Bulls n Bears Daily Market Commentary : 06 July 2020

Tue Jul 7 07:29:49 CAT 2020

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Bulls n Bears Daily Market Commentary : 06 July 2020

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Zimbabwe Stock Exchange Update

Following the statement issued by the Secretary for Information, Publicity
and Broadcasting Services on June 26 2020, the Zimbabwe Stock Exchange
Limited engaged both the Securities and Exchange Commission of Zimbabwe
(SECZ) and the Ministry of Finance and Economic Development. Whilst we await
the guidance from our regulators on the operational modalities going
forward, we notify our stakeholders that trading has been suspended until
further notice.-zse

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Annual General Meeting (“AGM”) of the
shareholders of Zimbabwe Stock Exchange Limited will be held on 21 July
2020. Shareholders are advised that that in light of the current regulations
which prohibit gatherings in excess of 50 people and promoting social
distance on account of the COVID-19 pandemic, the Company will endeavour to
facilitate a virtual meeting the details of which will be communicated to
shareholders in due course.-zse

 <mailto:info at bulls.co.zw> 

Global Currencies & Equity Markets

Nigeria

Nigeria weakens naira at retail FX auction in a move to align rates

(Reuters) - Nigeria’s central bank asked lenders to bid for forex at an
auction 5% above its official rate of 360, traders said, in a move to weaken
the naira as the regulator seeks to unify its multiple exchange rates.

The central bank said last week it will work towards the gradual unification
of exchange rates across all forex windows. It has operated a multiple rate
regime which it has used to mask pressure on the naira and to absorb the
impact of lower oil prices.

But dollar shortages have plagued the economy after a coronavirus-induced
oil price crash slashed government revenues and weakened its naira currency,
funnelling demand to the black market where the naira is trading much weaker
at 450 per dollar.

The central bank, Nigeria’s main supplier of dollars, depreciated the forex
rate for retail interventions to 380 to the dollar from a previous rate of
360, traders said, quoting a message from the regulator to lenders.

The bank wants to unify rates to conserve its dwindling foreign exchange
reserves which lost $8.5 billion to sit at about $36 billion in May due to
an increase in imports from last year and demand from investors exiting
Treasury bills.

With the rate move, the central bank has moved its retail auction for
importers and individuals closer to the over-the-counter spot market widely
quoted by investors and where the naira was quoted at 387.50 to the dollar
on Friday. 

South Africa

South Africa rand up as risk appetite revives, stocks rise

(Reuters) - South Africa’s rand firmed on Monday, thanks to a broad recovery
in risk appetite on growing expectations of a strong Chinese economic
rebound.

The Johannesburg Stock Exchange closed higher than in the last nine trading
sessions due to the China-led optimism.

At 1500 GMT, the rand was 0.7% firmer at 16.9300 per dollar.

A raft of strong factory activity and trade readings from China over the
past week has underpinned the country’s risk assets, with broader emerging
markets rising in tow.

The benchmark FTSE/JSE All Share Index closed up 0.73% to 54,919 points and
the FTSE/JSE Top 40 Companies’ Index went up 0.81% to end at 50,585 points.

Bonds weakened, with the yield on the 2030 government issue rising 9 basis
points to 9.515%. 

 <mailto:info at bulls.co.zw> 

GLOBAL MARKETS

Asian shares hit speed bump, China extends sharp rally

(Reuters) - Asian shares paused for breath on Tuesday following a surge
sparked by speculation Beijing is trying to orchestrate a major domestic
bull run to support an economy hit by the coronavirus and a standoff with
Washington.

MSCI’s broadest index of Asia-Pacific shares outside Japan was last down
0.25%, a seemingly inevitable correction after sharp gains of 7% in just
five days that took it to a 4-1/2-month high.

Japan’s Nikkei gave up 0.7% while U.S. stock futures shed 0.3% in Asia after
hefty gains on Monday in the wake of surging Chinese shares.

Analysts say jawboning by the Chinese government through a state-sponsored
journal on the importance of “fostering a healthy bull market” is spurring
the buying binge in mainland Chinese shares.

Bluechip CSI300 index of Shanghai and Shenzhen shares , which had gained
more than 13 in the past five sessions, gained another 1.7%, led by rises in
tech sector.

China’s moves came as the Sino-U.S. disagreements have gone beyond trade and
tariff to include a whole gamut of issues, such as the status of Hong Kong,
signalling to some investors that Beijing may be aiming to reduce its
dependence on the West.

The current China rally has echoes of the past, especially during 2007 and
in the buying binge that followed the crash in 2015 that was largely driven
by Chinese retail investors.

A sharp rebound in U.S. services industry activity in June, almost returning
to pre-pandemic levels, also helped to whet investors’ risk appetite.

Still, new coronavirus cases surged in several states, forcing some
restaurants and bars to close again in a setback to the budding recovery,
keeping gains in risk assets in check.

In the currency market, the Chinese yuan made headway, hitting its highest
levels in nearly four months. The renminbi rose 0.1% to 7.0115 per dollar.

Other major currencies were little changed, with the yen flat at 107.37 to
the dollar and the euro unchanged at $1.1312.

The Reserve Bank of Australia is expected to hold its cash rate at 0.25% and
make no changes to policy at Tuesday’s board meeting, leaving markets to
focus on the accompanying statement. There will be particular attention on
whether the central bank notes the Australian dollar’s rise.

The Aussie was steady at $0.6964.

Gold held steady near 8-year peak, changing hands at $1,783.3 per ounce.

Oil prices eased in tandem with the pullback in stocks.

Brent crude lost 0.66% to $42.83 per barrel, while U.S. West Texas
Intermediate crude fell 0.64% to $40.37. 

 <mailto:info at bulls.co.zw> 

Commodities Markets

London aluminium hit by flash squeeze even as stocks surge: Andy Home

(Reuters) - The London aluminium market was rocked by a short but severe
squeeze last week.

Short-position holders had to cough up as much as $20 per tonne to roll
their positions a day.

This may seem strange given the world is apparently once again awash in
aluminium.

London Metal Exchange stocks (LME) have surged by 68% from a mid-March low
of 967,325 tonnes to 1,624,775.

The increase in visible stocks in the market of last-resort delivery is
likely being matched by a bigger build in the statistical shadows.

But the aluminium market has learnt before that appearances of surplus can
be deceptive when it comes to LME spreads.

As shorts just found out to their cost. The flash squeeze has passed but
it’s a sign that the stocks financing business is on the rise again.

It also places the spotlight back on the LME itself, given it has just spent
a decade reforming its delivery network after the last wave of surplus
aluminium in the wake of the financial crisis.

SHORT BUT BRUTAL

The full force of last week’s squeeze hit short position-holders trying to
roll daily positions across the LME’s “tom-next” spread.

“Tom-next”, the shortest-datest of all timespreads in the exchange’s
labyrinthine forward trading structure, usually defaults to a small
contango.

There was a brief bout of turbulence at the end of June but nothing to
compare with the second half of last week when “tom-next” traded out to $20
backwardation on Friday morning, the widest it’s been since 2012.

That wasn’t a rogue print either. A total 140 lots (3,500 tonnes) traded at
that level with another 497 lots transacted at a backwardation of $19.

Shorts appear to have misjudged how much liquidity was available with one
dominant long position holder accounting for 30-40% of available LME stocks.
Additional cash positioning lifted that ratio to 40-50%, not enough to
trigger the exchange’s mandated lending caps but still a big position,
equivalent to up to 730,000 tonnes.

Cash-date pressure tightened up the whole aluminium forward curve. The
benchmark cash-to-three-months time-spread was last week trading at less
then $20 contango, compared with double that as recently as May.

The squeeze has now passed. “Tom-next” has reverted to small contango and
the cash-threes contango has collapsed back out to $31.25 as of Friday’s
close.

This flash squeeze is a timely reminder, however, that rising LME stocks do
not automatically mean there’s lots of free metal around.

Particularly when the stocks financiers are back in town.

FINANCING SURPLUS

Actually, they never left the aluminium market, which has been defined by
the need to store and finance millions of tonnes of metal ever since the
global crisis of 2008-2009.

However, a lot more metal now may be on its way to LME warehouses after the
economic hit from the fatal coronavirus.

The collapse in manufacturing activity, particularly in aluminium-intensive
sectors such as automotive and aerospace, will push the world outside of
China into a massive 3.2 million tonne surplus, according to Paul Williams,
head of aluminium analysis at CRU research house.

Quite evidently, that implies a bigger build in inventory than is being
captured by LME stocks. It’s quite likely that more is either accumulating
in the physical supply chain or in LME “shadow” storage, benefiting from
discounted rental relative to being on warrant but available for warranting
if required.

All of it is being financed using the LME’s forward curve. The fat contango
of April and May would have allowed financiers to lock in a guaranteed
return simply by buying cash metal and selling it forward.

Low interest rates fuel the trade both because they make borrowing money
cheaper but also because they increase appetite for a fixed-return
investment in this sort of metallic bond.

Unlike physical buyers, financial users’ appetite for metal is limited only
by the size of their balance sheet or that of their banking partners.

The tussle for aluminium, both within the LME warrant pool and the larger
shadow pool, has caused plenty of spread turbulence in the past.

And last week’s mini squeeze suggests the conditions are falling into place
for more of the same going forwards.

STRESS TEST

Goldman Sachs thinks the current finance dynamics will lead to a repeat of
the LME’s queue problems with unwanted metal being sucked into the system
and then getting log-jammed on the way out as buyers seek out cheaper
non-market rental deals.

This, the bank believes, is a positive for the aluminium market since “the
surplus is going to be ‘locked in’ or ‘held off’ by warehouse” load-out
queues.

This is, of course, what happened 10 years ago and the LME has spent much of
the intervening period reforming its warehouse network.

However, this year it has been gradually easing the rental caps on metal
stuck in load-out queues, a move intended to allow warehouse companies more
financial leeway to attract metal in.

It remains to be seen how this will play out in a world of falling physical
premiums. Japanese buyers have just negotiated a premium of $79 per tonne
over LME cash for their third-quarter deliveries, the lowest level since the
end of 2016.

That lowers the bar for a warehouse company to compete for physical metal,
particularly if it is reaping income from a load-out queue.

The LME contends that its load-out rules now prevent the occurrence of what
it calls “structural” queues. But there are plenty of “flash” queues,
particularly in Malaysia’s Port Klang, which has emerged as a new
warehouse-merchant battleground for the storage of aluminium.

One operator in the port, ISTIM, has had “flash” queues at the end of every
month since January last year, not always but mostly for loading out
aluminium.

Flash queues and flash squeeze. With more surplus aluminium likely to wash
into the LME marketplace over the coming months, the LME’s reformed
warehouse system looks like its going to get a stress test.

Japan aluminium stocks up 9.5% m/m in May - Marubeni

(Reuters) - Aluminium stocks held at three major Japanese ports AL-STK-JPPRT
at the end of May rose by about 9.5% to 338,500 tonnes from April's 309,000
tonnes, Marubeni Corp said on Tuesday.

Marubeni collects data from the ports of Yokohama, Nagoya and Osaka.

INVESTORS DIARY 2020

Company

Event

Venue

Date & Time

Ariston

AGM

Boardroom, 306 Hillside Road, Msasa Woodlands

07 Jul 2020 : 1100

Dawn Properties

AGM

Ophir Room, Monomotapa Hotel, 54 Park Lane

09 Jul 2020 : 0900

Mash

AGM

Virtual, Boardroom, 19th Floor, ZB Life Towers, 77 Jason Moyo Avenue

09 Jul 2020 : 1200

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of
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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
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
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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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