Bulls n Bears Daily Market Commentary : 02 February 2022

Thu Feb 3 05:34:41 CAT 2022

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Bulls n Bears Daily Market Commentary : 02 February 2022

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ZSE commentary

The ZSE shares closed today’s session registering marginal gains in most indices in a mixed trading session. Activity levels were at 502 trades. Econet was the most active  stock at 72 trades followed by Delta and Axia at 56 and 47 trades respectively. Investor sentiment was negative after the session yielded 17 decliners against 15 advancers while five of the active stocks remained unchanged. Axia anchored volume aggregate trading 975 900 shares and Econet anchored value aggregate with a value of ZW$83.11 million.

The All-Share Index added 0.50% to close at 12 257.96 points. The Top 10 Index added 0.80%. The Top 15 Index also added 0.69%. The Medium Cap Index was down by 0.31% to 21 115.71 points whilst the Small Cap Index shaded 2.40% to 380 011.86 points. Leading the risers pack of the day was Unifreight adding 14.81%. African Sun  was up by 8.92%. Mashonaland Holdings added 7.57% and Innscor added 4.08% to 21917.96c. First Mutual Properties was up by 3.85%. Mitigating the gains were losses Masimba Holdings and Turnall Holdings which shaded 10.00% and 9.02%. First Mutual Holdings  was down by 4.36%. Zimre Holdings and Ariston shaded 3.70% and 2.33% respectively. The ETFs traded 289 247 units worth ZW$2 105 274.75. The Old Mutual Top 10 ETF shaded 17.67% to close at 693.63c while the Morgan and Co Multi Sector ETF added 0.89% to close at 1363.71c. On the VFEX, Padenga traded 74 706 shares closing unchanged at US$ 21c and Seed Co Int traded 39 920 shares closing at US$ 28.50c.wealthaccesssecurities

Global Currencies & Equity Markets

South Africa

South Africa's rand weakens as Eskom announces power cuts

(Reuters) - South Africa's rand weakened on Wednesday as risks to the domestic economy resurfaced with power utility Eskom announcing scheduled power cuts from Wednesday until Monday.

At 1507 GMT, the rand ZAR=D3 traded at 15.3400 against the dollar, 0.54% weaker from its previous close of 15.2575.

Eskom said of its roughly 46,000 megawatt (MW) nominal capacity, nearly 15,000 MW was offline because of breakdowns and 4,435 MW was offline because of a backlog of planned repairs.

The outages by the utility are the latest in a series that have constrained economic growth in South Africa.

On the international front, investors are monitoring the tone of central bankers for any hints about rising interest rates as well as key economic reports such as the U.S. jobs report due on Friday.

Stocks on the local stock exchange rose for a third consecutive session, as a batch of promising trading statements from some South African companies boosted prices.

The benchmark all-share index .JALSH rose 0.4% to 75,190 points and the blue-chip index of top 40 companies .JTOPI ended up 0.41% to 68,655 points.

In fixed income, the yield on the benchmark 2030 government bond ZAR2030= was down 7.5 basis points to 9.260% to reflect firmer prices.

Nigeria

Naira remains stable across FX markets as foreign reserve dips $481.4 million in January 2022

Naira depreciated against the US dollar on Tuesday with a 0.1% downtrend to close at N415.75/$1 compared to N415.33/$1 recorded as of the close of trading activities on Monday, 31st January 2022.

On the other hand, the exchange rate at the Peer-to-Peer (P2P) market appreciated marginally by 0.262% to trade at N570/$1 on Wednesday morning compared to N571.5/$1 in the previous trading day.

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Global Markets

U.S. dollar falls after private jobs data; euro up as inflation heats up

The dollar slid to more than a one-week low on Wednesday as data showed a drop in U.S. private sector employment in January due to the increase in COVID-19 infections, easing expectations the Federal Reserve would announce a large interest rate increase at its policy meeting in March.

In contrast, the euro gained for a third consecutive day, coming off a 20-month low last week, as euro zone inflation rose to a new record high last month. That fuelled bets the European Central Bank could raise interest rates sooner than expected.

The dollar index, with the euro as the largest component, fell 0.3% to 95.9280. It is on track for its largest weekly percentage loss since November 2020, at 1.3%.

ADP reported on Wednesday that U.S. private payrolls dropped by 301,000 jobs last month. Data for December was revised lower to show 776,000 jobs added instead of the initially reported 807,000. Economists polled by Reuters had forecast an increase of 207,000 in private payrolls.

After the release of the ADP data, U.S. rate futures priced in about 4.6 hikes this year, or about 116 basis points of policy tightening, down from the five rate increases that were seen over the last two days.

Futures also showed the probability of a 50-basis-point hike in March dropped to 6.5%, from as high as 32% late last week. Fed officials this week also backtracked on some of the central bank's hawkish comments, helping push the dollar lower.

Although they said the Fed would raise interest rates next month, these officials have all but ruled out a 50-basis-point increase in the central bank's benchmark overnight interest rate at the March 15-16 meeting and will keep their options open after that.

Even St. Louis Fed President James Bullard, a voter this year on the policy-setting Federal Open Market Committee and one of the more hawkish Fed officials, also pushed back against a larger rate hike in March, noting that markets have on their own started to push up borrowing costs already.

In the euro zone, markets are expecting the ECB to turn hawkish after an annualized inflation number of 5.1% in January, up more than twice the ECB's 2% target.

The euro firmed 0.3% to $1.1307, after earlier touching more than a one-week high, on growing expectations the ECB might signal a faster path for policy tightening at its meeting on Thursday.

Ulrich Leuchtmann, head of foreign exchange at Commerzbank, said money markets have now priced in an ECB rate increase for the last quarter of the year. In the short term, the impact on the euro will depend on what ECB President Christine Lagarde has to say on Thursday, he said.

Shaun Osborne, chief FX strategist at Scotiabank in Toronto, said the ECB is in an "uncomfortable position," but he expects it to remain committed to no hikes this year, "which will remain a drag on the euro."

Sterling rose 0.2% to $1.3556, after earlier hitting a nearly two-week peak against the dollar at $1.3586 ahead of a Bank of England policy meeting on Thursday.

Investors have fully priced in an expected increase in the BoE base rate by 25 basis points to 0.5% on Thursday.enbc

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Commodities Markets

Gold gains as U.S. dollar, yields dip after ADP jobs data

Gold rose on Wednesday as the U.S. dollar and Treasury yields declined after a downbeat jobs report, underpinning demand for the safe-haven metal amid simmering tensions between Russia and the West over Ukraine.

Spot gold gained 0.4% to $1,808.48 per ounce. U.S. gold futures settled 0.5% higher at $1,810.30.

Gold is still hovering above $1,800 and a lot of that has to do with Treasury yields having been “exhausted” and with the dollar still near today’s lows after the private payrolls data, said Edward Moya, senior market analyst at brokerage OANDA.

An employment report from ADP showed U.S. private payrolls unexpectedly fell in January, pressuring the dollar and Treasury yields. If gold can continue to stabilize above $1,800, you’ll probably start to see some more investors come back in, Moya added.

Bolstering bullion’s appeal, U.S. President Joe Biden approved sending additional forces to eastern Europe over a Russian threat to invade Ukraine.

Although gold is considered a hedge against higher inflation and geopolitical risks, interest rate hikes remain a potential headwind since that translates into a higher opportunity cost of holding non-yielding bullion.

Investors await European Central Bank and Bank of England meetings on Thursday for cues on the pace of monetary policy tightening in the face of soaring inflation.

Spot silver fell 0.1% to $22.61 an ounce, platinum advanced 1% to $1,037.59, and palladium rose 0.6% to $2,376.24.

Oil prices hitting $100 a barrel could bring an end to the Great Resignation

But in an oil market bound by extremely tight demand and an unstable situation in Ukraine, analysts say these supply increases may not be able to stop oil prices from reaching the financially and psychologically daunting price of $100 per barrel—or to stop a host of other second-order economic effects, including an end to the young work revolt behind the Great Resignation. 

“Lower income groups are vulnerable to higher energy costs,” says Paul Donovan, an economist at UBS, who says, “There could be some peculiar indirect effects,” to oil hitting $100 a barrel. 

A rise to $100 a barrel would not only exacerbate inflation, Donovan says, but also slow down the job turnover rate and slow the Great Resignation.

He notes that for the TikTok generation of 16- to 24-year-olds in the U.S.—a group that has been reluctant to reenter the labor force—“gasoline is a disproportionate amount of spending for this group. Higher oil prices may encourage a return to the conventional jobs market.”

Brent—the international crude oil benchmark—was being traded at $89 a barrel on Wednesday, the highest it’s been since October 2014, with banks and analysts predicting it will go even higher. 

Oil prices at $100 are a “distinct possibility this year, driven by both strong demand and minimal gains on the supply side,” says Bill Fitzpatrick, managing director and portfolio manager at Logan Capital.

It all comes down to scarcity, Stephen Schork of the oil pricing analyst Schork Group said on Bloomberg Markets. Schork notes that before COVID, the U.S. was the No. 1 producer of crude oil at 13 million barrels a day, but now produces 1.5 million barrels less. “There is no increase because now the mantra is ‘Clean up your balance sheet, clean up your debt, and decarbonize.’”

Storage tanks are running on low reserves and major producers in the OPEC+ alliance are struggling to pump enough to meet production targets, said research consultancy Energy Aspects. “Tank bottoms are in sight across crude and products worldwide already,” it said.

On top of low storage, heightened anxiety surrounding a Russian invasion of Ukraine and unplanned outages in Libya, Kazakhstan, and Ecuador have depressed supply further. 

Weak supply has been met with robust demand, providing more support for higher prices. The Omicron variant of COVID-19 has been less disruptive than originally feared, and with most countries planning on easing restrictions and a global resurgence of flight travel expected, oil demand has returned sooner than expected. 

As the price of oil climbs, the prices of gas and goods rise along with it, complicating efforts to tame inflation. “It could be the cherry on the inflation cake if we don’t get a moderation in energy prices,” Frederik Ducrozet, a strategist at Pictet Wealth Management, told Reuters.

This has knock-on effects in the job market, where higher wages may be needed to manage surging energy bills. This has a transitory effect on workers demanding higher pay, which could create a sticky inflation environment, says Société Générale senior inflation strategist Jorge Garayo.

But it also could lead some workers who quit their job during the pandemic to pursue side gigs to move back into the conventional job market, according to Donovan from UBS.

INVESTORS DIARY 2022

Company

Event

Venue

Date & Time

Counters trading under cautionary

ART

Seed co Int.

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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