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Copper prices on the back foot

January 22, 2021by Nicholas Kabaso0
  • Copper has however not fared as well as tin this morning. Rising COVID-19 cases in China have raised concerns about whether or not the growth trajectory in China will be maintained or will it flatten out. 
  • Meanwhile, the satellite service SAVANT showed that global copper smelting activity climbed in December, led by top producer China, while North America fell further as COVID-19 infections climbed rapidly, the EU dipped slightly however the smelting activity was still strong.
  • Data from the Ifo institute shows that China overtook Germany in producing the world’s largest current account surplus. Contrast that with America’s record current account deficit with its largest deficit recorded with China, and it is clear that Trump’s efforts to rebalance trade have failed. It is also the reason why the Biden administration will not want to give up on the hard-fought concessions that the Trump administration secured in its trade deal with China or the pressure it exerted on China to change its business practices. The tough stance that the US has ex-hibited towards China may therefore not change to the degree many might have feared and Trump’s legacy of tough renegotiation with China is likely to continue, albeit in a less antagonistic way.
  • Good news from the J&J camp is that they are ramping up production massively in what must surely be a show of faith in the clinical trials cur-rently being assessed. The objectives is to soon start deploying the vaccines wholesale through the US by spring, with some 100mn doses earmarked for distribution by then. The J&J vaccine could prove a game changer, not just because it is a vaccine in the more traditional sense, but also because it is a single jab, it is cheap and can be more easily stored.
  • Yesterday’s jobless claims data showed that the labour market remains impaired, that the US economy is still struggling to emerge from the pandemic, and that the recover is still dependent on the unfolding pandemic. Jobless claims fell to 900k vs a market expectation of 925k. After initially dropping off quite sharply following the initial lockdown, the jobless claims numbers have struggled to drop much below their Nov lows. The loss in recovery momentum is what will prompt Congress to back Biden’s large stimulus plan.
  • Shifting to the FX markets, a broader bearish bias remains entrenched on the Kwacha, and this is expected to persist next week as demand for hard currency continues to outweigh supply.

Any recovery in risk appetite is translating into pressure on the USD at the moment and expectations that a large stimulus plan would be un-leashed on the US economy will translate into investors feeling more constructive about future prospects for growth. Increasingly, they will become less supportive of safe-haven currencies, while the expansive fiscal and monetary policies in the US, which would promote a massive current account deficit, will likely keep the pressure on the USD.

 

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Nicholas Kabaso

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