Bulls n Bears Daily Market Commentary : 19 June 2020

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Bulls n Bears Daily Market Commentary : 19 June 2020

 


 

 


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Zimbabwe Stock Exchange Update

 

Market Turnover ZWL$59,745,338.50 with foreign buys at ZWL$17,246,781.66 and
foreign sales were ZWL $22,941,686.10 Total trades were 223.

 

The All Share index closed the week on a positive note adding 54.16 points
to close at 1,713.63 points. BAT  added another $14.5000 to $216.0000, CAFCA
rose by $4.0000 to close at $50.0000 and SEEDCO INTERNATIONAL LIMITED
traded $3.3500 higher at $24.3500. AFDIS  also increased by $2.5000 to
$15.5000 and FBC HOLDINGS   was $2.0200 stronger at $12.3500.

 

Trading in the negative;CBZ HOLDINGS lost $0.8035 to $33.8594, SIMBISA eased
$0.3397 to close at $8.4397 and ECONET  was $0.0460 lower at $0.0460 to
$8.3993. MEDTECH   also decreased by $0.0104 to $0.1200 and WILLDALE  was
$0.0088 weaker at $0.2500.

 <mailto:info at bulls.co.zw> 

 

Global Currencies & Equity Markets

 

 

 

Nigeria

 

Nigeria levies $598 mln from banks via cash ratio debit ahead of FX auction

(Reuters) - Nigeria’s central bank has collected 216 billion naira ($598
mln) from banks with excess cash holdings as part of measures to support the
naira currency, leading to a spike in money market rates, bankers said on
Friday.

 

The naira has come under intense pressure as lockdowns to try to contain the
COVID-19 pandemic have led to a sharp fall in the price of oil - Nigeria’s
main export - and as foreign investors have departed, causing a large
financing gap.

 

The currency has been hitting new lows on the over-the-counter spot and
black markets since March after the central bank adjusted its official rate,
implying a 15% devaluation, to absorb the impact of an oil price crash.

 

The naira traded at 385 on the official market this week, weaker than a
quoted rate of 361, backed by the central bank.

 

Banking sources told Reuters the liquidity withdrawal came before a foreign
currency auction on Friday.

 

Results of the auction were due later in the day.

 

Money market rates spiked up to 20% on Friday following the debit, from just
under 3% the previous session, bankers said.

 

He said offshore lenders were the most affected by the levies since they
don’t operate retail business and are debited from their corporate deposits
or borrowings.

 

The bank is selling forex to importers and individuals with dollar expenses
to keep its economy afloat. But it has yet to resume forex sales to
investors that have sold assets and need to leave the country.

 

The central bank did not respond to a request for comment.

 

 

 

South Africa

 

South African rand recovers after sell-off, stocks edge up

(Reuters) - South Africa’s rand firmed against the U.S. dollar early on
Friday, recovering from the previous session’s tumble when global risk
sentiment had been dented by fears of a second wave of coronavirus
infections.

 

The rand was trading up 0.6% at 17.3525 per dollar by 1545 GMT, having
fallen more than 1% on Thursday.

 

South African-focused investors are awaiting a supplementary budget
pencilled in for June 24, when Finance Minister Tito Mboweni is expected to
unveil a major shake-up in spending and revenue forecasts for the
recession-hit economy.

 

South Africa’s economy was in bad shape before the COVID-19 pandemic struck.
A strict nationwide lockdown from late March has since curtailed production
across key sectors such as mining and retail, with the central bank
predicting a 7% contraction in gross domestic product this year.

 

On the stock market, the Top-40 index was up 0.9% while the broader
all-share index rose 0.7% in early trade.

 

In fixed income, the yield on the long-dated government bond due in 2030 was
down 1.5 basis points at 9.315%.

 

The Johannesburg Stock Exchange (JSE) ended the week slightly higher as
optimism around reopening of economies soothed some worries over the
continuing spread of the coronavirus.

 

The benchmark all-share index was up 0.43% to end the trading week at 54,171
points and the top 40 companies index closed up 0.37% to 49,770 points.

 

A major boost to the market came from a rise in gold prices that gained 1.2%
on the day and lifted JSE’s gold index , which represents the top five gold
mining companies in South Africa, almost 8%. 

 

 

 

 <mailto:info at bulls.co.zw> 

 

 

GLOBAL MARKETS

 

U.S. shares retreat on renewed pandemic fears, safe-havens rise

(Reuters) - Demand for safe havens rose and global equity markets turned
south on Friday after Apple Inc said it would temporarily shut 11 U.S.
stores as coronavirus cases continue to rise, rekindling fears of a deadly
second wave of the pandemic.

 

News of Apple’s move involving stores in Florida, Arizona, South Carolina
and North Carolina doused hopes for a quick economic recovery that had
spurred risk appetite earlier in the day, driving up European and U.S.
stocks about 1%.

 

Treasury yields fell and the dollar rebounded from early losses as it posted
its best weekly gain in a month. Gold rose more than 1%, with futures
settling above the technical barrier of $1,750 an ounce, a breakout that
should push bullion higher.

 

Apple’s decision portends more restrictions coming back as coronavirus cases
rise and the reopening process stalls, said Edward Moya, senior market
analyst at currency brokerage OANDA.

 

The $1,750 mark “has been a big barrier for gold and speaks strongly that
the safe-haven trade is not going away anytime soon,” Moya said.

 

Stocks in Europe pared some gains but closed higher before the Apple news
broke. Investors remained hopeful that a massive 750 billion euro stimulus
package will soon be passed, though European Union leaders made little
progress in negotiations.

 

The Nasdaq’s early surge above the 10,000 mark had put the tech-heavy index
on track to a record closing high, but Apple’s announcement foiled that
milestone even though Nasdaq closed moderately higher.

 

MSCI’s gauge of stocks across the globe shed 0.20% while the pan-European
STOXX 600 index closed up 0.56%. Emerging market stocks rose 0.60%.

 

On Wall Street, the Dow Jones Industrial Average fell 204.38 points, or
0.78%, to 25,875.72. The S&P 500 lost 17.22 points, or 0.55%, to 3,098.12
and the Nasdaq Composite added 3.07 points, or 0.03%, to 9,946.12.

 

Investors have been tugged in opposite directions by improving economic data
and new outbreaks of COVID-19 infections. California, North Carolina and a
string of U.S. cities have mandated or urged mandatory mask use to contain
spiraling coronavirus cases.

 

Mainland China reported 32 new coronavirus cases as of the end of June 18,
25 of which were reported in Beijing, China’s National Health Commission
said.

 

Oil prices pulled back sharply from early highs on concerns the pandemic’s
continued spread could hamper the recovery.

 

Boston Federal Reserve President Eric Rosengren said more fiscal and
monetary support for the U.S. economy will likely be needed, echoing
comments by the European Central Bank chief, who said the EU’s economy was
in a “dramatic fall.”

 

Brent futures rose 68 cents to settle at $42.19 a barrel while U.S. crude
settled up 91 cents at $39.75.

 

ECB President Christine Lagarde called on EU leaders to agree on their
recovery plan quickly, diplomatic sources and officials said. The leaders
are divided over its final size but hope a deal will be struck in July.

 

The dollar index rose 0.193%, with the euro down 0.16% to $1.1184 and the
Japanese yen up 0.15% versus the greenback at 106.83 per dollar.

 

Demand for German government debt was little changed, with the benchmark
10-year Bund yield at -0.415%.

 

Benchmark 10-year notes rose 0.1 basis points to yield 0.6954%, coming off
higher yields of 0.745% earlier in the session.

 

U.S. gold futures settled 1.3% up at $1,753 an ounce.

 

 

 

 

 

 <mailto:info at bulls.co.zw> 

 

 

 

Commodities Markets

 

Copper heads for fifth weekly gain on economic recovery hopes

(Reuters) - Copper prices were heading for a fifth consecutive weekly gain
on Friday as inventories declined and stock markets rose while demand
improved in top consumer China.

 

Investors are increasingly optimistic about an economic rebound, with the
mood bolstered after China said it had brought a new coronavirus outbreak
under control.

 

Benchmark copper on the London Metal Exchange (LME) was up 0.5% at $5,835 at
1602 GMT for a gain of nearly 1% this week.

 

The metal, used in power and construction and often seen as a bellwether for
the global economy, has risen 34% from March lows and is nearing January’s
pre-coronavirus high of $6,343.

 

Prices have also been supported by massive central bank stimulus and plans
for metals-intensive infrastructure spending, said Saxo Bank analyst Ole
Hansen.

 

STOCKS: On-warrant copper stocks in LME-registered warehouses fell by 10,025
tonnes to 127,875 tonnes, down from about 250,000 tonnes in mid-May.
MCUSTX-TOTAL

 

Total inventories in Shanghai Futures Exchange (ShFE) warehouses shrank by
18,162 tonnes to 109,969 tonnes in the week to Friday, taking stocks to
their lowest since January 2019. CU-STX-SGH

 

PREMIUMS: Chinese Yangshan copper import premiums climbed to $95 a tonne
from $84 at the start of the week, pointing to a pick-up in demand.
SMM-CUYP-CN

 

DEMAND: China’s copper consumption is expected to be 2% higher in the second
quarter than in the same period in 2019, said VTB Capital analyst Dmitry
Glushakov.

 

TRADE WAR: U.S. President Donald Trump threatened again to cut ties with
China, though a U.S. diplomat said China had committed during talks this
week to follow through on the previously agreed Phase 1 trade deal.

 

COLUMN: Friend or foe? Canadian imports split U.S. aluminium sector.

 

OTHER METALS: LME aluminium was down 1.1% at $1,589 a tonne, zinc rose 1.2%
to $2,075.50, nickel fell 1% to $12,770, lead dropped 1.6% to $1,781 and tin
was up 0.2% at $16,920.

 

Zinc and lead were higher over the week, while aluminium and nickel were
roughly flat and tin was lower.

 

($1 = 0.8888 euros)

 

Canadian imports split U.S. aluminium sector: Andy Home

(Reuters) - A surge in Canadian aluminium imports “is destroying what
remains of the United States industry”.

 

The dramatic warning comes from the American Primary Aluminum Association
(APAA), which represents Century Aluminum and Magnitude 7 Metals, two of the
last three remaining primary producers in the United States.

 

The solution, they argue in a May 27 letter to U.S. Trade Representative
Robert Lighthizer and Commerce Secretary Wilbur Ross, is to revoke Canada’s
exemption from import tariffs.

 

The U.S. Aluminum Association (AA), which has a much larger membership
including the country’s third producer Alcoa, vehemently disagrees.

 

 

This uncivil war of words has fueled a sharp turnaround in the Midwest
aluminium premium as the regional market reassesses the prospect of renewed
tariffs on the largest-volume supplier to the U.S. market.

 

It also lays bare the failure of President Donald Trump’s 10% tariffs to
revitalise domestic production of a metal the administration deems critical
to national security.

 

But is Canada to blame? Or is it the solution?

 

BATTLE OF THE SURGE

The APAA claims that Canadian imports of primary aluminium have surged since
the country was exempted from tariffs in May 2019.

 

The word has lobbying resonance.

 

The trade agreement between the two countries includes a provision that
tariffs on Canadian aluminium can be re-imposed if imports “surge
meaningfully beyond historic volumes of trade over a period of time, with
consideration of market share”.

 

Unfortunately, the trade negotiators didn’t specify what would represent a
“meaningful” surge or what time period would be used as reference point.

 

A diplomatic oversight that now forms a statistical battleground between the
APAA and the AA.

 

It is true that more Canadian aluminium has been entering the United States
this year.

 

Imports of primary metal jumped by 46% year-on-year in the first quarter of
2020, according to research house CRU.

 

But there are some important caveats.

 

Firstly, Canadian production has been rising thanks to the return of the
Becancour smelter after a bitter two-year strike that ended in July 2019.
The plant produced 72,000 tonnes in January-March, compared with just 77,000
tonnes over the whole of 2019.

 

Secondly, there is the not so little matter of COVID-19 and the demand
destruction caused by the lockdown of North America’s automotive and
construction sectors.

 

There is a lot of surplus aluminium around at the moment. London Metal
Exchange (LME) warehouse stocks have risen from under a million tonnes in
the middle of March to 1.6 million.

 

Much of that surplus, moreover, is in the form of commodity-grade metal. In
response to collapsing automotive demand aluminium producers have shifted
their mix away from value-added products to so-called “P1020” aluminium that
can be delivered to LME warehouses.

 

It’s precisely that form of metal that the APAA claims has been surging
across the border.

 

Imports of Canadian alloyed metal, on the other hand, are on course to fall
5% this year as the product mix changes, CRU estimates.

 

Disentangling such market dynamics from tariff dynamics is highly
problematic.

 

And without an agreed statistical anchor point, one side’s surge is
another’s mean reversion.

 

The first quarter imports were actually only 3% higher than the
first-quarter average in 2015-2017, notes CRU.

 

Canada’s share of the import mix in the quarter was 67%, exactly the same as
the 30-year average, according to the AA.

 

FRIEND OR FOE?

There is one underlying truth in this statistical maze.

 

Any post-tariff lift to U.S. aluminium production has run its course with
all three operators under financial stress at current prices.

 

Alcoa is shutting its Ferndale smelter in the state of Washington, reducing
the number of operating plants to just six.

 

Ferndale is an old plant, first commissioned in 1966. Production lines have
been curtailed and reactivated during past aluminium price cycles.

 

Indeed, all the remaining U.S. smelters are old, leaving them in the
cost-curve danger zone whenever the price falls.

 

Century’s Hawesville, Sebree and Mt Holley smelters date from 1969, 1973 and
1980 respectively.

 

The New Madrid smelter bought out of bankruptcy by Magnitude 7 metals was
built in 1971. Its reactivation was hailed by the Trump administration as a
tariffs success story but local residents are now living with the dirtiest
air in the country.

 

Tariffs can at best only partially shield such operators from global price
trends, even while penalising downstream U.S. aluminium users.

 

That’s a problem for the United States given the determination to build
secure supply chains for critical metals such as aluminium.

 

Particularly since the world’s largest exporter of primary metal is Russia
and the largest exporter of semi-manufactured products is China, two highly
problematic trade partners.

 

If the United States is serious about its long-term aluminium supply, it
will need to either form an alliance with a friendly producer country or
directly subsidise new capacity.

 

The latter may seem an outlandish idea but the Department of Defense has
already been authorised to invest directly into other vulnerable critical
mineral supply chains such as rare earths.

 

In either case Canada is the obvious aluminium choice.

 

Its smelters are newer, lower-cost and greener thanks to Quebec’s
hydro-power systems. It may have room for at least another one. It’s far
from clear if the more fractured U.S. energy market can accommodate a new
power-hungry aluminium smelter.

 

Canada’s aluminium sector has also historically been considered an integral
part of the United States’ defence sector, a fact easily forgotten in the
fractious trade relationship of the last two years.

 

Re-imposing tariffs on Canadian aluminium may have short-term political
appeal ahead of U.S. elections later this year but the problem of the United
States’ ageing smelters isn’t going to go away.

 

Tariffs would actively work against the obvious long-term solution to the
United States’ problem with primary aluminium.

 

It’s ironic that Canadian imports are roiling the aluminium sector even as
the two countries work towards a broader metallic alliance.

 

The U.S.-Canada Critical Minerals Working Group held its second virtual
meeting on June 17 with both sides reaffirming their “commitment to further
strengthen the U.S.-Canada supply chain for critical minerals that are
essential to our mutual security and future prosperity”.

 

We don’t know if aluminium was on the agenda. If not, it should have been.

 

 

 

 


 

INVESTORS DIARY 2020

 


Company

Event

Venue

Date & Time

 


 

 

 

 

 


 

 

 

 

 


 

 

 

 

 


 

 

 

 


 

 

 

 


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for guideline purposes only and sourced from third parties.

 


 

 


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