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Base metals buoyed by stronger stimulus expectations

January 15, 2021by Nicholas Kabaso0
  • News of Biden’s bid to push through a much stronger stimulus deal has investors positioning for stronger aggregate demand, through in-creased spending on infrastructure. Recall, that Biden is now looking to pass a $1.9trln rescue package which is a substantial package given that the outlook for the global economy has improved considerably on the dissemination of vaccines. 3m copper futures on the LME rose 0.6%, while it traded 1.5% higher in Shanghai. Aluminium on the LME rallied 0.5%, nickel was up a similar amount while zinc rose 0.3%.
  • On the corporate front Chile’s Codelco is ratcheting up precautionary measures at its mines to keep them operational while limiting the spread of the virus. It might however impact on productivity which could at the margin affect copper price dynamics. This is of course a temporary measure until the pandemic is dealt with more conclusively later this year.
  • Stateside, president-elect Biden yesterday made clear his intensions to push ahead with a powerful stimulus package and urged Congress to accept and pass the package. He unveiled a $1.9trln rescue package which would include more than $400bn for the country’s Covid response, $1.0trln to help households, and $440bn to help companies affected by the lockdowns. This package would raise the $600 stimulus package up to $1,400 and the supplemental unemployment benefit by $400/week, while he will also seek to implement a $15/hr minimum wage. This is now an enormous package with longer-term debt consequences.
  • It will be a busy day ahead in the US with retail sales, industrial production and the consumer sentiment all scheduled for release. After staging a sharp recovery in May through to September, underpinned by the aggressive monetary and fiscal stimulus measures deployed in response to the COVID-19 pandemic, consumptive dynamics deteriorated in the first 2 months of Q4 as virus cases surged and as the impact of the fiscal stimulus faded. Expectations are that sales figures dropped again in December with consensus forecasts suggesting that retail sales contracted by -0.1% in December. Looking ahead, with the Democrats securing control of Senate, $1,400 stimulus checks could become a reality, which will undoubtedly provide a notable boost to consumptive dynamics in the US and in return bolster growth in retail sales.
  • Consumer sentiment in the US has failed to rebound significantly from the plunge seen early in 2020. Since the COVID-19 outbreak, the US has faced a surge in infections, political instability, riots, a lack of fiscal stimulus, and a poor initial distribution of the vaccine. Many of these issues remain and combined, they suggest that consumer confidence will unlikely rebound significantly in the near-term. Once the vaccine distribution issues are worked out, and consumer start receiving their stimulus cheques, we could see confidence levels start to recover, however, it is unlikely that they will return to pre-pandemic levels anytime soon.
  • Locally, a broader bearish bias remains entrenched on the Kwacha, which extended its journey north of the 21.000 mark yesterday. As noted before, in the absence of clarity on debt restructuring and the implementation of reforms, the Kwacha might struggle to rebound in the near-to-medium term.

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Nicholas Kabaso

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