Bulls n Bears Daily Market Commentary : 09 December 2020

Thu Dec 10 08:50:20 CAT 2020

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Bulls n Bears Daily Market Commentary : 09 December 2020

 <http://www.zb.co.zw/> 

ZSE commentary

Market Turnover ZWL$177,605,806.20 with foreign buys at ZWL$25,738,082.04 and   foreign sales were ZWL$71,986,305.50 Total trades were 266

The All Share Index gained ground by 86.47 points to close at $1,901.51 points. Trading in the positive were BRITISH AMERICAN TOBACCO which traded $67.9500 higher at $407.7500, CBZ HOLDINGS  went up by $5.5957 to $44.0790. MEIKLES and SEEDCO LIMITED both closed the day at $20.0000 after gaining by $2.6494 and $1.9505 respectively. OK ZIMBABWE rose by $0.6339 to $7.0091.

Trading in the negative were; FIDELITY which lost $0.1000 to $1.5000, POWERSPEED edged down to $1.8563 by $0.0937 while BINDURA NICKEL was $0.0834 lower at $2.9904. TRUWORTHS  was marginally lower at $0.1558 after dropping by $0.0073 and PADENGA HOLDINGS  closed the day at $16.5500 after decreasing by $0.0066.-zse

Global Currencies & Equity Markets

South Africa

Rand drops below the R15/$ mark

JOHANNESBURG - After a cautious start to the session ahead of the pivotal GDP release, the rand applauded a better-than-expected Q3 print according to NKC Research.

The local unit cheered the 66.1 percent q-o-q jump – beating expectations of 52.6 percent q-o-q – as the industrial sector rebounded after a dismal Q2. With regard to the external backdrop, the tug of war between vaccine optimism and surging infection concerns continued to play out, while an added jolt of US political and fiscal risk was thrown into the mix as Senate Majority Leader McConnell has also pushed back against the bipartisan stimulus deal.

The US event calendar was light, while the blackout period surrounding the December 15-16 FOMC meeting began this past weekend to keep the speaker calendar thin. There was no market reaction to the data releases in Asia, which included a better-than-expected Japanese Q3 GDP, but disappointing October Japanese household spending and cash earnings data.

The rand strengthened, dropping below the R15 against the dollar threshold.

South African bourse

The local bourse lost some ground on Tuesday, with the All Share index dropping 0.62 percent during the day’s trading. While the financials index (+0.60 percent) turned in another good performance, most other indices lost ground relative to Monday. In the overall emerging market sphere, the MSCI Emerging Market Index (+0.79 percent) traded higher.

Brent crude oil

The Brent oil price traded flat yesterday after losing some ground on Monday. At the close of local trade, the Brent oil price was quoted at around $48.76pb. Crude prices traded weaker during Asian trade this morning.-BUSINESS REPORT ONLINE

Nigeria

Naira gains across forex markets as banks start payment of remittances in dollars

Forex turnover dropped by 22.9%, as the Naira’s exchange rate at the NAFEX window appreciated marginally against the dollar to close at N394.67/$1 during intra-day trading on Wednesday, December 9.

Also, the Naira appreciated against the dollar, closing at N478/$1 at the parallel market on Wednesday, December 9, 2020, as deposit money bank begin the payment of diaspora remittances in dollars as had been directed by the Central Bank of Nigeria.

Nigeria’s external reserve lost $452 million in about a month as it hits $35.211 billion as at December 4, 2020. The continuous drop in the external reserve will limit CBN’s ability to intervene in the foreign exchange market, thereby putting pressure on the naira.

ABCON President, Aminu Gwadebe, had blamed the crash of the naira on illegal activities that include hoarding, speculation, illegal cash evacuations through the nation’s borders, use of the dollar for gratification and so on.

Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira appreciated against the dollar to close at N478/$1 on Wednesday.

·         This represents a N5 gain when compared to the N483/$1 that it exchanged for on Tuesday, December 8.

·         The local currency had strengthened by about 7.8% within one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers.

·         This is to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders

·         However, the gains appear to have been completely erased with the recent crash of the exchange rate.

·         The CBN has sold over $1 billion to BDCs since they resumed forex sales on Monday, September 7, 2020.

·         This was expected to inject more liquidity into the retail end of the foreign exchange market and discourage hoarding and speculation.

·         However, the exchange rate against the dollar has remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.

·         Despite the CBN intervention, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.

NAFEX: The Naira appreciated against the dollar at the Investors and Exporters (I&E) window on Tuesday, closing at N394.67/$1.

·         This represents a 33 kobo gain when compared with the N395/$1 that it exchanged for on Tuesday, December 8.

·         The opening indicative rate was N391.49 to a dollar on Wednesday. This represents a N1.01 gain when compared to the N392.50 that was recorded on Tuesday.

·         The N408.18 to a dollar was the highest rate during intra-day trading before, it still closed at N394.67 to a dollar. It also sold for as low as N381/$1 during intra-day trading.

Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 22.9% on Wednesday, December 9, 2020.

·         According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $92.43 million on Tuesday, December 8, 2020, to $71.24 million on Wednesday, December 9, 2020.

·         The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.

·         The continuous drop in dollar supply reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.

·         The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 million that was recorded the previous week.

·         Total forex trading at the NAFEX window in the month of September was about $1.98 billion, compared to $843.97 million in August.

·         The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.

·         Some members of MPC of the CBN had expressed serious concerns over the increasing demand pressure in the country’s foreign exchange market. This is an obligation of manufacturers to their foreign suppliers that continues to increase in the face of dollar shortages.

 <mailto:info at bulls.co.zw> 

Global Markets

Australian dollar approaching a dangerous level, economists warn

Whether you think the coronavirus recession has ended or not, it's hard to deny an economic recovery is underway.

The closely watched National Australia Business survey points to this:

And with the economic recovery, the Australian dollar has found a spring in its step.

The converse is also true. It hit a low against the greenback on March 20 (57.4 US cents) when the COVID economic crisis reached a crescendo.

Recovery is a long way off for wages and jobs

The recession may technically be ending but it will take much longer for Australia's economy to get back to where it was before the pandemic, as wages stagnate, unemployment remains high and cuts to Government subsidies loom, Stephen Long writes.

Basically, a rising Australian dollar is a sign of a strengthening economy.

There is a point, however, where the value of the Aussie dollar begins to put the brakes on economic growth.

We're just about at that point now, and if it goes much higher it will become a serious threat to the recovery.

So, what's pushing it up?

Dollar rising

There are several forces driving the Australian dollar higher.

First and foremost are the rising prices of commodities, particularly iron ore.

The price of iron ore is trading at a near eight-year high as China supercharges its spending on infrastructure, which requires steel, which relies on iron ore from Australia.

Chinese businesses need to buy Australian dollars in order to purchase Australian iron ore, so the more in demand it is, the higher the currency goes.

Next up is what's called "risk appetite". Think of this as the global "mood". The better the mood, the more the Australian dollar rises.

With evidence a vaccine could be widely available at some point next year, the global economic outlook has improved substantially (as evidenced too by soaring share markets).

Finally, interest rates influence the value of the dollar.

Believe it or not, despite Australia's cash rate being close to zero, Australian interest rates more broadly are relatively higher than comparable interest rates around the world — especially in the United States.

Money and investors gravitate toward countries with relatively high interest rates (yields), and this also puts upwards pressure on the Australian dollar.

RBA to the rescue?

The interest rate premium on Australian dollar denominated assets is the key reason the Reserve Bank chose to embark on its ramped-up Quantitative Easing program.

The RBA is currently in the process of buying $100 billion worth of government bonds from major financial intermediaries like the big banks, and superannuation funds.

This bond buying bonanza should have the effect of increasing the price of bonds and lowering the yield or interest rate attached to them.

Bond prices move inversely to their yields.

It's hoped that by lowering interest rates across the board (from the rate on the overnight cash rate to the 10-year government bond), Australian money investments (term deposits etc) will begin to look less attractive to offshore investors.

At the very least it's designed to stop the Australian dollar from rising much higher.

Breaking point

The Reserve Bank began its bond buying program when the Australian dollar ticked over 70 US cents.

The dollar is now edging closer towards 75 US cents.

Market economists Su-Lin Ong and Stephen Koukoulas agree that 75 US cents is the point at which the rise in the Australian dollar starts acting as a hand brake on economic growth.

It's akin, Koukoulas says, to a tightening of monetary policy or actually raising interest rates — an unthinkable notion right now for policy makers.

Some areas of the economy though will be harder hit than others.

Losers from a rising dollar

The sectors most at risk from an Australian dollar above 75 US cents, Ong says, are manufacturing and agriculture.

Tourism also gets hurt but that's not such a problem now because there are not so many international tourists (apart from New Zealanders).

Iron ore miners escape much of the economic damage too because demand remains strong.

Wheat with a silo in the background

Ong notes that it's the hundreds of thousands of smaller export businesses that will get hurt the most.

And, of course, as their products become less competitive and their profits are crimped, they'll be less keen to hire new staff.

Perhaps that's why the NAB noted in its latest business survey that "employment indexes remain in negative territory".

Winners from a rising dollar

On the flipside, shoppers usually benefit from a higher Australian dollar.

That's because imported goods become cheaper.

Half-price sale signage hangs in a store window.

Now, realistically you're not going to feel any tangible financial gain from buying small goods, but a refrigerator or couch may come down in price, for example.

The COVID kicker though, economist Su-Lin Ong warns, is that many businesses "will absorb the gains", or pocket the cost savings.

Forces pushing the dollar higher may not support wider economy

The Australian dollar was floated on the 12th of December 1983 — this Saturday marks the 37th anniversary.

A floating dollar — or a dollar that's at the mercy of market demand — can be beneficial because as the global economy deteriorates, and the dollar falls, it cushions the blow.

The reverse is also true.

A pile of Australian dollar coins on top of several bank notes

The problem we have now is that the forces pushing the dollar higher are not necessarily going to support the wider economy as well.

For a strong, sustainable economic recovery to take hold, a coronavirus vaccine will need to become widely available.

Some have suggested the Reserve Bank should directly, rather than indirectly, exert downwards pressure on the dollar by actively selling its AUD reserves in the currency market.

We're not quite at that point yet, but then again this year has seen plenty of extraordinary policy moves.

 <mailto:info at bulls.co.zw> 

Commodities Markets

Gold prices today dip, fall about ₹1,000 in 2 days; silver rates edge higher

Gold and silver struggled in Indian markets today as US lawmakers were unable to reach a breakthrough in stimulus talks. February gold futures on MCX were down 0.02% to ₹49,250 per 10 gram while silver futures rose 0.2% to ₹63,635 per kg. In the previous session, gold futures had slumped 1.8% or ₹920 per 10 gram while silver had tumbled nearly ₹1,800 or 2.7% per kg.

In international markets, spot gold rates were down 0.2% at $1,835.11 per ounce amid stalled US stimulus talks and a steady US dollar. Silver fell 0.3% to $23.85 an ounce, while platinum gained 0.2% to $1,003.07 and palladium was up 0.7% at $2,279.83.

Equity markets in Asia today eased from a record high amid stalled US stimulus talks and overnight selloff in US tech stocks.

Gold is seen as a hedge against inflation and currency debasement likely to result from large stimulus measures. Still, gold is up more than 20% so far this year amid unprecedented stimulus announced by central banks this year.

Gold traders now looking ahead to a European Central Bank monetary policy announcement due later today. The ECB is expected to unveil more bond buying and cheap loans to prop up the recession-hit bloc long enough for a coronavirus vaccine to be deployed.

Meanwhile, British Prime Minister Boris Johnson and the European Union's chief executive gave themselves until the end of the weekend to seal a new trade pact.

US lawmakers approved a stopgap government funding bill on Wednesday, but were unable to sort out disagreements over aid to state and local governments that are holding up a broader spending package.

There was a similar deadlock across the Atlantic, with British Prime Minister Boris Johnson and European Commission chief Ursula von der Leyen unable to find common ground in crunch talks on Wednesday.

In India, after seven straight months of net inflows, gold exchange traded funds or gold ETFs saw net outflow of ₹141 crore in November, data from the Association of Mutual Funds in India (Amfi) showed. This category has seen inflows since April 2020, although the pace of investment has been trending downwards since July.

Gold has lost momentum since hitting a record high of ₹56,200 per 10 gram in futures market in August. 

INVESTORS DIARY 2020

Company

Event

Venue

Date & Time

Zimbabwe

National Unity Day

Zimbabwe

22/12/2020

Christmas Day

25/12/2020

Boxing Day

26/12/2020

New Year’s Day

01/01/2021

Counters trading under cautionary

ART

Seed co Int.

Dairibord

Starafrica

Medtech

Turnall

Seed co

Invest Wisely!

Bulls n Bears 

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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 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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