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Copper advances on stimulus hopes

February 9, 2021by Nicholas Kabaso0

• It was a relatively uneventful day in Zambia with no meaningful data on the cards. In the fixed income market, Zambian Eurobonds were slightly firmer yesterday, with support likely coming from Friday’s news that the government has requested a restructuring of its debt under a new framework supported by the G20. Nevertheless, more will need to be done by the government in terms of addressing its debt challenges in order for yields to meaningfully fall. The focus will therefore shift to the IMF talks, which begin this week. Note Minister Ng’andu has indi-cated that Zambia hopes to secure a deal with the IMF before elections.
• 3m LME Copper has climbed for the second day as investors hang their hopes on the Democrats passing the $1.9trn stimulus package which aims to reignite the US economy. Treasury Secretary Yellen spoke on Sunday saying that the full employment can return by 2022 if the stimulus package is large enough. This really does set the tone for how the current US administration is thinking, they will be reinflating the economy, whatever the cost.
• The Shanghai Metals Market reported that refined copper output in the country dropped in January as smelters slowed after finishing their annual quotas and supply disruptions from South America pressured margins.
• On the eve of Trump’s impeachment trial and investors are getting ready for what could amount to little more than political theatre. The Dem-ocrats are adamant about making their point, while the Republicans view the action as deliberate point-scoring and inconsequential given that Trump is no longer in office. Worse still, is that all this will amount to very little if indeed the two parties vote broadly along party lines and don’t create room for the two-thirds majority needed to convict Trump. Moreover, this action might prove more divisive than unifying given that the Trump defence will also seek to highlight the double standards being applied by the Democrats following comments some made during the BLM protests.
• Concerning monetary policy, Cleveland Fed President Mester once again reiterated her view that monetary policy will remain accommodative for a “very long time” on account of the economy being far from the benchmarks of full employment and price stability. She again called for fiscal assistance and again predicted that H2 2021 would be reflect a much stronger performance as more people are vaccinated.
• There was good news on the pandemic front in that infections in the US, are now falling rapidly, just as they are in the UK and will afford the authorities room to loosen restrictions to help free-up economic activity. Daily cases have now fallen to the lowest levels since October last year and are likely to fall still further, the more the vaccines are distributed. H2 2021 is shaping up to be a much stronger period for the global economy and will be boosted by the strong performance of the US.
• Shifting to the FX markets, the USD has retreated a little further. The bullish undertone appears to have left the market with investors once again focusing on the stalling economy. That stall might however be little more than a convenient excuse for now. Most investors acknowledge that the stall in the US economy will be temporary. Looking through the stall, investors also acknowledge that the actions of the Fed and the Federal government through their stimulus efforts will debase the USD, but virtue of the amount of USD’s being created in an en-vironment where the twin deficits are being fuelled.
• The Kwacha remained on the defensive at the start of the week, moving further north of 21.500 according to Reuters data. For now, Zambia’s worsening fiscal dynamics and negative real rates are some of the factors that will keep the local unit under pressure.

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Nicholas Kabaso

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