- Copper is licking its wounds in Asia with the global bellwether for economic growth on the back foot as investors price for lower demand out of China ahead of the Lunar New Year celebrations which results in business activity slowing dramatically. China will hold the celebrations from Feb 11-17. There are also concerns building about the spread of the COVID-19 which has damped China’s economic dynamism in January, with factory output and service activities at a multi-month low.
- In other news, the Chilean state-owned copper giant Codelco saw its production plunge along with other miners according to government figures released yesterday. Cochilco, the national copper commission reported that Codelco’s output fell by 16% year on year in December to 157 800 tonnes, while Collahuasi’s production fell by 22% year on year to 44 200 tonnes. Escondida was the best performing with only a minor pull back of 0.7% year on year noted to 104 900 tonnes.
- The Markit/Stanbic PMI reading headlines the domestic data card today. Recall, Zambia’s Markit/Stanbic PMI edged marginally lower in the final month of 2020, coming in at 49.0 from 49.3 in November. The reading signalled a further modest deterioration in business conditions in the private sector but was the second-highest reading in almost two years, with conditions much closer to stability than was the case earlier in 2020. Survey results show that while there were some pockets of improving demand, operations continued to be hindered by the coronavirus pandemic and currency weakness. Companies meanwhile expressed muted optimism in the 12-month outlook for business activity. Specifical-ly, sentiment dropped to a 5-month low and was at a level below any seen prior to the coronavirus outbreak while concerns remained around the future path of the economy.
- Stateside, Republicans are getting a taste of their own medicine. In the same way they used their majority in the Senate to pass sweeping tax changes through Trump’s presidency, the Democrats are using the same tactic to press ahead with the enactment of the stimulus package of $1.9trln. This comes over and above the $4.0trln already injected into the US economy last year and reflects a massive stimulus boost.
- Remaining the prevailing politics, it is interesting to note that the Biden administration does not appear to be in any hurry to engage with Chi-na. Biden will not want to give back any of the concessions achieved by Trump, but will want to ensure that the US policy stance towards China is more aligned with that of its global trading partners and allies. Biden would like to leverage up the pressure by including more multilateral support from more countries before engaging China.
- Focus from today starts to shift to the labour market with the release of the private sector ADP data. Thereafter, the weekly jobless claims will be released tomorrow and will paint the backdrop to the non-farm payrolls on Friday. Although much focus rests on US corporate earnings at the moment, these data are equally market moving.
- For now, the USD appears to be on a recovery path. The anticipated strength of the US recovery appears to have emboldened USD bulls, while there is some reported squaring-off of short USD positions also taking place. Interestingly, there is also a risk-on tone now which is detracting from the strength of the USD that might have performed even better had it not been for the stronger corporate earnings. Whether the USD can sustain these gains is the key question. For now, it seems unlikely, given the size of the twin deficits. No doubt the EUR’s slide has promot-ed some of the USD’s performance in the near-term.
- Locally, the Kwacha remained on the back foot at the start of the week as Zambia’s deeply negative real rates, poor fiscal dynamics, and a firmer greenback weighed. For context, Zambia’s real interest rate now sits at -13.5%, making it the lowest real rate in African countries tracked by ETM.
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