The euphoria observed in Monday 15 July trading has died with credit default spreads on Zambian bonds widening 6 basis points reversing the narrowing in previous sessions 165 bps average narrowing. Zambia’s eurobonds reacted significantly to the appointment of a new finance minister, a former central banker that served as Deputy Governor Operations.
“Such reactions are nothing unusual in the dollar bond market especially that the world is flooded with negative yielding assets so investors are recently seeking for clues and opportunities to lock cash in. It’s a breath of fresh air and leap of confidence especially that the new finance minister is saying the right things, exactly what investors want to hear,” Non Executive Director for the Business Telegraph – Mutisunge Zulu said in a daily commentary on Behind the Markets MoneyFM radio show on the morning of 17 July.
Zambias finance Minister has a mammoth task especially that his coming at a time that is 2 months to the budget, there are structural issues ranging from rising debt issues to widening fiscal deficit. Analysts have stated that confidence will be restored if the issues pronounced are actually addressed. Managing Partner for Nikiwa Capital Munyumba Mutwale said on MoneyFM Behind the Markets segment that offshore players with funds are looking for policies with a ‘pro business agenda’.
How the finance minister handles the critical will shape investor confidence going forward.
KWACHA BOTTOMS: Currency has bottomed as the kwacha hit 12.45 for a unit of dollar. The markets remain cash tight as analysts observe a peculiar monetary policy tightening not prescribed by the policy rate or statutory reserves but cash seems to be low in circulation, Mutale Chewe an Analyst said.
The Bank of Zambia has been in Open Market operations on a daily basis dealing with injecting back cash into the system whenever cash lent out matures. This always leaves the market in net short position which on the positive has supported the Kwacha to these levels we see, she said.
The central bank injected circa K1.1 billion in the last trading session. We focus on liquidity because it’s a key driver of the depressed business pulse as measured by purchasing managers index (PMI) which has been in the red zone for 9 months now at 46.6 from 43.9 in May. (50 is the borderline between contraction and expansion).
WORLD BANK TRIMS GDP FORECAST: World Bank on 16 July downgraded Zambia’s growth GDP forecast to 2.5% from 3.3%, 30bps above the IMF revised target for the copper producer. This was on account of the drought effects impacting crop harvests and the projected energy deficit with effects extending to manufacturing.
INTERNATIONAL BASE METALS: Zinc on the London Metal Exchange slid 1% snapping a 5 session 5% rally as the metal deficit narrowed to 27,000 metric tons in May from 87,000 metric tons in April. Zinc is trading for $2,465 a metric ton and advanced 0.7% in Asian trade to RMB19,000 ($2,846). Copper slid 0.7% as crude was down 1% to $57/bbl for WTI US crude futures and Brent rose 65 cents to $66/bbl.
STRONG US RETAIL DATA: Strong retail data out of the US dented expectations of a 50bps rate cut and leaves it at 25bps for the 30-31 July meeting. This sent the DXY dollar index against the benchmark of six major currencies to 97.36 stronger. Supporting dollar strength was the weakness in the Euro and Sterling weighed by dampening German investor confidence and the Brexit woes as Borris Johnson and Jeremy Hunt compete for British Prime Minister job.
Compiled by Oscar Meander
