[No surprises here. It appears to me, that for the foreseeable future, which could be the next 10(43)+ years… Zimbabwe is sliding downwards… I can”t help wondering what the size of Zim”s economy will be in 2015? Could it then be 10% of 5% of what it was in 2000? It will be fascinating to see. I still say Mugabe should be overthrown… and the weaker the economy gets, the more sense there is in following that line of though. Jan]

THE stock market continued to weaken in thick volumes last week pulled down by the rising interest rates on the money market.

Since the upward review of the accommodation rate by the Reserve Bank of Zimbabwe four weeks ago, the market has been on a gradual slump as positive real returns bounce back on the money market.

Although demand for stocks is still coming in strong in quality largely capitalised counters sellers continue to outnumber buyers, with the mainstream industrial index falling by 5,43 percent in the first four trading days of last week.

On the other hand, aggressive open market operations by the central bank have caused the money market to run short, propelling interest rates upwards.

The main index lost in the first three trading days but in an unexpected turn of events since the post-election monetary policy statement last month, the equities market traded higher on Thursday, with the benchmark industrial index gaining 0,85 percent to close at 2 383 328,38 points, buoyed by gains in large capitalised PPC and Meikles. The mining index firmed 1,19 percent to settle at 452 135,81 points, supported by gains made in Rio Tinto.

The money market opened $104 billion short and was forecast to close $22 billion in surplus on the day. A total of $54,2 billion maturities from ZTB OMO Bills outstanding were recorded.

Deposit rates firmed slightly, with the 90-Day Negotiable Certificates of Deposit indicated from 80 percent to 120 percent, Call rates were quoted from 3 percent to 30 percent range and the Inter Bank Overnight rates were recorded within the 60 percent to 125 percent range.

The central bank on the day issued a Treasury bill tender valued at $200 billion for 91 days. This received applications amounting to $349,2 billion, with the same amount being allotted at an average yield of 150 percent. All bids were quoted at 150 percent. This tender had an oversubscription of $149,2 billion.

The question that most analysts are still asking is whether the rise in the interest rates will be enough to push investors out of the stock market or will the rise in the cost of borrowing be punitive enough to dampen the speculative tendencies that were starting to creep back into the economy.

Since the announcement of the policy review mid-last month the main index on the stock market has lost by over 20 percent from over 3,1 million points on April 19 to 2,3 million points last week while interest rates, on the other hand, have surged by over 80 percent from around 65 percent for 90-day NCDS to 108 percent as of last Friday.

In real terms April”s 65 percent for 90-day NCDs and BAs, which gave an annual figure of 83 percent compared to an inflation rate of 123,7 percent then, gave a negative real interest rate of 40,7 percent, which explains why investors were re-organising their portfolios to include more non-interest-bearing assets like equities and property than interest bearing ones.

Punters have made big monies on the stock market, financing their transactions from the cheap money from the money market while instilling inflationary pressures into the market. It is against this background that the RBZ has made a U-turn on its dual interest rate policy.

The rise in the rates will, on the other hand, have negative repercussions on the productive sector particularly those firms that produce for the domestic market.

Central bank governor Dr Gideon Gono recently advised firms to look at alternative ways of financing their operations, including equity type finance and selling off non-core assets.

The cheap funds for producers had to some extent slowed down the wave of price increases by manufacturers which had been manifested by a fall in the inflation rate in the 18 months since Dr Gono”s maiden monetary policy statement.

The speculators might open a can of worms of price rises using the high cost of borrowing as a scapegoat.

Meanwhile, on the world markets, Wall Street stocks recorded moderate gains on Monday last week. Trade was confined to narrow range, ahead of US inflation data which was to be released later in the week. The blue-chip Dow Jones Industrial Average edged up by 0,09 percent to end at 10 522,56 points, the Nasdaq Composite advanced by 0,29 percent to settle at 2 068,96 points and the Standard and Poors 500 closed 0,23 percent higher at 1 200,82 points. European bourses traded weaker today as oil prices surged.

The London FTSE 100 lost 0,24 percent to 5 038,50 points and the Frankfurt Xetra Dax shed 0,27 percent to 4 586,86 points. Japanese stocks closed higher on the day as exporters continued to benefit from a stronger US dollar against the Japanese yen. Amongst the counters to gain were Toyota, Honda, Isuzu and Sony. Shares more reliant on domestic demand were in a weak performance.

The Nikkei 225 average put on 0,22 percent to close at 11 335,92 points. The JSE All-Share Index gained 0,11 percent to finish at 14 238,29 points, lifted by gains made in the retail and financial sectors.

Moderate gains were recorded with major stocks in the US market on Wednesday, after economic data from the Federal Reserve Bank indicated that inflation was well contained, easing concerns about the chance of aggressive interest rate increases this year.

The blue-chip Dow Jones Industrial average closed 0,18 percent higher at 10 566,37 points, the Nasdaq Composite gained 0,28 percent to finish at 2 074,92 points and the Standard and Poors 500 advanced by 0,22 percent to end at 1 206,58 points.

European bourses traded higher on the day, lifted by positive performance on Wall Street and investor sentiments were also boosted by news of mergers and acquisitions in the banking sector. The London FTSE 100 gained 0,37 percent to 5 037,90 points, and the Frankfurt Xetra Dax added 0,62 percent to 4 576,50 points.

Japanese indices closed higher, boosted by a government upgrade of its assessment of the economy. The benchmark Nikkei 225 added 0,20 percent to settle at 11 442,59 points. The JSE-All Share Index traded unchanged last Friday at 14 210,74 points.

Source: AllAfrica.Com
URL: http://allafrica.com/stories/200506200595.htm…br>