Published On: Tue, Jan 10th, 2017

WEEKLY MARKET WATCH:

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WEEKLY MARKET WATCH:

Little hope on the horizon, but economic redemption is attainable

By Beaven Dhliwayo

What made headlines in the week 

Harare – The prior year was one of the most difficult post dollarization largely because the economic disintegration became more pronounced resulting in cash shortages, payments gridlocks and low aggregate demand.

Due to the systemic challenges foreign investments touched the lowest ebb grossly lagging the region, foreign portfolios as held on the Zimbabwe Stock Exchange (ZSE) recorded the worst performance, domestic savings thinned while operating entities largely recorded receding profitability.

On the bright side capacity utilization improved mainly as a result of protectionist measures introduced to support local industry. Sustainability of the measures however depends on the regional bloc’s tolerance as a retaliatory stance may counter the gains accrued so far.

It may also depend on the country’s ability to promptly unlock credit lines that may usher in a new economy capitalization dispensation.

Chances of a sustainable economic rebound largely hinge on Zimbabwe’s ability to clear its debt overhang of circa $10 billion.

In 2016 the country failed to meet the Lima plan and with little fiscal space in 2017 it will be a huge hurdle for government to overcome.

Policy consistence will also be on the spotlight while fiscal discipline will largely be tested ahead of the 2018 elections.

Government has already come short of realigning the fiscus and this spontaneously puts pressure on fiscus inflows.

Low credit lines will mean sustained deindustrialization of the economy and reduced competitiveness to the region.

The US dollar is expected to maintain its dominance over most currencies and notably the South African rand and this has an impact of further rendering local produce more expensive on a relative basis.

The economy may however capitalize on restrictive legislation, good rains and firmer commodities to grow the productive base and help economic rebound.

Commodities

Gold prices fell on Friday, retreating from the previous sessions one-month highs as the dollar strengthened against a currency basket after US jobs data showed a slowdown in hiring in December but a pickup in wage growth.

The metal was 1.97% higher for the week, its best weekly performance in two months, helped by a broad weakening of the dollar earlier in the week.

The employment data indicated that the economy is improving enough for the Federal Reserve to keep pushing up interest rates.

The Fed has indicated that three quarter-percentage-point interest rate increases are on the cards for 2017.

Both a strong dollar and higher interest rates are typically bearish for gold, which is denominated in dollars and struggles to compete with yield-bearing assets when borrowing costs rise.

Oil finished slightly higher on Friday, logging their fourth weekly gain in a row encouraged by signs that major crude producers will adhere to the pledge to curb output.

Currencies

The US dollar was firmer in the week after touching a 14 year high on Tuesday. The dollar was supported by US data showing the highest growth in non-farm payroll wages in seven years.

The pound remained on the back foot to the US dollar as traders awaited a decision on what part parliament will play in Brexit negotiations.

The Mexican peso however recovered against the dollar after its central bank confirmed that it has intervened in the foreign exchange market to shore up its currency. The Mexican peso has been hard hit by the election of Donald Trump as U.S. president, amid concerns over the impact on trade between the two countries.

Week ahead

 In the week ahead most industry will reopen after the festive break while government business will likewise resume.

Most companies with a December year end notably banks will begin the preparations of their financials.

Trading on the ZSE is likely to be below average as investors review their portfolios following the 2016 rally.

Globally 8 countries or jurisdictions are scheduled to decide on monetary policy and these are Kazakhstan, Argentina, Honduras, Poland, Brazil, Serbia, Peru and South Korea. In the week investors will be looking ahead to U.S. economic reports, particularly Friday’s retail sales figures for December.