U.S. stock futures and Asian shares slid on Thursday, hit by soft U.S. economic data, a relatively hawkish Federal Reserve and a media report that U.S. President Donald Trump is being investigated by a special counsel for possible obstruction of justice.
S&P mini futures dipped as much as 0.3 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.7 percent, led by resource shares. Japan's Nikkei fell 0.3 percent. European shares were expected to get off to a tentative start, with spread-betters looking at a flat open in Germany's DAX and a 0.1 percent fall in Britain's FTSE. The Federal Reserve raised interest rates as expected on Wednesday and gave a first clear outline on its plan to reduce its $4.2-trillion portfolio of bonds.
Fed Chair Janet Yellen said the process could start "relatively soon", while projections of the Fed board members also showed they expect one more rate hike by the end of year. A majority of Wall Street's top banks now expect the Fed to start reducing re-investment in bonds in September, compared to their previous median forecast of such a move in December. Yet the Fed's decision and confidence in continued U.S. economic growth was over-shadowed by surprisingly weak data released earlier in the day.
"The Federal Reserve was a little bit more hawkish than market expectations. They are following up on their plan outlined in March even as inflation has fallen short of forecast for three months in a row," said Tomoaki Shishido, senior economist at Nomura Securities. Consumer prices unexpectedly fell on month in May and the annual increase in core CPI slipped to 1.7 percent, the smallest rise since May 2015, after advancing 1.9 percent in April.
Investors' inflation expectations gauged by the spread between the 10-year inflation-linked bonds and conventional bonds fell to 1.726 percent, completely wiping out its rise since the U.S. presidential election. Retail sales fell 0.3 percent last month – the largest fall since January 2016 and way below economists' expectations for a 0.1 percent gain – amid declining purchases of motor vehicles and discretionary spending.
Risk sentiment was also hit by fear of more U.S. political turmoil after the Washington Post reported that Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice. Mueller is investigating alleged Russian interference in the 2016 U.S. presidential election and possible collusion with the Trump campaign. Trump's legal team denounced the report. The news came just after the No. 3 Republican in the House of Representatives, Steve Scalise, was shot by a gunman angry with Trump and other Republicans. Scalise was listed in critical condition.
The weak U.S. data had knocked the dollar and U.S. bond yields to its lowest level in seven months against a basket of currencies. The dollar index was little changed on Thursday after sliding to as low as 96.323 on Wednesday, having shed nearly 6 percent on the year, before bouncing back a tad on the Fed's policy tightening. The euro traded at $1.1220, after scaling a seven-month high of $1.1296. The dollar fetched 109.54 yen, not far from Wednesday's eight-week low of 108.81 yen.
The 10-year U.S. Treasuries yield had slipped to as low as 2.103 percent and last stood at 2.134 percent. "You cannot help the impression that there is a gap between the Fed's bullish inflation forecast and the weakness in actual data," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank. "The Fed seems to think the weakness is temporary. But that view will be tested in coming months," he added. Money market instruments such as Fed fund futures show market players see the likelihood of one more rate hike this year as less than 50 percent.
Following the Fed's rate hike, China's central bank left interest rates for open market operations unchanged on Thursday, unlike in March when it lifted short-term interest rates in what economists said was a bid to stave off capital outflows and further depreciation pressure on the yuan. Analysts had been split on whether China would follow the Fed again, noting the yuan is in much better shape than a few months ago after authorities' recent moves to flush out depreciation bets against the currency.
The yuan held stable in early trade, trading at 6.7854 per dollar in the offshore trade. The British pound stood little changed at $1.2746 ahead of the Bank of England's policy meeting that is widely expected to keep interest rates on hold. Crude oil prices were listless after having slumped nearly 4 percent to their lowest close in seven months on Wednesday, on an unexpected large build in gasoline inventories.
Brent crude futures fetched $46.83 per barrel in late Asian trade, flat on the day but not far from a five-month low of $46.64 touched in early May. Many other commodity prices are also under pressure. Thomson Reuters CRB index tumbled to 14-month lows, having fallen almost 12 percent from this year's high hit in January.
In the coming months prices will go up and inflation will shoot sharply above the target of 3 percent to 6 percent towards the third quarter of 2021, the Bank of Botswana on the other hand will continue to withhold its knife on the Bank Rate. This is according to a forecast made by Kgori Capital in its recent Market Watch Segment.
Statistics from Statistics Botswana show that the recent 1.8 percent increase in the September inflation, from 1 percent in August, was a reflection of the upward adjustment in public transport fares (Transport (from -6.9 to -3.9 percent) in September 2020, which is estimated to have increased inflation by approximately 0.64 percentage points.
Local anti-trust body, Competition and Consumer Authority (CCA), this month received back to back acquisition proposals from South African clothing retailers to wipe out their former rivals, Edcon, from Botswana malls.
Last week BusinessPost was in possession of Merger Notice No 23 of 2020 whereby a South African clothing retailer owner, Retailability Proprietary Limited, through Oclin Proprietary Limited, proposed to acquire parts of the Edgars business conducted by Edcon in Botswana (through Edcon Botswana), as a going concern, consisting of certain assets and identified liabilities.
South African government’s Business Rescue Practitioners earlier this year announced that Retailability will buy Edgars, after the latter filed for a business rescue plan in April after it failed to pay suppliers. This move will see Retailability add Edgars to its portfolio consisting of brands such as; Legit, Beaver Canoe and Style.
Retailability landed on Botswana shores 18 years ago with its flamboyant urban fashion Style which had 17 stores. Style, having almost the same target market as Edgars as it offers men’s and ladies’ contemporary and formal fashion, gave the 91 year old legendary clothing retailer a run for its money, and has won the battle as its parent company has taken over Edgars.
Retailability brands are synonymous with Botswana shopping centres and there are currently five (5) Beaver Canoe stores, 10 Style stores and seven (7) Legit stores across this country. The Beaver Canoe stores sell clothing apparel for men and boys only. The Legit stores have a fashion store format which focuses on the retailing of clothing, footwear, accessories, colour cosmetics and cellular products.
Retailability operates in over 460 stores across South Africa, Namibia, Botswana, Lesotho, and Eswatini. Many observers suggest that because of the deal with Retailability to swallow Edcon, most Edgars stores in Botswana will change their name and be branded Style. A sad tale for religious consumers of the Edgars trademark who got used to love their favourite brand for years.
According to CCA’s Merger Notice No 23 of 2020, Retailability is controlled by Clifford Raymond Lines (through a company which functions solely as a holding company of his interests in Retailability) and Metier Investment and Advisory Services Proprietary Limited (“Metier”). Metier is a private equity enterprise with investments in a number of industries spanning from healthcare, hospitality, FMCGs and telecommunications.
Retailability directors are mostly South Africans; Clifford Raymond Lines, Mark Richard Friday and Norman Victor Drieselmann. Only Nasreen Essack, who was appointed February this year, is a Motswana. He comes after Brian Thuto Tsima left on the same date. Retailability 100 percent owns Oclin Proprietary Limited, the company it is acquiring Edgars with, by a capacity of 3000 shares.
The target business, Edgars, offer textiles, cosmetics and cellular products. Edcon has a Motswana director, Charles Mzwandile Vikisi, a South African, Shane Van Niekerk and Zimbabwean Jethro Kamutsi.
“The Target Business comprises of two (2) Edgars franchise brands and private label stores across Botswana. These stores target middle to upper income customers and are home to a range of private label brands such as Free2BU, Charter Club and Stone Harbour, and a wide range of market label brands (such as Levi’s and Guess) for clothing, footwear and cosmetics.
In addition, the Target Business operates iconic Edgars Home and Edgars Beauty stores as store-in-store formats rounding out the department store offering in Botswana,” said CCA. Foshini also lines up to take Jet Botswana from Edcon.
The Foschini Group (TFG) released a statement confirming its latest intentions to acquire Edcon assets or Jet for a cash purchase consideration of R480 million. This was after the business rescue practitioners offered TFG to buy Jet by that amount.
CCA is currently mulling on a proposed merger by TFG to take over Jet operations in Botswana. Merger Notice No 21 of 2020 from TFG came a few days before the Retailability proposal. In this merger TFG, acting through Foschini Botswana, want to take over “parts” of the Jet business conducted by Edcon through Jet Supermarkets Botswana.
TFG will be willing to add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents. TFG will also get Jet’s distribution centre located in Durban and certain stores in Botswana, Lesotho, Namibia and Eswatini. Also part of this fat deal is that the company is looking to also acquire JET Club and all existing JET stock of no less than R800 million.
Johannesburg listed TGF owns Foschini Retail Group which owns the local operations called Foschini Botswana, the acquiring enterprise according to CCA merger notice. “TFG is not controlled by any enterprise/s and for completeness, the three largest shareholders of TFG holding shares greater than 5% as at 27th March 2020 are: Government Employees Pension Fund (16.2%) Public Investment Corporation (13.2%); Old Mutual Limited (6.7%); and Investec Asset Management (6.3%). The remaining issued share capital in TFG is widely held,” said the merger notice.
Only Abdool Rahim Khan is a Motswana in the Foschini Botswana directorship, the rest; Ganeswari Shani Naidoo, Anthony Edward Thunström and Gustav Jansen (alternate director) are South Africans.
According to the CCA merger, the Jet Business is Edcon’s discount department store division, selling clothing, footwear, homeware and some cosmetics as well as cellular products and targets lower-to-middle income consumers throughout Botswana. The Jet Business does not directly or indirectly control any enterprises, says the notice. CCA seeks any stakeholder views for or against the proposed merger, which may be sent within 10 days from date of this publication to the following address.
Botswana Communications Regulatory Authority BOCRA signed a memorandum of Agreement (MoA) with the Ministries of Transport and Communications (MTC), Basic Education (MoBE) as well as Local Government and Rural Development (MLGRD).
The MoA seeks to continue the collaboration that dates back to 2016 when the three parties first agreed to work together in a project aimed at computerizing and providing broadband Internet to primary schools in remote and underserved areas of Botswana.
The project benefitted 68 primary schools and 9 secondary schools through the construction of Local Area Network (LAN) in each primary school, provision of 5 Mbps dedicated broadband Internet to each Primary School and provision of Wi-Fi enabled tablets, laptops and related peripherals such as printers and copiers.
Further, the project will see the augmentation of computers in 9 Junior Secondary Schools with 30 laptops per identified school and employment of Information Technology (IT) officers at each primary school.
When speaking at the signing ceremony in Gaborone, Chief Executive of BOCRA and Chairperson of Universal Access and Service Fund (UASF) Board of Trustees Martin Mokgware said the project’s ultimate goal is to facilitate pupils in schools and host villages to be able to play a meaningful role in the digital economy.
Mokgware indicated that this necessitates upgrading of existing Telecommunications infrastructure to high capacity broadband that will support delivery of education, accessibility to the quality Internet and usage of ICTs.
The Fund began its inaugural programme by sponsoring the provision of WiFi hotspots in public areas around the country as its first project. Following the successful implementation of public WiFi hotspots, the Fund identified Kgalagadi, Ghanzi and Mabutsane areas for mobile network upgrades, schools computerization and internet provision.
Conscious that the project would not be possible without buy-in and support from MoBE, MTC and MLGRD, the Fund facilitated the signing of the first MoU between the three parties in 2016 for implementation of the project.
BOCRA Chief Executive said the signing of this agreement is aimed at benefitting the Kweneng District, adding that they have already assessed the area and have determined that they will be covering 62 underserved villages and 119 schools, 91 of which are primary schools.
“This is a project for which the partner Ministries need to re-commit for its success. Lessons from the previous schools’ computerization and internet connectivity project require that we increase our involvement and resources dedicated to the project for it to be successful. It is my belief as the project coordinator, that we will not do things the way we did them during the first project, for if we do, then we will not have learnt anything,” he said at the signing ceremony.
The purpose of learning is so that there can be continuous improvement to minimize the length of time and amount of resources utilized, he said expressing confidence that their partners will step up to the plate and ensure they play their part in the implementation of the project and that it will progress smoothly having already tread along a similar path.
UASF’s role lies mainly in funding and project management. According to Mokgware, once the project is completed, the work to integrate ICTs into the classroom begins in earnest. Therefore, he said, the project will not succeed without full cooperation and oversight of partners.
“MoBE will put in place the necessary content and ensure that the curriculum is available to all. MLGRD will provide, among others, the enabling environment by ensuring readiness of the school’s infrastructure and necessary security.”