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Copper regains some ground

March 10, 2021by Nicholas Kabaso
  • Ahead of the general elections, lawmakers in Zambia have passed a bill criminalizing cyber abuse with opposition lawmakers fearing the law is meant to stifle internet usage. Parliament passed the bill yesterday and it has been met with hostility over fears of an internet shutdown in the run-up to elections despite very limited internet penetration, particularly in the rural constituencies.
  • LME Copper prices have regained some ground this morning after another painful session yesterday which saw the red metal shed some 2.5% on the day. Currently there is a tug of war playing out with bulls anchoring trades on the massive cyclical upswing expected from the QE and stimulus from the United States, while bears are pointing to the Chinese setting a lower GDP growth target for 2021, which could mean a tight-ening of liquidity from the Chinese authorities.
  • Investors equally took note of comments from Ge Honglin, secretary of the Party committee at the China Nonferrous Metals Industry Associa-tion. According to Reuters, Ge said that the industry should pay close attention to the risk of speculators driving prices away from fundamen-tals, warning that sharp fluctuations would “do more harm than good”.
  • On the international front, all appears to be on track for the $1.9trln stimulus package to see the light of day soon. The bill is being sent back to the House of Representatives for final approval and once done, it will be sent to President Biden for sign-off. It is hoped this will take place by the weekend, which will allow the authorities to dispense the funds by around the middle of the month. It is a significant development in the global recovery due to its sheer size, against the backdrop of a recovering economy and vaccination rollout. It is so significant, that even the OECD upwardly revised its global growth forecasts for 2021 strongly to 5.6% from a previously forecast 4.2%.
  • In preparation for what should be a formality, Treasury Secretary Yellen has confirmed that she will ensure that aid gets to cities in the quickest way possible. She was referring to what needs to be done to distribute the $350bn in aid to state and local governments from the stimulus bill soon after it gets passed. She is also aiming to ensure that the funding is used to generate the greatest economic impact, with the ultimate ob-jective being to assist these cities recover back to pre-covid levels of sustainability and spending ability.
  • Given the implications for US monetary policy, today’s inflation data will take centre stage. Inflation in the US remained unchanged at 1.4% y/y in January, having shown signs of flattening out since August last year as renewed COVID-19 fears hit the country. Since that print, speculation on prospective inflationary pressures in the US and the impact thereof on Fed policymaking has become a central theme for global markets, with growing bets that a strong stimulus-driven economic recovery could lead to inflationary pressures and Fed action sooner than what the central bank’s outlook suggests. As such, should consensus expectations for an acceleration of CPI growth to 1.7% y/y materialise, the UST yield and USD rally of late could find additional support.
  • In the FX markets, after four consecutive days of gains, the USD has finally run into some resistance and the surge has stalled. The catalyst appears to have been the stronger sentiment across global markets that has reduced overall levels of risk aversion. The rotation to safety has dissipated as can be seen in the recent retreat of the CHF as well and for now, the USD looks set to take a breather. In the short-term the techs are showing signs of topping out to allude to a modest retreat in the USD. This should coincide with a recovery in emerging and frontier market currencies and assets. The Kwacha is however unlikely to find any reprieve as Zambia’s debt challenges continue to detract from the local unit. 

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Nicholas Kabaso

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