Bulls n Bears Daily Market Commentary : 14 January 2020

Wed Jan 15 01:13:11 CAT 2020

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Bulls n Bears Daily Market Commentary : 14 January 2020

Zimbabwe Stock Exchange Update

Market Turnover ZWL$52,588,272.37 with foreign buys at ZWL$824.95 and
foreign sales were ZWL$12,179,927.00 Total trades were 163

The All Share index continued to thrive after adding 1.84 points to close at
236.61 points. EDGARS led the movers with a $0.0360 gain to close at
$0.2160, WILLDALE  rose by $0.0061 to close at $0.0367 and OK ZIMBABWE  was
$0.0262 firmer at $0.6887. Other counters to advance include ECONET WIRELESS
which increased by $0.0414 to $1.5488 and OLD MUTUAL LIMITED  which traded
$0.7849 higher at $36.7854.

Trading in the negative was PADENGA  which traded $0.0003 lower to settle at
$2.4600 and SEEDCO INTERNATIONAL  which lost $0.0002 to settle at $3.1023.

  Global Currencies & Equity Markets

South Africa

South Africa rand slips as Woolworths, Old Mutual lead stocks higher

(Reuters) - South Africa’s rand slumped to a one month-low on Tuesday, as
data pointed to continued weakness in the economy, while a surge in
Woolworths Holdings and Old Mutual led stocks higher.

A survey showed consumer confidence in Africa’s most industrialised economy
remained at a near-two year low in the fourth quarter, as the country
struggles with prolonged power cuts and choppy economic growth.

The rand tumbled more than half a percent to hit a session low of 14.5000
per dollar, its weakest since Dec. 16. The unit trimmed its losses in late
afternoon trade to steady at 14.4000 as of 1535 GMT.

The focus now turns to the South African Reserve Bank’s monetary policy
meeting on Thursday, when it will announce its interest rate decision after
keeping rates on hold at 6.5% at its last meeting.

November retail sales figures are due on Wednesday and mining production
data on Thursday.

The Johannesburg All-Share index and Top-40 index registered near one-month
highs as department chain Woolworths and insurer Old Mutual posted strong
gains.

Also helping the equity market was optimism around the Phase 1 Sino-U.S.
trade agreement expected to be signed this week.

Woolworths gained 8.30% after it said it appointed Levi Strauss executive
Roy Bagattini as CEO, cheering investors keen for a fresh pair of hands to
tackle the department chain’s struggling Australian business.

Investors often said that CEO Ian Moir overpaid for upmarket Australian
department chain David Jones “and when it wasn’t working he continued to
invest in it”, Sasfin Wealth senior equity analyst Alec Abraham said.

“You’ve got fresh eyes with no vested interest in any particular region or
business that can arguably have an objective review of the business and make
objective decisions on where it should be going in future,” he said.

Old Mutual rose 3.25% to 19.69 rand after a South African High Court ruled
that the insurer does not have to reinstate its sacked chief executive,
Peter Moyo, a shift in legal fortunes for the country’s No.2 insurer.

The All-Share Index closed 0.69% firmer at 57,967 points, while the Top-40
index gained 0.74% to 51,725 points, both levels last seen on Dec. 19.

In fixed income, the yield on the benchmark government bond due in 2026 was
up 3.5 basis points at 8.26%. 

Kenya

Kenyan shilling firms against the dollar

(Reuters) - The Kenyan shilling firmed against the dollar on Tuesday
supported by inflows from offshore investors buying stocks and government
debt amid thin importer demand, traders said. 

At 0830 GMT, commercial banks quoted the shilling at 101.25/45 per dollar,
compared with 101.40/60 at Monday's close.

       <mailto:info at bulls.co.zw> 

GLOBAL MARKETS

Stocks rally, then ease on U.S.-China trade deal; oil gains

(Reuters) - Oil prices rose and a gauge of global equity markets hit a new
high on Tuesday as investors awaited a China-U.S. trade deal they hope will
spur world growth after the economy in 2019 saw its weakest year since the
financial crisis.

Gold prices slid as the planned signing at the White House on Wednesday of
the Phase 1 trade deal dampened both the appeal of safe-haven bullion and
the Japanese yen, which dropped to eight-month lows.

MSCI’s all-country world index and shares on Wall Street set intra-day highs
before the S&P 500 and Nasdaq backed off a bit as investors said the
long-awaited deal was priced into the market. Stocks in Canada and Australia
also surged to records.

Stocks on Wall Street fell after Bloomberg reported that existing U.S.
tariffs on $360 billion of Chinese imports will likely stay in place past
the U.S. presidential elections in November as Washington reviews compliance
with the trade pact.

Investors fear the global economy may not turn up enough to lift corporate
earnings and share prices if tariffs remain in place for most of this year,
said Jim Paulsen, chief investment strategist at the Leuthold Group in
Minneapolis.

The contentious trade talks cast a pall over the market for much of 2019
until signs a deal was in place late last year helped lift Wall Street to a
string of successive record highs.

The Trump administration apparently would like to retain leverage over China
to enforce the trade pact, Paulsen said, while noting that tariffs are just
one factor affecting world growth.

Details are slowly emerging about the deal. China has pledged to buy almost
$80 billion of additional manufactured goods from the United States over the
next two years as part of a trade war truce, a source told Reuters on
Monday.

China would also buy over $50 billion more in energy supplies and boost
purchases of U.S. services by about $35 billion over the same two-year
period, the source said.

Kristina Hooper, chief global market strategist at Invesco in New York, said
she doubts China’s purchase of manufactured goods will reach anywhere near
$80 billion. Also, China has substituted agriculture products from other
countries since the trade war began, in particular Brazil, she said.

MSCI’s gauge of stocks across the globe gained 0.01%, while the pan-European
STOXX 600 index closed up 0.29%.

On Wall Street, the Dow Jones Industrial Average rose 32.62 points, or
0.11%, to 28,939.67. The S&P 500 lost 4.98 points, or 0.15%, to 3,283.15 and
the Nasdaq Composite dropped 22.60 points, or 0.24%, to 9,251.33.

Overnight in Asia, Japan’s Nikkei added 0.7% to hit its highest level in a
month. Australian shares rose by the same margin to close at a record.

Hong Kong’s Hang Seng and Shanghai blue chips hit multi-month peaks before
running out of steam.

China’s yuan was slightly weaker after earlier hitting a high last seen in
July. The U.S. Treasury Department on Monday reversed its designation of
China as a currency manipulator in what is seen as a conciliatory gesture
before the trade deal is signed.

The dollar index rose 0.04%, with the euro down 0.06% to $1.1126. The yen
weakened 0.03% versus the greenback to 109.99 per dollar.

Global oil benchmark Brent crude rose as the trade deal marks a major step
in ending a dispute that has cut global growth and dented crude demand.

The trade dispute had a tangible impact on global oil demand last year, said
Tamas Varga, an analyst at broker PVM. Varga pointed to 2019 demand growth
of 890,000 barrels per day, compared with initial forecasts of 1.5 million
barrels per day.

Brent crude gained 29 cents to settle at $64.49 a barrel and West Texas
Intermediate crude futures rose 15 cents to settle at $58.23 a barrel.

U.S. consumer prices rose slightly in December even as households paid more
for healthcare, and monthly underlying inflation slowed, supporting the
Federal Reserve’s desire to keep interest rates unchanged at least through
this year.

Tuesday’s weak inflation report from the Labor Department followed data last
week showing a moderation in job growth in December. Economists said these
developments were flagging a sharp slowdown in domestic demand.

Benchmark 10-year notes last rose 10/32 in price to yield 1.8126%.

U.S. gold futures settled down 0.4% at $1,544.60 an ounce.

 <mailto:info at bulls.co.zw> 

Commodities Markets

Anglo Asian's Azerbaijan gold output declines 4% in 2019

(Reuters) - Azerbaijan’s leading gold mining company, Anglo Asian Mining
Plc, said on Tuesday its gold output declined 4% in 2019 to 70,098 ounces
from 72,798 ounces in 2018.

Anglo Asian produces gold at Gedabek and other Azeri mines in a joint
venture with the state in which the London-listed company holds a 51% stake.

Gold production in the fourth quarter of 2019 fell to 17,907 ounces from
18,209 ounces in the same period of 2018.

The company said total production of gold-equivalent ounces (GEO), which
includes other metals, declined to 82,795 GEO last year from 83,736 GEO a
year earlier.

Copper output rose last year to 2,210 tonnes from 1,645 tonnes in 2018,
while silver output declined to 159,356 ounces from 210,184 ounces.

The company’s gold bullion sales last year totalled 54,061 ounces at an
average price of $1,410 per ounce in comparison with 59,481 ounces sold in
2018 at $1,265 per ounce.

The company said that GEO output was lower “due to the increase in the
market price of gold relative to the market price of copper during the
year”. In addition, total GEO output was within the initial forecast for the
year of between 82,000 and 86,000. The company did not elaborate.

The company plans to make its final debt repayment in early February,
delivering on its strategic plan to be debt free.

Anglo Asian began production at Gedabek, the bigger of two mines it
operates, in July 2009. The second mining project is Gosha, which is 50 km
(30 miles) northwest of Gedabek and contains at least nine mineralised
zones.

The company started a significant exploration programme at the end of 2016
after making a new gold discovery at Ugur, 3 km (2 miles) from its Gedabek
processing facilities.

Another spin of the giant LME aluminium stocks carousel: Andy Home

(Reuters) - The giant London Metal Exchange (LME) aluminium stocks carousel
is spinning again.

LME-registered inventory surged by 58% to a two-year high of 1.49 million
tonnes between the middle of November and the middle of December as 600,000
tonnes of metal flooded into exchange warehouses.

No sooner had it arrived than the cancellations started. A total 633,675
tonnes have been earmarked for physical load-out since Dec. 16, including
another 35,075 tonnes on Monday.

Drawdowns are now accelerating. Load-outs averaged 13,330 tonnes per day
last week. Monday’s tally of 15,375 tonnes was the highest daily departure
rate since May last year. There are another 619,075 tonnes to follow.

None of this has anything to do with aluminium’s fundamental dynamics other
than to remind us that there is a lot of metal around. Rather, it is all
about the opaque, through-the-looking-glass LME storage market.

It’s why the exchange is implementing yet another raft of changes to its
warehousing function.

WHAT COMES IN...

The mechanics behind the original November-December stocks surge are
relatively straightforward.

The LME aluminium forward curve started tightening in September. The
cash-to-three-months spread CMAL0-3 contracted from a contango of $33 per
tonne early that month to a backwardation of almost $23 in early December,
at which stage the structure was the tightest since July 2018.

Such a move upends the mechanics of financing metal stocks which are
predicated on a sufficiently wide contango to cover the costs of insurance
and storage.

The impact is accentuated for those holding short futures positions against
physical long holdings, creating a financial incentive to deliver metal into
the LME system.

This spreads-stocks relationship is part and parcel of LME trading and plays
out across all the metals, although the effects are more dramatic in
aluminium because there are literally millions of tonnes of inventory
sitting in the off-exchange statistical shadows.

It may seem curious that one of the changes the LME is implementing at the
start of next month is designed to encourage more metal into the system.

Particularly since the exchange will do so by relaxing the rules on load-out
queues, in essence allowing warehouse operators to earn more from metal
stuck in a queue so they can lift their incentives to attract more metal in.

However, right now it takes an extreme shift in the spreads, such as that
seen in the fourth quarter of last year, to generate inflows.

The LME wants to allow “warehouse companies to act more commercially in
offering storage terms to metal owners” the rest of the time as well.
(“Consultation on warehouse reform: Feedback analysis”, November 2019)

...MUST GO OUT?

The danger, of course, is that a loosening of the rules means a return to
the bad old days earlier this decade, when load-out queues stretched into
years.

The LME counters that such “structural” queues are no longer possible under
its revised rule-book and that warehouse companies themselves have no
financial interest in “operational” queues since they represent a loss of
rental income.

No surprise that the recent gyrations in LME stocks saw just such a load-out
queue appear at one warehouse company in Malaysia’s Port Klang last month.
Istim, which held 57,775 tonnes of cancelled metal at the end of December,
had a load-out queue of 33 days.

Other operators will likely also see such flash queues develop given the
recent level of cancellation activity. C. Steinweg’s Port Klang operations,
for example, held even more cancelled stock, 95,704 tonnes, at the end of
December.

This build-up of stocks awaiting load-out touches on the other part of the
LME warehousing problem, namely the unwillingness to keep metal in the LME
system.

This is in part down to the fact that LME storage is intrinsically much more
expensive than off-market storage. But that simple cost consideration is
compounded by the nature of some of the incentives used by warehouse
companies to attract metal in the first place.

Incentives are highly opaque, given they are private deals between metal
owner and warehouse operator, although the LME does itself see what is going
on.

One type of incentive deal in particular, the so-called “evergreen rental”,
actively encourages the outflow of metal.

The “evergreen” template allows the owner of the metal to share future
rental storage with the warehouse operator as long as the metal stays on LME
warrant. If someone else buys the metal, the only current way to escape such
a deal is to cancel the metal and load it out.

Which may go a long way to explaining why so much recently-arrived aluminium
is already turning around and heading back out of the LME system.

The LME is going to restrict such deals, also effective next month, to just
the original entity placing the metal on warrant.

A QUESTION OF TRANSPARENCY

The spinning aluminium stocks carousel says everything about how the LME
warehousing system currently works.

Or doesn’t work.

The aluminium contract seems stuck in a seemingly endless cycle of low
stocks, spreads tightness and high stocks followed once again by low stocks
as metal washes through the system.

The biggest casualty is market transparency.

Those intimately involved in the stocks game may understand the rules but to
outsiders such as investment funds, LME aluminium stock movements appear
random rather than meaningful in terms of market price.

Would it help if we knew how much aluminium was actually in Port Klang
rather than how much is on LME warrant?

That’s the third part of the LME’s planned reform package. Effective March
it will require warehouse operators to report off-warrant stock if the metal
is sitting in an LME-registered shed or if it is being held under a storage
agreement explicitly referencing the option of LME warranting.

The exchange says it wants to evaluate the information generated before
publishing it on a monthly basis further down the line. It is also hoping
that metal owners will voluntarily report their off-market holdings.

That might be overly optimistic and, like the proposals on queues and
incentives, the devil will be in the detail.

To be fair to the LME, it reserves the right to amend any of the three
changes depending on how things pan out.

It’s highly unclear whether the latest reforms will lift LME stocks relative
to off-market stocks but the current rotation of metal, driven by storage
not market dynamics, isn’t doing either the exchange or the aluminium market
any favours.

INVESTORS DIARY 2020

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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