This weeks major market events are the Thursday 18 July treasury bill auction where the central bank in Africa’s second largest copper hotspot, Zambia, will be looking to raise K950 million ($76 million equivalent). Last auction saw the Bank of Zambia in a subscription haircut, selling only K215.47 million on account of liquidity and risk aversion weighing appetite.
Despite attractiveness of yields paying above 25.25% – 26.5% in the 9 month to 1 year, real interest rates remain slightly underwater compared to non deliverable forward and swap returns denting appetite for Kwacha paper to offshore players. The open tax season where players are meeting their statutory obligations in provisional and other taxes continues to mop cash out of the system widening the odds of undersubscription this week.
Net short local currency market position has provided support to the Kwacha seeing it levitate to 3 month highs of 12.55 for a dollar from resistance levels of 12.85 seen a week earlier. The vulnerability of further rallies is narrowing as the tax season comes to a close this week backed by the usual suspect sectors such as energy looking to find petroleum purchases. The Kwacha is forecast to reverse some of its gains but will still trade within a 12.65-12.85 in the medium term.
Global markets will track news around progress on US China trade talks and Chinas trade data to gauge if the US Fed will cut rates this month end. This will affect appetite for riskier assets such as commodities, Base metals and dollar denominated bonds (Eurobonds). Markets will look for the slightest clues to global economic direction.
