With a Kwacha holiday on 01 and 02 July, markets will be closed to reopen Wednesday a very short week in Zambia.
KWACHA FIRMING: The copper currency closed last week at 12.77 supported by tight liquidity propelled by cash payments to the tax authorities. Provisional and mid month taxes requirements starts this week with corporates concerting dollars to fund local currency statutory obligations which are highly likely to support the Kwacha to levels of 12.65-12.75 for a dollar. Offsetting effects are likely from dollar demand for petroleum imports but will marginally limit appreciation forecasts.
PMI RELEASE: Private sector pulse readings are expected on the 04 July for the month of June. May readings revealed a deeper contraction in manufacturing pulse to 43.9 given the 42 month high input inflation and lack of liquidity in the system. However the last weeks inflation reading 70 basis points higher to 8.6% and slower growth momentum of 2.6% in Q1 (as reported by CSO) lower than Q1:18 (3.2%) reflect a slow down in business tempo. Currency appreciation observed in the last fortnight is highly likely to have provided support to input prices easing manufacturing operating costs. We forecast a easing in PMI to 44.5 levels for June though headwinds to business pulse such as sales tax postponement still continue to weigh.
DECENT COVER IN T-BILL SALE; The central bank in the copper producer will on 04 July offer K950 million worth of treasury bills whose subscription given the liquidity constraints will very less likely be fully subscribed but for appetite given the attractive yields in the longer dated buckets at 26.5%. Given the affinity for shorter dated higher yielding assets we forecast decent cover over 70% with very little latitude for yield movement higher or lower as Bank of Zambia (BOZ) manages interest rate risk.
Complied by Kapesa Singogo