broke another
monthly production record in July.

 

 

 

 

Copper gains on China data but heading for weekly loss

(Reuters) - Copper rose on Friday as industrial data from top consumer China
pointed to a steady economic recovery but prices for the metal were still
heading for a weekly loss as supply concerns receded.

 

Three-month copper on the London Metal Exchange, rose 1.3% to $6,334 a tonne
in official trading. Prices have been range-bound since mid-July after
touching a two-year high.

 

China’s July industrial output grew in line with June’s growth but was below
analysts’ forecasts. However, the data still showed a continued economic
recovery in China, the world’s biggest copper consumer.

 

CODELCO: The copper price should hold at around $2.80 per pound through
2020, said Codelco Chief Executive Officer Octavio Araneda said.

 

Miners such as Codelco and Teck Resources have resumed operations after some
coronavirus-induced shut downs in Chile, the world’s top producer of the
metal. Chile has managed to keep production cuts limited.

 

INVENTORIES: On-warrant copper stocks in LME approved warehouses are at
54,102 tonnes, hovering near their lowest since March 2019. MCUSTX-TOTAL

 

The lack of available metal on the LME market helped maintain a premium of
$7.50 on the cash price compared to the three month contracts. CMCU0-3

 

Meanwhile, inventories in warehouses registered with the Shanghai Futures
Exchange have nearly doubled in the last two weeks to 172,051 tonnes. This
compares to 380,085 tonnes of stocks in mid-March. CU-STX-SGH

 

ALUMINIUM: China’s July aluminium output hit a record high as the longest
domestic prices rally in more than a decade prompted smelters to restart
production and launch new capacity.

 

PRICES: Aluminium rose 0.1% to $1,766, zinc edged up 0.2% to $2,379.50, lead
added 0.6% to $1,955, tin added 0.8% to $17,645 while nickel rose 1.4% to
$14,299.

 

 

 

 

 

 


 

INVESTORS DIARY 2020

 


Company

Event

Venue

Date & Time

 


 

 

 

 

 


 

 

 

 

 


 

 

 

 

 


CBZ

AGM

Virtual

14  August 2020 | 6pm

 


 

 

 

 

 


 

 

 

 


 

 

 

 


 <mailto:info at bulls.co.zw> 

 


 

 


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for guideline purposes only and sourced from third parties.

 


 

 


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