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All eyes on the resumption of IMF talks

March 30, 2021by Nicholas Kabaso
  • Virtual talks between Zambia and the IMF are expected to resume today. While the resumption in talks with IMF is a positive sign, we remain sceptical that a progamme is likely before the elections. Making progress on a lengthy list of reforms as identified by the IMF in previous talks in an election year is no mean feat and risks exist that success at the polls will trump economic stability when push comes to shove.
  • In a statement released yesterday, Johnson & Johnson announced an advance purchase agreement with the African Vaccine Acquisition Trust (AVAT) to make available up to 220mn doses of its single-shot coronavirus vaccine. The doses will be available to the 55 African Union member states with delivery beginning in Q3 of 2021 and AVAT has the potential to order an additional 180mn doses, for a combined total of up to 400mn doses through 2022.
  • Base metals are trading mixed this morning with copper presently bid while aluminium is on the backfoot as we enter the start of the EU ses-sion. Copper is making its way back up to the $9000/tonne with the curve now looking to move back into a situation of contango, where it would suggest that demand is picking up ahead of an anticipated rise in consumption given that the second quarter traditionally is a strong consumption period.  
  • There is also an element of investors looking to get ahead of an announcement by the US President Biden tomorrow of a massive infrastruc-ture spending spree which would boost demand for the red metal over the next decade, not just in the near term. 
  • Strategic copper bulls remain in the driving seat for now.
  • No surprise really to find out that the Fed will persist with its ultra-accommodative monetary policy for a while and will not turn less accommo-dative unless inflation becomes a problem. With the likes of the CDC warning of yet another surge and “impending doom”, it is no wonder that the central bank will feel justified in persisting with its policy stance for a while longer. A fourth surge would almost certainly weigh heavily on policy that will need to adjust to avoid a further contraction.
  • The Covid pandemic in the US is at a sensitive stage. Inoculations are happening at an accelerating pace, but there are concerns that a fourth wave may be in the pipeline. President Biden has urged states to pause their reopening efforts amid a surge in cases that have raised concerns about the trajectory of the pandemic. Hospitalisations are once again on the rise. However, 90% of US adults will be eligible for the vaccine through early April. That has not stopped the CDC from issuing a warning of “impending doom” as the country remains a long way away from heard-immunity and many could still die.
  • Shifting to the FX market, the Kwacha continued to sell-off at the start of the week as a bearish bias remains entrenched.  High demand for hard currency and diminished supply continue to weigh on the local unit.  
  • Meanwhile, inflation concerns are lifting bond yields and placing a further squeeze on remaining USD short positions, driving the USD to a fresh 1yr high. Talk of hedge fund losses impacting in banks also caused some rotation back to the safety of the USD, but the broader and more powerful theme is still one of a strengthening USD on the back of the steady grind higher in bond yields and the steepening of the yield curve seen so far this year. Some profit taking may be in store with Asian bourses on the front foot this morning and the Easter long weekend loom-ing.

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Nicholas Kabaso

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