Bulls n Bears Daily Market Commentary : 13 July 2020

Mon Jul 13 15:23:09 CAT 2020

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Bulls n Bears Daily Market Commentary : 13 July 2020

 <mailto:sales at dulys.co.zw> Auction Market Update

Total Bids: US$ 15,872,481.93                
Amount Allotted: US$13,602,407.84

Highest Accepted Rate: 90.0000             
Lowest Accepted Rate: 30.0000

Lowest Accepted Rate: 55.0000              
Weighted Average Rate: 65.8765

Number of Bids Received: 264                
Number of Bids Rejected: 92

Next Auction 14 July 2020

Global Currencies & Equity Markets

South Africa

Rand firms as dollar wobble lifts emerging currencies

Bonds also firmed, with the yield on the benchmark 2030 government issue
down 2 basis points at 9.475%.

The rand firmed early on Monday, helped by increased risk appetite as
investors bet again on a global economic recovery.

The rand was 0.36% stronger at R16.71 against the dollar at 0645 GMT, its
best level since June 11, having gained steadily since opening above the
R17.00 mark last Monday.

The gains have been driven mainly by global sentiment rather than domestic
factors, with investors searching for high yields on hopes for a quick
economic recovery despite a global surge in COVID-19 infections.

Emerging market currencies rose in unison, taking advantage of a dollar
weighed down by the United States’ battle to contain the spread of the
coronavirus as well as some investor caution ahead of data releases due in
the world’s top economy.

Traders, however, expect the rand to face to some selling pressure later in
the week, with power utility Eskom announcing that nationwide controlled
blackouts would continue on Monday.

“The rand juggled cautious sentiment – as coronavirus infections are surging
across the globe and frustration hit as South African power utility Eskom
switched off the lights – against a soft US PPI (producer price index)
release,” said analysts at NKC African Economics in a note.

Bonds also firmed, with the yield on the benchmark 2030 government issue
down 2 basis points at 9.475%.--moneyweb

 <mailto:info at bulls.co.zw> 

Iran

Iranian Currency Takes Big Hit, Falling To New Record Low

Iran’s currency took another big hit on Monday, falling to 230,000 rials
against the U.S. dollar despite official promises to prevent the further
devaluation of the national currency.

The Iranian rial for the first time ever fell to 200,000 against the dollar
on June 24 and the plunge has continued since. The rial is also traded at
more than 260,000 against the euro too.

Since the beginning of the current Iranian year, starting March 21, the
Iranian rial has lost more than 30 percent of its value.

Authorities have been saying the current trend of devaluation is "temporary"
and the market will recover soon. They attribute the plunge in the value of
rial to "international psychological operations and unfounded anxieties" as
well as the impact of the COVID-19 pandemic on the economy.

A money exchange bureau in Tehran's Ferdowsi Ave where most exchange bureaus
are located. 

The Iranian currency began its steep fall in 2018 as the U.S. withdrew from
the 2015 nuclear agreement and reimposed heavy sanctions. Iran's crude oil
exports have declined by more than 90 percent, cutting off foreign currency
earnings for the state.

In recent weeks, the government is scrambling to find foreign currency
revenues by putting pressure on exporters to repatriate earnings to the
country.

President Hassan Rouhani and the Governor of the Central Bank of Iran (CBI)
Abdolnaser Hemmati have blamed the drop in the availability of foreign
currencies in the market on exporters.

President Rouhani has said 20 billion euro for the goods exported in the
final months of the Iranian calendar year corresponding to February and
March has not returned to the country and threatened the exporters to legal
action.

In a note published last Monday on his Instagram account, the governor of
the Central Bank also promised to offer "more incentives" to exporters who
make the currencies they have earned available to the currency market in
Iran.

According to the Institute of International Finance (IIF), the country's
reserves were to fall to $73 billion by March with the deepening of Iran's
recession and the fall in oil sales caused by the crippling U.S.
sanctions.--radiofarda

 <mailto:info at bulls.co.zw> 

Commodities Markets

Supply angst helps copper scale two-year high

(Reuters) - Copper prices reached two-year highs on Monday in a buying
frenzy triggered by worries over strikes and supplies from top producer
Chile and flooding in China.

Benchmark copper on the London Metal Exchange (LME) traded up 1.9% at $6,537
a tonne in official rings.

Prices of the metal used widely in the power and construction industries
earlier touched $6,633 a tonne, its highest since June 2018 and up more than
50% since hitting four-year lows in March.

CHILE: Codelco, the world’s largest copper producer, and other miners in
Chile have altered shift patterns, suspended upgrades and smelter operations
in an effort to stop the spread of the new coronavirus.

FLOODING: Traders are worried that flooding in China’s Jiangxi province
could eventually affect copper production.

Jiangxi Copper, one of the country’s biggest copper producers, has so far
been largely unaffected by the floods because most of its transportation is
by rail.

FUNDS: Much of the buying in base metals markets is by funds in China and
elsewhere, jumping on the uptrend of recent days.

DATA: Clues to demand prospects will come from Chinese urban investment,
house prices and industrial production data on Thursday.

SPREADS: Worries about supplies on the LME market in the face of falling
stocks MCUSTX-TOTAL and cancelled warrants - metal earmarked for delivery -
has pushed cash copper’s premium over the three-month contract to a 14-month
high of $11 a tonne.

Between May 2019 and June 2020 the cash contract mostly traded at a discount
MCU0-3.

OTHER METALS: Aluminium was up 0.4% at $1,695.5 a tonne, zinc gained 1.4% to
$2,223.5, lead rose 0.8% to $1,870, tin fell 0.2% to $17,278 and nickel
edged up by 0.1% to $13,524. 

London Metal Exchange shines a (little) light on shadow stocks: Andy Home

(Reuters) - The London Metal Exchange’s (LME) new report on “shadow” stocks
was greeted with a collective yawn by the industrial metals market.

The exchange’s attempt to throw more light on inventories “did not hold any
surprises and there was not a ‘sea’ of hidden metal”, was a typical reaction
from LME brokerage Kingdom Futures.

True, those looking for evidence of the millions of tonnes of aluminium
inventory sitting outside the exchange storage system will be disappointed.

As of the end of May, there were “only” a million tonnes of aluminium
lurking in the LME shadows.

But that’s still a lot of metal, given the restricted scope of the LME’s new
reporting requirements.

Indeed, shadow stocks of all metals totalled 1,239,556 tonnes at the end of
May, equivalent to 56% of registered stocks.

Moreover, the first four backdated reports published on Friday contain some
genuinely interesting nuggets.

MAKING THE COUNT

There was never any prospect of the LME’s new warehouse reports, published
monthly with a month’s delay, capturing the full amount of inventory sitting
in the metals supply chain.

The LME has no regulatory authority to ask for, let alone publish, the size
of privately-held stocks.

But it does have policing power over its registered warehouse operators and
it has just extended that oversight to metal that may be one stroke of a
keyboard away from hitting its system but is “invisible” to the market.

The last few years have brought about an expansion of LME look-alike
storage. Stocks holders enjoy the benefits of LME warehousing, particularly
the option of super-swift warranting, but at a fraction of the cost.

The flow of metal between LME official and LME “shadow” stock pools can be
bewildering in a market such as aluminium because it is determined primarily
by storage rather than fundamental drivers.

The LME’s reports capture only this “ready-to-warrant” material. The count
is defined as metal stored under an agreement with a warehouse operator
specifying it be held in an LME-registered shed, or specifying that it can
be warranted at the owner’s request.

What lies beyond stays in the statistical night.

ALUMINIUM AND COPPER DOMINATE

The largest LME shadow stocks are those of aluminium, which is no surprise
given it is both the largest-volume base metals market and one with a
history of over-production at times of demand weakness.

And no surprise that most of the aluminium is located at Malaysia’s Port
Klang, which has taken centre stage in the LME aluminium storage wars over
the last couple of years.

LME shadow stocks at Port Klang were 434,000 tonnes at the end of May,
compared with registered stocks of 911,000 tonnes.

More interesting are the shadow stocks at the South Korean port of Gwangyang
and Detroit: 145,000 tonnes and 104,000 tonnes compared with registered
tonnage of 22,000 tonnes and zero respectively.

Shadow stocks at Detroit rose from 67,000 tonnes to 104,000 tonnes between
February and the end of May, a slightly ominous development given the amount
of surplus metal that hit Motown during the last market crisis a decade ago.

None of it has yet been warranted on the LME but all of it could be, which
is why it’s showing up in the new report.

The copper market, meanwhile, has taken in its stride the emergence of
161,374 tonnes of shadow stocks at the end of May.

The largest concentration is at Rotterdam, which held 89,295 tonnes,
compared with registered copper inventory of 84,575 tonnes at the end of
May.

It’s interesting to note that both shadow stocks and LME registered stocks
of copper increased between February and May to the tune of 86,000 tonnes
and 39,000 tonnes respectively.

That coincides with the first-round hit to metals demand from the fatal
coronavirus.

It also highlights the potential usefulness of these new reports, given that
the build in visible inventory was significantly smaller than that in
previously invisible shadow inventory.

Conversely, tin’s bullish narrative appears to be reinforced by the fact
that both shadow and registered stocks fell hard over the February-May
period.

There were 7,500 tonnes of registered tin stocks and another 3,000 tonnes of
shadow stocks at the end of February. By the end of May, these had shrunk to
2,455 tonnes and 265 tonnes respectively.

That said, such relatively low stock levels call for analytical caution,
given any sizeable-tonnage movement can swing the headline pendulum.

Shadow stocks of nickel and lead were also relatively small at the end of
May at 19,000 tonnes and 8,000 tonnes respectively while zinc bulls will
take heart that shadow stocks were “just” 41,000 tonnes relative to official
tonnage of 100,000 tonnes.

MORE LIGHT?

The LME has successfully illuminated that part of the stocks chain which
sits between the exchange’s own official system and fully off-market
storage.

It has been able to do so by asserting that shadow stocks are reportable
when the exchange is directly referenced in the metals storage contract.

Quite evidently, as long as a stocks owner is prepared to absorb the higher
insurance and credit costs that go with fully off-market storage and has no
intention of delivering to the LME, those stocks will not be captured in the
reporting net.

The LME has allowed stocks owners to take the initiative and volunteer
information but “always expected that voluntary reporting would be unlikely
to arise organically”.

With “very little” information voluntarily submitted, the exchange will
exclude such stocks from its reports.

For now.

It is clear the LME is going to push further into the stocks shadows. It
notes somewhat pointedly that it has “provided for additional powers in
respect of promoting enhanced voluntary reporting, including financial
implications for market participants who warrant metal which has not
previously been voluntarily reported”.

Watch this space.

And watch the regulators.

Brussels in particular is taking a long hard look at commodity markets and
whether large stock movements onto and off exchange might be deemed “insider
trading”.

The LME is in the process of forming a committee to draw up a consultation
document on “potential market conduct issues”.

For those disappointed that there were no real bomb-shells in the LME’s new
reports, remember it’s still work in progress.

For now, though, we all already know a little bit more than we did before
about how much metal is being stored “out there”.

INVESTORS DIARY 2020

Company

Event

Venue

Date & Time

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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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