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  • The Zambezi Revenue Authority has indicated that upgrades to the Kariba Dam, the main source of electricity for Zambia and Zimbabwe, have been delayed by at least two years due to technical challenges and supply disruptions caused by the coronavirus pandemic. The revenue au-thority added that a meeting of finance ministers from the countries last week cited delays in contracting works, unforeseen technical chal-lenges, and supply constraints for the delay. Note Kariba, which has been operating below capacity because of technical faults and low water levels in the dam caused by successive droughts.
  • Speaking yesterday Zambian Finance Minister Bwalya Ng’andu stated that the government was not looking to nationalise the mining industry or take over mining companies following the acquisition of Glencore’s Plc and Vedanta Ltd’s local operations in the past two years.  Ng’andu was quoted as saying, “We are at this point in time not looking at any other specific mining operations that we want to go into a relationship with. In some quarters, the president’s statement was misunderstood to mean that Zambia is contemplating taking over other mining firms by force or nationalizing mining companies. We are not in that business at all”. These comments appear to be an attempt by the Minister to ease some concerns amongst investors in Zambia and comes after a series of clashes between mining companies and the government over taxes, retrenchments, and electricity pricing.
  • On the international front, there are strong signs that the US economy is about to enter a boom phase. Once the vaccines have rolled out and the economy allowed to reopen unhindered, the normalisation that will follow, as well as the more efficient way of doing business will allow the economy to capitalise on stimulus efforts. The full effects of stimulus will likely be captured in data scheduled for release later this year. The latest steepening of the yield curve reflects just this and portends a strong phase of economic expansion, to begin through H2 2021.
  • Driving the steepening will be the stimulus package that the Biden administration plans on implementing. Over and above the ultra-expansive monetary policy that the Fed is persisting with, the stimulus cheques to struggling households will directly boost consumption as well as retail business revenues. The credit cycle is already swinging strongly higher with very strong growth in money supply already under way. In one sense, the stimulus that the Biden administration plans to implement is coming rather late in the pandemic and although it will boost economic activity, it also comes attached with a debt burden that might ultimately prove a noose around the fiscal authorities’ neck.
  • Today will see investors turn their attention to the labour market. The last, but arguably the most important of three key data releases will be the non-farm payrolls figures. Any stronger than expected result will see risk-on behaviour resume, the yield curve steepen even further and financial market confidence rise. The global economy is set to embark on a strong boom cycle once this pandemic is over, with huge amounts of stimulus expected to bolster the broader business cycle.
  • Shifting to the FX markets, USD short positions are being squeezed, and the latest move on the USD appears to be driven by some shorts ca-pitulating. It therefore has further to run, even though the move does not hold fundamental justification. The catalyst has been the collapse of the EUR which has prompted a rotation back towards the USD. The shambles that has been the vaccine roll-out across the EU has investors de-laying the anticipated recovery and that has also worked in the USD’s favour. Investors are however cautioned. The USD remains a fragile cur-rency, rendered so by the ultra-accommodative monetary and fiscal policies and the likelihood of even wider twin deficits. Once the current clear-out has passed, the USD stands to resume its steady depreciation.
  • The Zambia Kwacha halted its recent sell-off yesterday, closing on a slightly firmer footing, according to Reuters data. Gains on the session, however, do not detract from the broader bearish bias on the local unit. For context, the Kwacha is down by 1.42% on a YTD basis against the USD as the country’s struggle to service its foreign debt remains a drag on sentiment.

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Nicholas Kabaso

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