Bulls n Bears Daily Market Commentary : 25 September 2023

Tue Sep 26 08:28:29 CAT 2023

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Bulls n Bears Daily Market Commentary : 25 September 2023

ZSE commentary

 <https://www.dulys.co.zw/> 

The market opened the week in the positive after ZSE All Share Index added
1,161.72 points to close the session at 116,651.76 points. Trading in the
positive: DELTA CORPORATION LIMITED added $86.5796 to $1,811.7309 and
PROPLASTICS LIMITED gained $68.1000 to $600.0000. SEED CO LIMITED added
$32.0340 to $505.2340, DAIRIBORD HOLDINGS LIMITED was $9.9660 up at
$429.9660 and TANGANDA TEA COMPANY increased by $7.1800 to $725.6800.

Leading the shakers: BRITISH AMERICAN TOBACCO ZIMBABWE LIMITED dropped
$300.0000 to close at $16,500.0000, AFRICAN DISTILLERS eased $108.8069 to
close at $1,739.2638 and MEIKLES LIMITED shed $50.0091 to $600.0000. ZB
FINANCIAL HOLDINGS LIMITED traded $42.0588 lower at $552.9412 and OK
ZIMBABWE LIMITED went further down $11.3138 to $120.4485.

EXCHANGE TRADED FUNDS (ETF)

OLD MUTUAL TOP 10 ETF added $0.9478 to $26.9978. CASS SADDLE AGRICULTURE
EXCHANGE TRADED FUND , DATVEST MODIFIED CONSUMER STAPLES , MORGAN & CO MADE
IN ZIMBABWE EXCHANGE TRADED FUND and MORGAN & CO MULTISECTOR EXCHANGE TRADED
FUND remained flat at $7.2200, $6.0000, $8.4800 and $185.0000 respectively.

Global Currencies & Equity Markets

South Africa

Rand gains late despite strong US dollar...

Welcome to another Weekly Rand Review with the latest developments shaping
the South African Rand's performance.

A busy week in the world of currency movements, with the headline act for
the Rand being the local inflation results that were set to take centre
stage midweek.

Local and international monetary authorities were also scheduled to announce
their decision on interest rates, which would unveil potential implications
for borrowing costs and investments.

Adding to the intrigue of the week's events, speculation regarding
significant changes in South Africa's taxation policies surfaced in the
week

and if there is any validity to these reports, it could have profound
effects on disposable income and spending power for Saffers.

Let's get started.

Key Moments (18-22 September 2023)

These were some of the major headlines over the last five days:

Local Inflation - In August, South Africa experienced a slight uptick in
inflation, bringing an end to a run of four consecutive months of declining
inflation rates.

Interest Rates - A spate of interest rate decisions were eagerly awaited
from various corners of the globe, including Europe, the United States, and
locally.

After a small green arrow last time out, the Rand got going at R18.95/$ on
Monday morning.

But, in what could be a tough week, the local unit was on the back foot
early due mainly to concerns about the impact of rising oil prices on the
overall inflation outlook

and the subsequent knock-on effect on interest rates.

Global Brent crude oil prices approached $95 (approximately R1,805) per
barrel in the week, their highest point in over a decade, due to
anticipations of an expanding market supply deficit in the fourth quarter.

This shortage is attributed to prolonged supply reductions by Saudi Arabia
and Russia, alongside optimistic prospects for increased demand in China.

As always, most of this is just speculation...

...as is the case with almost all trade in global markets!

The Rand broke back above R19/$ before lunch and traded sideways for most of
Tuesday as well, with investors biding their time until later in the week.

Before we get to the raft of interest rate decisions in the week, a
particularly alarming report in the week suggested that Saffers could be in
for a big change in taxation that could have a huge impact on their
disposable incomes.

In last week’s episode of the Rand review, we discussed SA’s fiscal deficit,
which now sits at R145 billion, and the concerns that it creates about the
outlook of the government’s finances

well, a report from trade union Solidarity last week explained that the
National Treasury are considering a possible hike in VAT by 2%.

The potential value-added tax (VAT) increase is just one of several
proposals presented by the Treasury during high-level meetings with
government officials this month.

These discussions aim to identify strategies for augmenting revenue to
address the nation's growing social spending requirements amidst an
expanding budget deficit.

Worryingly, in the initial four months of the 2023/24 fiscal year, the
budget deficit already reached a substantial R191.1 billion, equivalent to
67.4% of the projected consolidated budget deficit for the entire fiscal
year.

Safe to say, South Africa's budget is grappling with challenges on multiple
fronts.

On one hand, revenues are declining, primarily driven by a sharp drop in
corporate tax collections during the early months of 2023/24, which is
impacting overall tax income from income and profits

additionally, subdued growth in VAT receipts are constraining revenue from
the sale of goods and services.

On the other hand, expenditures are surging, exacerbated by the public
sector wage settlement exceeding budgeted figures, significantly elevating
total government spending

while concurrently, higher debt service costs are further intensifying
fiscal pressures.

But this is nothing new.

Finance Minister Enoch Godongwana has long cautioned about the consequences
and trade-offs that would be required if the government did not adhere to
the budget outlined in February.

Clearly, these warnings have largely gone unheeded.

The report also suggests that an increase in VAT could potentially generate
an additional revenue of R24.5 billion to R49.4 billion, depending on the
percentage of the increase eventually decided upon.

In the context of this year's National Budget, it's important to note that
the payment of the R350 grant carries an annual cost of R44 billion (which
has been cited as one of the main reasons for the proposed increase).

Based on this comparison, raising VAT to 17% could conceivably cover the
expenses associated with the grant.

The government has been advocating for this grant as a novel form of basic
income to support approximately 8.5 million individuals in the country

as it turns government plans to fund this is based on stomping on taxpayers
even further!

Yet, the government continues to believe that it can continue to burn funds
(that it doesn’t have) to pursue ambitious, socialist projects like the
National Health Insurance (NHI) and various other impractical initiatives...

Indeed, rather than reigning in spending, transferring a greater share of
its responsibilities to the private sector and prioritizing immediate
economic growth

intimidating taxpayers with the prospect of more taxes seems to make more
sense to the local powers that be.

Now let’s take a look at a separate report in the week relating to
government spending.

According to the National Treasury's report last week, national departments
have accumulated more than R18.5 billion in unauthorized expenditures since
2005, necessitating either budget reductions or charging these expenses
against the National Revenue Fund for recovery.

Treasury outlined the unauthorized spending that has occurred across 13
government departments and entities over the years, with five entities still
undergoing scrutiny.

(unauthorized spending, as defined by Treasury, encompasses instances of
overspending or funds allocated for purposes other than their intended use).

Although the most significant overspending was linked to the pandemic and
the state of emergency

South African government departments have still exceeded their budgets by
nearly R2.1 billion during that period.

Notably, the Department of Transport holds the highest record of
overspending, amounting to R1.34 billion between 2013 and 2016.

This overspending was a direct result of the department's engagement of a
service provider for the development, operation, and maintenance of the
eNaTIS system.

Even HSBC noted that the Rand is anticipated to depreciate against the
dollar due to a deteriorating fiscal situation and an expanding current
account deficit.

Not a promising outlook!

Anyway, back to the Rand.

On Wednesday, the local unit opened at R18.93/$ ahead of the crucial
inflation results.

In August, South Africa witnessed a slight uptick in inflation, breaking a
streak of four consecutive months of decline.

According to Stats SA, the annual consumer inflation rate increased from
4.7% in July to 4.8% in August.

Despite ongoing reductions in food and non-alcoholic beverages (NAB)
inflation, these declines were insufficient to offset the impact of rising
fuel prices and municipal tariff hikes.

The monthly shift in the consumer price index also moderated, dropping from
0.9% in July to 0.3% in August, according to the report.

Annual food inflation decreased from 9.9% in July to 8.0% in August, with
all food and NAB categories, except fruit, reporting lower annual rates.

Stats SA's surveys of municipal rates in July and August also revealed
noteworthy increases.

In 2023, electricity tariffs surged by 15.3%, a substantial increase
compared to the 7.9% rise in 2022, while water costs increased by 9.6% in
2023, following an 8.1% rise the previous year.

Property rates also saw an 8.4% increase, up from a 4.3% rise in 2022.

Furthermore, fuel prices experienced a 2.2% rise between July and August,
contributing to the shift from a -16.8% annual rate in July to -11.7% in
August.

South African annual consumer price inflation

Later that day, the focus shifted to the US, where the Federal Reserve opted
to keep interest rates unchanged.

Simultaneously, the central bank hinted that it anticipates one more rate
hike before the year's end and fewer reductions in the following year
compared to previous indications.

According to the projections released by the central bank at the conclusion
of its two-day meeting, this prospective final increase, if realized, would
mark the conclusion of this rate-hiking cycle.

If the Fed proceeds with this step, it would signify a total of twelve rate
hikes since the commencement of its policy tightening efforts in March 2022.

Consumer inflation in the US has significantly decreased from its peak of
9.1% in June 2022 to a current rate of 3.7%...

however, it still remains well above the Federal Reserve's target of 2%,
and the Fed's policymakers have emphasized that they are far from declaring
victory over the most severe inflationary period witnessed in the past four
decades.

The latest decision by the Fed has maintained its benchmark rate at
approximately 5.4%, a result of the 11 rate hikes initiated since March
2022.

Furthermore, there are indications that the labor market's strength has
waned somewhat, which serves as a check on inflation.

The pace of hiring has slowed down, and the number of unfilled job openings
experienced a significant decline in June and July, and there has been an
increase in the number of Americans actively seeking employment.

Not to mention, in the coming month, millions of Americans will need to
resume their student loan payments as the pandemic-related pause comes to an
end

 and this shift towards loan repayments could potentially weaken consumer
spending, which is a primary driver of the economy.

Emerging currencies received a boost (albeit a brief one) following the
announcement from the Fed, and the Rand improved to the mid-R18.60s but
slowly gave back the gains overnight.

On Thursday, SARB followed the Fed's lead and opted to maintain the current
interest rates in its recent decision.

While two members of the SARB's Monetary Policy Committee (MPC) advocated
for a 25 basis point rate increase, three members voted in favor of keeping
rates unchanged.

Consequently, the repo rate remains at 8.25%, with the prime lending rate at
11.75%.

Despite a notable decline in headline inflation in recent months, SARB
Governor Lesetja Kganyago highlighted that risks persist in the future
economic outlook.

The reaction to the decision taken by the MPC was muted, and the Rand was
unaffected, back in the mid-R18.80s heading into Friday.

Before we continue, let's take a look at some of the other notable stories
of the week:

In August, the annual inflation rate in the Eurozone stood at 5.2%. Official
data from Eurostat revealed a decrease from 5.3% in July this year and a
significant drop from 9.1% in August 2022. Similarly, the European Union
reported an inflation rate of 5.9%, down from 6.1% in July this year and a
substantial decline from 10.1% in August 2022.

In the United Kingdom, there was a 6.7% increase in prices in the year
leading up to August, as reported by the Office for National Statistics.
This marked a slight decrease from the 6.8% seen in the year ending in July
and a significant drop from the peak of 11.1% recorded in October 2022.
Although this inflation rate remains well above the Bank of England's 2%
target, the Bank of England opted to keep interest rates steady, breaking a
streak of 14 consecutive rate hikes. This decision was not unanimous, as
five out of the nine members of the committee voted for the pause.

In the ongoing Ukraine-Russia feud, there is a new player as one of
Ukraine's allies has had enough - Poland announcing that they will no longer
supply Kyiv with weapons. This seems to be closely interlinked with the
current agricultural export issues with Ukraine's grain, as well as the
upcoming Polish elections, where the ruling party is looking to secure votes
from the farmers.

On Friday, the Rand found support mainly due to a weaker dollar, dropping
from R18.90/$ at the start of the day to the mid-R18.70s by the afternoon
and held on as we headed into the weekend.

Nigeria

Naira rises, stocks fall as Cardoso faces FX backlog

The naira appreciated against the dollar on the parallel market while stocks
dropped at the end of trading on Monday as markets await the clearing of
foreign exchange backlog by Yemi Cardoso, the acting governor of the Central
Bank of Nigeria (CBN).

Cardoso was recently appointed by President Bola Tinubu, alongside four
deputy governors for a term of five years at the first instance, “pending
their confirmation by the Nigerian Senate”.

The naira pared some losses to trade at 995 per US dollar on the streets on
Monday after crashing to a new low of N1,050 last Friday. The official rate
opened at N747 per US dollar. The gap, which disappeared in the first two
days of the CBN’s reform in June, has reopened due to the scarcity of
dollars in the official market.

Some currency dealers said the naira appreciation followed a moderation in
demand as the foreign exchange market awaits policy action from the new CBN
governor.

Read also: How Naira redesign and its aftermath affect free trade in Nigeria

At the stock market, the Nigerian Exchange Limited All-Share Index and
equities market capitalisation depreciated by 0.66 percent or N242 billion
to close at 66,882.64 points and N36.605 trillion from 67,324.59 points and
N36.847 trillion respectively on Friday.

The CBN, in a statement on Friday, announced that Cardoso has formally
assumed duty in an acting capacity pending his confirmation by the Senate.
The statement noted that his assumption of office followed the resignation
of Godwin Emefiele, who was suspended in June.

Experts who spoke to BusinessDay said they expect stability in the financial
market following the appointments.

According to Uche Uwaleke, professor of finance and capital market at
Nasarawa State University, Cardoso’s assumption of office in an acting
capacity was necessary, saying it would impact the confidence of players.

He said: “Seeing him as a substantive governor sends the right signal to the
financial market; it was clear that the former was acting and it is not
right to have an acting governor for a long time, considering the importance
of the bank.

“The market will be more stable now, with less distraction because Cardoso,
even though acting, is the substantive governor. The market will see them as
people that have come to stay.”

He added: “However, I expected the president would have waited for him to be
confirmed by the Senate, or called for an emergency meeting to confirm him;
this ensures that things are done following due process.

“Much as having a substantive CBN governor as quickly as possible is in the
interest of financial markets, it’s important that due process, as
stipulated in the CBN Act, be followed.”

Lawmakers went on their annual recess in August and are scheduled to resume
on Tuesday (today).

Also speaking with BusinessDay, Muda Yusuf, the CEO of Centre for the
Promotion of Private Enterprise, said: “There is nothing wrong with Cardoso
assuming office in an acting capacity, just as we see in other institutions;
leaders act before they are confirmed.

“The former leaders did a lot of damage and they needed to leave. All those
who were there were asked to leave; so someone has to be there. That we have
a substantive governor is a good development.”

Read also: Nigeria’s financial market seen stabilising as Cardoso assumes
duty at CBN

Auwaal Ibrahim Rafsanjani, executive director of Civil Society Legislative
Advocacy Centre, who said that Cardoso assuming office without confirmation
of the Senate was not the right move.

He said: “There is a reason why the law say that leaders must be confirmed
before assuming office.

“We had someone who was acting; why are we having another person also in an
acting capacity? This inconsistency might send the wrong signal to the
financial market. I think it is important we follow due process.

 <mailto:info at bulls.co.zw> 

Global Markets

Dollar at 10-month high as US yields spike; yen slides

(Reuters) - The dollar stood by 10-month highs against a basket of major
currencies on Tuesday, supported by U.S. bond yields scaling 16-year peaks,
while the yen tiptoed deeper into the intervention danger zone.

A combination of resilient economic data, hawkish Federal Reserve rhetoric
and a budget deficit to be financed by borrowing has the 10-year Treasury
yield up more than 45 basis points (bps) in September to top 4.5% for the
first time since 2007.

Rates markets are priced for an almost 40% risk of another Fed hike this
year, against slimmer chances for another rise in Europe, and the difference
has helped prop up a dollar many had bet would swiftly fall as the Fed
signalled an end to hikes.

The euro nursed Monday's 0.5% drop and was parked by a six-month low at
$1.0584. It's on course for a 3% drop in the quarter, its worst quarterly
percentage loss for a year.

Sterling is also set to snap three quarters of gains, with a loss of 3.8%
over the three months to September. It fell to a six-month low of $1.2195
overnight and traded only a whisker above that level in the Asia session.

The U.S. dollar index touched its highest since November at 106.1 on Monday
and was at 106.03 on Tuesday.

"From here it eyes levels around 107.20," said analysts at Australia's
Westpac bank. "Few currencies will resist the bullish dollar macro
resiliency theme and the euro and Chinese yuan look more vulnerable than
most."

Last week also brought more signs that central banks beyond the Fed are
reaching the end of their hiking cycles.

The Swiss franc has tumbled through its 200-day moving average to hit its
lowest since June after the central bank surprisingly kept short-term rates
on hold.

The yen has slowly but inexorably slid toward the 150-per-dollar mark as
policymakers stuck with ultra-easy settings.

The psychological level is seen as a likely red line for the finance
ministry, whose warnings of possible intervention have stepped up in recent
weeks. Traders have an eye on a Tuesday meeting of political leaders and
Bank of Japan officials.

The yen hit 148.97 to the dollar on Monday and last traded at 148.88.

Rising commodity prices have provided some support to the antipodean
currencies, though they have been mostly sideways for the past month or so.
The Aussie was last steady at $0.6417 and the kiwi at $0.5962.

China's yuan <CNY=CFXS> held at 7.3099, but only thanks to its trading band
midpoint being fixed some 1400 bps firmer than forecast, leaving it very
close to the weak end of its allowed trading band.

U.S. consumer confidence and home sales data is due later on Tuesday, with
slight weakening seen on both fronts though there are doubts that that could
much dent the dollar.

"Even if the U.S. economy is headed for a slowdown, the dollar could find
support on the back of haven demand given broad based concerns over weak
global growth," said Rabobank's senior FX strategist Jane Foley.

"We remain of the view that the dollar is unlikely to weaken significantly
until Fed rate cuts are firmly on the horizon," she said. "We are currently
trading fairly close to our long-held euro/dollar $1.06 target. We see
downside risk to this." 

 <mailto:info at bulls.co.zw> 

Commodities Markets

Gold Price Forecast: XAU/USD struggling to hold on to $1,915

The XAU/USD took a step lower on Monday, knocking into $1,915.00 and seeing
little relief pressure as the US Dollar (USD) catches bids across the board.

Spot gold prices have steadily drifted lower in 2023, peaking just below
$2,080.00 back in early May. The XAU/USD is down almost 8% from the year's
high, but still remains well-supported looking long-term, with Gold up
nearly 20% from last October's lows of $1,650.00

Gold's long-standing relationship with US Treasury yields has softened in
recent months; while the yellow metal has a tendency to closely track with
US yields, that relationship has broken down for most of 2023. US yields
have appreciated considerably, but Gold remains unable to capitalize on bond
momentum.

$2,000 by end-2023, $2,200 by end-2024?

Despite downward price pressure, analysts are forecasting lofty end-of-year
Gold spot valuations.

Commodity analysts from Société Générale (SocGen) see Gold capped under
$2,000 to end the trading year, but 2024 is expected to see Gold prices
improve to $2,200 by the end of 2024, on the back of easing inflation
expectations and a slipping US Dollar Index.

XAU/USD technical outlook

Hourly candles see Gold flubbing to last week's swing lows below $1,915.00,
while the upside is set to be constrained by near-term resistance from the
100-hour Simple Moving Average (SMA) near $1,925.00.

On the daily candlesticks, the XAU/USD is seeing a notable lack of
meaningful momentum, with Gold stuck near the 200-day SMA which is still
moving bullish into $1,930.00.

Bidders will be looking to shove Gold back above $,1930.00 to continue a
push higher, while sellers will be looking to take the XAU/USD down to
August's lows below $1,890.00.

.

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Invest Wisely!

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