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Copper bulls ride optimism of a global recovery

February 16, 2021by Nicholas Kabaso
  • The Zambian National Farmers Union has indicated that it has the necessary capacity to produce all its domestic food and manufacturing requirements. The Union also expressed its support for the government policy which promotes local production of all agricultural products the country can produce and further added that producers are capable of expanding production.  Note efforts by the Zambia to promote the consumption of local goods is gradually gaining momentum. According to President Lungu, around 33 companies have been certified to use the official “Proudly Zambia” logo, covering over 500 product lines. 
  • The copper market continued to build on yesterday’s gains with copper bulls riding the optimism of a global economic recovery as the US encourages the G7 to “go big” with its stimulus plans. Market participants are hanging their hopes on a wall of money entering the global economy which it is hoped will spur infrastructure projects and general consumption. Copper is widely used in industry and thus its status as a gauge for global economic health is warranted.
  • Stateside, after being unsuccessful in convicting former president Trump, US lawmakers are planning on setting up a commission to probe the 6th Jan attack on the Capitol. The objective is to get an independent assessment on the facts and causes of the insurrection and what measures should be taken at a security level to ensure that this will never happen again. Through the weeks ahead, this theme will be put on the backburner as the Biden administration exerts more influence over policy and the economy gradually recovers.
  • Stock markets continue to rock and roll to fresh record levels, responding forcefully to the massive amount of monetary and fiscal stimulus already applied, with more to come. The Down surged a further 250 points, while general levels of risk appetite the world over improved. The distortionary effects of all this stimulus are finding expression in the financial markets once again and it looks set to continue.
  • Sticking with the theme of stimulus, President Biden will take his first official trip out of Washington which will use to encourage support for his $1.9trln stimulus package. It is highly questionable whether such a massive stimulus amount is needed when the economy is showing signs of improvement with infections down, the Fed ultra-accommodative and the global economy showing signs of recovering. It may add fuel to the recovery, but will come at the cost of increased debt levels and a possible inflation episode down the line.
  • Shifting to the FX complex, a bearish bias remained entrenched on the Kwacha at the start of the week. The local unit continues to struggle as demand for hard currency continues to surpass supply.
  • Meanwhile, the USD index continues to hold above 90.0 and a decisive downside break remains elusive. It is surprising given that the down-side bias is still evident, but the momentum is lacking. On the one hand, stocks are rallying which is boosting rotation into higher yielding, riskier markets. On the other, US Treasury yields are also rising raising the yield attraction in the US. The market appears to be in limbo and unwilling to adopt any clear-cut direction, but for now, there will be enough evidence to keep the USD bears in charge.

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Nicholas Kabaso

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