Bulls n Bears Daily Market Commentary : 15 April 2024

Tue Apr 16 09:27:32 CAT 2024

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Bulls n Bears Daily Market Commentary : 15 April 2024

 <mailto:sales at dulys.co.zw?subject=Request%20Quote> ZSE commentary

ZSE turnover subdued at US$ 4 852; ZiG continues to firm

HARARE – Zimbabwe Stock Exchange shares continued to see subdued trading activity amid a cautious approach from investors although banking systems are now reconfigured for the new currency.

ZiG introduced on April 5, has now appreciated 1.17% against the US dollar to 13.4 although on the alternative market, rates are being quoted between 14 and 17.  

After some initial market confusion, the majority of banks, traders, and businesses were able to successfully convert their old Zimbabwe dollar balances to ZiG. Electronic ZiG has started to circulate, and ZiG notes and coins are expected to be introduced on April 30.

The All Share Index lost 1.15% to 99.24. Only 18 trades were recorded with turnover at ZiG61 416.32 or US$4 582 after just 24 600 shares traded. Star Africa led in volume at 12 400 and Delta contributed the most to value at ZiG58 900.  There was no foreign participation. Market capitalisation was at ZiG29.76 billion or US$2.2 billion.

The Top 10 Index was the weakest link after losing 1.67% to 98.04. Econet was the worst performer with an 8.69% decline to 195.41c and NMB, which is trading under cautionary pending a regional acquisition, pared 0.05% to 144c.

However, EcoCash put on 0.95% to 33.04c. 

The Medium Cap Index added a marginal 0.23% to 101.92. Masimba led the risers after it put on 2.28% to 153.50c despite reporting lower earnings in the year to December 2023 weighed on by a deliberate slowdown in activity in the fourth quarter due to delayed payments from clients. 

Mash Holdings added 1.64% to 15.05c and future tie-up FMP put on 1.07% to 26.05c. OK Zimbabwe was 1.12% higher to 1.12% to 47c taking its market capitalisation to ZiG609.26 million.

Seed Co was 3.76% lower to 200c and Tanganda was down a fractional 0.05% to 207.93c. Star Africa dropped 2.09% to 1.96c. 

VFEX turnover amounted to US$88 552 supported by trades in Simbisa at US$88 048 from 255 170 shares. The All Share was 0.88% higher to 99.65 taking its market cap to US$1.19 billion. First Capital led the risers, gaining 14.62% to 2.90 US cents and Padenga, which is mainly focused on ramping up its gold production, put on 4.91% to 19 US cents.

Only Simbisa traded in the negative, losing 1.26% to 34.51 US cents.-finx

Global Currencies & Equity Markets

South Africa

South African rand weakens against dollar with focus on Middle East

(Reuters) - South Africa's rand weakened against the U.S. dollar on Monday as markets remained cautious with tensions rising in the Middle East.

At 1516 GMT, the rand traded at 19.0200 against the dollar , about 0.75% weaker than its previous close.

The dollar index was last trading up about 0.18% against a basket of currencies.

Iran launched more than 300 drones and missiles at Israel over the weekend in retaliation for what it said was an Israeli airstrike on its Damascus consulate on April 1.

Rising insecurity in the Middle East tends to spur demand for the safe-haven greenback. The dollar was also boosted by U.S. retail sales figures which increased in March.

"Developments in the Middle East over the next few days are likely to remain the main focus and driver for currency moves and keep the dollar on the front foot," said Andre Cilliers, currency strategist at TreasuryONE.

South African investors will also be looking at March inflation and February retail sales figures later in the week.

On the stock market, the Top-40 (.JTOPI), opens new tab index closed 1.24% lower, while the broader all-share (.JALSH), opens new tab index was down 1.05%.

South Africa's benchmark 2030 government bond was weaker, with the yield up 4 basis point to 10.785%.

Nigeria

Naira defence to cost CBN N1.01 trillion in interest rates from Q1 NTB auctions 

The Central Bank of Nigeria’s (CBN) aggressive stance on the naira defence is projected to lead to an enormous interest payout, with the CBN set to incur approximately N1.01 trillion.

This figure emerged from the analysis of the Nigerian Treasury Bills (NTB) auction data for the first quarter of 2024, which showcases a robust subscription trend amidst rising rates. 

The cumulative interest to be paid out by the end of these T-bills’ tenors will amount to approximately N1.01 trillion, underlining the substantial cost of defending the naira and curbing inflationary pressures. 

On the other hand, investors seem to respond positively to the higher rates, as seen in the robust subscription rates, suggesting confidence in the CBN’s ability to manage the country’s fiscal challenges. 

N21.17 trillion total subscriptions 

The total subscription for the quarter stood at a staggering N21.17 trillion, emphasising the high demand for government securities. Despite this, the CBN’s total sales amounted to about N5.64 trillion, reflecting a cautious approach to liquidity management in the banking system. 

The most recent auction on March 27, 2024, witnessed a total subscription of over N2.62 trillion across the 91, 182, and 364-day tenors. The total sales for this auction amounted to over N1.19 trillion (NB. Nairametrics observed conflicting information on the total sales for the 356-day tenor bill between what the CBN published on its database and what is available online in news reports. The data for this story is strictly based on information from the CBN database). This indicates the central bank’s selective bidding process, which saw a stop rate of 17% for the 182-day bills, a significant uptick from the previous auction’s 7.15% for the same tenor. 

Rising Interest rates 

A closer look at the quarter’s trend shows a gradual increase in the stop rates offered by the CBN. The stop rates on NTB have surged significantly from 2.44% on a 91-day tenor bill, 4.22% on a 182-day tenor bill, and 8.3995 on a 364-day tenor bill from the first auction in January to 16.24%, 17%, and 21.124% respectively from the last auction in March 2024. The heightened interest in the NTBs signifies a keen investor appetite for higher interest rates, providing a solid anchor for the fiscal stability of Nigeria. 

Notably, the stop rate for the 364-day bill hit a high of 21.124% on the same date, reflecting tightening monetary conditions. This longer tenor bill attracted a mammoth subscription of approximately N2.48 trillion, with the CBN capitalising on this demand to offer a whopping N142.16 billion at this rate, costing the apex bank N239.61 million in interest payment. 

The CBN, under Yemi Cardoso, has increased the monetary policy rate (MPR) by 600 basis points so far, from 18.75% to 24.75%. The apex bank’s decision to tighten monetary policy by increasing interest rates and auctioning larger volumes of treasury bills is a strategic move to address several macroeconomic concerns. 

Higher interest rates are typically employed to control inflation; they make borrowing more expensive, thereby tempering spending and investment, which, in theory, should reduce the upward pressure on prices. 

Additionally, these higher rates tend to attract foreign investors seeking better yields, leading to an inflow of foreign currency, which can help stabilise and potentially strengthen the Nigerian Naira. 

The (CBN) recently disclosed that over 75% of bids received during the auctions of government securities held on March 1 and 6, 2024, were from foreign investors, showcasing their growing interest in Nigeria’s financial instruments.  

What does this mean? 

The increase in the stop rates for Treasury Bills over the quarter signals an aggressive tightening of monetary policy by the CBN. The higher interest rates on these government securities could increase borrowing costs across the economy. Businesses might face higher expenses to finance operations or expansion, potentially slowing down economic growth. 

However, these higher rates are a boon for investors, who are now receiving better returns on their government securities investments. This attractiveness could enhance foreign investment inflows, further bolstering the naira’s position.  

The implications of the CBN’s fiscal manoeuvres for the broader economy are twofold. On the one hand, the robust demand for T-bills reflects investor confidence in the Nigerian economy and the CBN’s policy directions. On the other hand, the significant interest payout required to maintain these high rates emphasises the substantial fiscal burden on the CBN. 

The increased cost of defending the naira through T-bills may potentially limit the central bank’s manoeuvring capacity in other areas, such as developmental lending or currency interventions. Moreover, as global economic conditions remain uncertain, particularly with fluctuations in oil prices—a major revenue source for Nigeria—the pressure on the CBN could intensify.

 <mailto:info at bulls.co.zw> 

Global Markets

Dollar's rally supercharged by diverging US rate outlook

(Reuters) - A rally in the U.S. dollar is accelerating, as stubborn inflation sows doubts over how aggressively the Federal Reserve will be able to cut rates this year compared to other central banks.

The U.S. dollar index (.DXY), opens new tab, which measures the greenback against a basket of six major currencies, is up 4.6% this year and stands near its highest levels since early November. The index rose 1.7% last week, its biggest weekly gain since September 2022.

The greenback is advancing as market participants grow convinced the Fed will need to leave interest rates at current levels for longer to avoid a potential resurgence of inflation. Last week's stronger-than-expected consumer price data bolstered that view: investors late Friday were pricing in just 50 basis points of interest rate cuts in 2024, futures markets showed, compared to 150 basis points priced in at the start of the year.

By contrast, investors believe some global central banks - including the European Central Bank, the Bank of Canada and Sweden's Riksbank - could have a freer hand to ease monetary policy. That is a shift from a few months ago, when many believed the Fed would be among the first to cut rates.

"We had a fairly clear path that the Fed would likely be the first actor. The data that we have received really does undermine that,” said Eric Leve, chief investment officer at wealth and investment management firm Bailard. “I can see obvious reasons why the dollar could strengthen further."

Yield differentials between the U.S. and other economies have widened in recent weeks, contributing to the greenback’s rally as higher yields boost the allure of dollar-denominated assets. The two-year U.S.-German bond spread stood at its widest since 2022 late Friday, LSEG data showed, a day after the European Central Bank signaled it could cut rates as soon as June.

Bullish investors have increased their bets on the dollar, while bears have wavered. Net bets on the dollar in futures markets stood at $17.74 billion in the latest week, data from the Commodity Futures Trading Commission showed, the highest level since August 2022.

Central bank policy has diverged in recent months, reflecting economies' varying struggles to contain inflation.

The Swiss National Bank reduced rates by 25 bps in March, its first cut in nine years. Sweden's central bank has signaled it could cut rates in May if inflation keeps falling, while the Bank of Canada recently suggested it was ready to ease.

Central banks in Australia, Britain and Norway, on the other hand, appear less eager to loosen monetary policy.

Japan's yen, meanwhile, has weakened to a near 34-year low against the dollar - though the country has recently ended eight years of negative interest rates. The Bank of Japan has ruled out using rate hikes to support the currency.

Eric Merlis, managing director and co-head of global markets at Citizens, believes the dollar could continue appreciating broadly on the back of a more hawkish Fed relative to the ECB. The euro has fallen 3.6% against the greenback this year.

"The dollar has room to strengthen. We have the strongest economy right now, in general, the trajectory of yields has been going up," he said. "Whereas Europe is struggling in terms of growth."

A stronger dollar could complicate the inflation fight for other economies as it pushes down their currencies, while helping the U.S. tamp down consumer prices by tightening financial conditions.

Dollar strength can also be a headwind for U.S. multinationals as it makes it more expensive to convert their foreign profits into dollars, and make exporters' products less competitive abroad.

Other factors may also be driving the dollar. The U.S. currency is a popular destination for investors during times of geopolitical uncertainty, which has sharpened in recent days on fears over a widening conflict in the Middle East.

Brian Liebovich, chief dealer for global foreign exchange at Northern Trust, believes the dollar may receive a boost from the Fed allowing assets to run off its balance sheet, a process known as quantitative tightening.

The Fed is currently allowing up to $60 billion per month in Treasury bonds and up to $35 billion per month in mortgage bonds to mature and not be replaced.

While Northern Trust expected the dollar to strengthen by up to 5% going into the U.S. presidential election, "market activity since the initial dollar rally this week suggests that move could happen sooner than expected,” Liebovich said.

Others are less certain the dollar has more room to run. Shaun Osborne, of Scotiabank, wrote that the dollar’s recent strength means investors have priced in a good deal of bullish news.

Rates and spreads are in the dollar’s favor, however, meaning "the trend at the moment suggests the USD will stay better supported," he said.

 <mailto:info at bulls.co.zw> 

Commodities Markets

Gold Gold is shining ‘bright like a diamond’ and could hit $3,000, says Citi

Gold prices continued its rally as Middle East tensions spurred demand, lifted by the bullion’s safe haven appeal.

An employee handles one kilogram gold bullions at the YLG Bullion International Co. headquarters in Bangkok, Thailand, on Friday, Dec. 22, 2023. 

Gold prices continued to hover near record highs days after Middle East tensions flared, boosting the safe-haven appeal of bullion.

Gold prices notched another record close Monday, with the most-active June contract for gold futures trading 0.37% higher to settle at $2,383 per ounce, and some say there’s more room to run.

“The recent gold rally has been aided by geopolitical heat and is coinciding with record equity index levels,” Citi wrote in a note dated April 15.

Demand for the safe-haven asset grew amid escalating tensions in the Middle East after Iran fired over 300 drones and missiles directly at Israel — most of which were intercepted, thanks to Israel’s Iron Dome air defense system.

Market watchers are closely monitoring a potential retaliation by the Jewish state, which has vowed to “exact a price” from Iran.

A significant retaliation could lead to a wider conflict, which would consequently trigger renewed buying of gold, as well as a rally in oil prices and strengthening of the U.S. dollar, said Bartosz Sawicki, market analyst at financial services firm Conotoxia fintech.

We project $3,000/oz gold over the next 6-18m.

Citi

Gold, which retains its value as a hedge against inflation, tends to perform well in periods of economic uncertainty when investors move away from the riskier assets such as equities.

Bullion prices hit an all-time high of $2,448.80 per ounce intraday last Friday.

Spot gold prices

have been on a tear since the start of the year, climbing over 15% year-to-date on the back of a cocktail of factors including a global central bank splurge, geopolitical tensions and expectations of rate cuts by the U.S. Federal Reserve. 

Gold prices usually have an inverse relationship with interest rates. As interest rates fall, gold becomes more appealing compared with fixed income assets such as bonds, which would yield weaker returns.

Hotter-than-expected inflation in March pushed back market expectations of a rate cut to September, and the expectation is now for two rate reductions instead of three.

INVESTORS DIARY 2024

Company

Event

Venue

Date & Time

Workers day

1 May

Counters trading under cautionary

CBZH

GetBucks

EcoCash

Padenga

Econet

RTG

Fidelity

TSL

FMHL

ZBFH

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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