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Attention shifts to IMF talks

February 11, 2021by Nicholas Kabaso0
  • The Zambian Ambassador to Brazil, Alfreda Kansembe has taken a look at the Brazilian sugar cane industry and urged Zambian farmers to increase sugar cane production. The Ambassador stated that sugar cane cultivation and export can significantly contribute to the socio eco-nomic development of the country in line with the National Agricultural policy. “Zambian farmers should grow sugarcane on a larger scale to compete on the international Market and grow the economy,” Dr Kansembe stated. Sugar cane has the ability to be converted into biofuel, ethanol and green energy and thus is strategically important.
  • The undoubted focal point this week is the start of the IMF talks today. The talks are expected to last until the 3rd March and will centre around the debt pile which has blown out to around US$12bn. The IMF will insist on spending cuts and reform across the board, there will be an expectation of disclosure which will include bi-lateral deals with China which if not forthcoming may result in the IMF being less accom-modative. 
  • The fact of the matter is that the IMF relationship with the current administration has been rocky, President Lungu’s administration first asked the IMF for $1.6bn in 2016, this was never agreed to because of concerns over Zambia’s commitment to economic reform. 
  • Moving onto copper, prices have fallen this morning as investors take some money off the table. The profit taking was driven by softer US CPI data and the fact that we have entered the Chinese Lunar New Year period which sees lower economic activity across the world’s second largest economy.
  • Underpinning the copper market is news out of Chile is that rough seas and a shortage of containers slowed the shipments of copper cath-odes and this may have a knock-on effect as the backlog is cleared. To be clear this should only be temporary and will have more of an im-pact on spot prices than prices of the metal further down the forward/futures curve.
  • On the international geopolitical front, the Biden administration does not appear to be ready to hand back any hard-fought gains achieved by the Trump administration. Quite the opposite in fact, with Biden choosing to set up a China task force which will be filled with Chinese ex-perts that will seek to further US interests in any trade negotiations. There is growing realisation that China left unchecked could change ge-opolitical relations quite substantially and at the pace of current growth, China is set to overtake the US in terms of size sooner than ex-pected. The news flow remains focused on the how the country is dealing with the pandemic and many boardroom meetings are focused on what the business landscape will look like in the future. Certain realities are without question, technology will substitute business travel in many cases with online calls becoming the norm. Governments will be rallying to invest in telco infrastructure and this is where Botswana is well ahead of the regional pack in its strategy. 
  • In terms of global macro, the Fed was a focal point yesterday. Fed Chairman Powell has again reiterated the need for fiscal policy to help reflate the US economy. Fiscal policy by its very nature, is more targeted and can achieve more direct results that monetary policy simply cannot. One could argue that fiscal policy is also less distortive of asset prices given that it typically does not change money supply in the way that QE does. That being said, QE is in full-swing and there is unlikely to be any significant change to this for the foreseeable future.
  • Shifting to the FX markets, The USD appears to have consolidated its retreat. Soft inflation data and the lack of directional activity through the Asian session on account of holidays, means that the USD will likely remain consolidative. The fact that stock markets are keeping their gains means that risk appetite remains buoyant and that the need to rotate into USDs remains absent for now. Given the lack of data and thinned out Asian trade, there is unlikely to be a catalyst that will drive the USD one way or another.

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Nicholas Kabaso

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