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Conditions in the private sector deteriorate notably at the start of the year

February 4, 2021by Nicholas Kabaso
  • Zambia’s Market/Stanbic manufacturing PMI fell further at the start of the year, coming in at 47.7 from 49.0 in December. This was the lowest reading since September and showed that conditions in the private sector deteriorated to a greater extent at the start of the year amid a second wave of coronavirus infections. Survey results show that reductions in output and new orders gathered pace at the start of the year. The fall in activity was the fastest since last September and extended the current sequence of decline to 23 months. Employment fell at the slowest pace in three months, while further weakness of the Kwacha led to another increase in purchase costs, albeit the softest since last August amid a lack of demand for inputs. Supplier delivery times lengthened notably and to the greatest extent since last September as coronavirus restrictions contributed to delivery delays. Finally, business confidence remained relatively muted despite edging higher in January.
  • Copper managed to pick itself up yesterday with tightening spot supply concerns outweighing the potential softer demand through the Chinese Lunar New Year period. The copper market is currently in backwardation with the spot price higher than the 3m benchmark with ex-change inventories running low. High swells along the Chilean coast have disrupted shipping and Peru entered lockdown raising fears of supply constraints. 
  • This morning we see the market holding a bid tone. The Peoples Bank of China have confirmed that they will keep liquidity reasonably ample which has eased money supply and in turn growth concerns in the world’s second largest economy. 
  • Stateside, Democrats are looking to utilise a similar tactic the Republicans used in 2017 to pass wide-ranging tax cuts, to implement the fiscal stimulus measures. Biden has indicated that he would be flexible on deciding who the monetary assistance would target but was reluctant to back down on the $1,400 payments. This will be a topic of conversation for the next few months as the stimulus package is implemented and the consequences of debt accumulation are better understood. The common standpoint from the Democrats is that an economic recovery should be engineered and that the consequences will be dealt with later.
  • The first round of labour data was released and it showed some improvement. If confirmed by the upcoming weekly jobless claims and the non-farm payrolls, higher beta investments are likely to enjoy a risk-on boost. For now, the prognosis has improved, especially as the corona-virus task team has reported a drop in new infections, as the vaccine roll-out continues to gather steam.
  • The USD remains on the front foot this morning and the volatility in equity markets may see this extend for a little longer. The move in the USD is still considered a healthy correction within a longer-term bear trend. However, weakness in the combination of the EUR and the GBP has triggered a rotation out of those currencies towards the USD. It would explain why the USD has appreciated despite some risk-on sessions recently. It is therefore more a function of a weaker EUR and GBP reflected in the cross than an outright appreciation of the USD of its own ac-cord.
  • Locally, the Kwacha sell-off persisted yesterday, and in the absence of clarity on debt restructuring and implementation of meaningful fiscal reforms, the local unit is expected to struggle for the foreseeable future.

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Nicholas Kabaso

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