- Glencore yesterday announced that its unit, Carlisa Investments, had completed that the divestment of its 90% stake in Mopani Copper Mines to state-owned ZCCM Investment Holdings for an undisclosed sum. Glencore will however retain offtake rights related to Mopani’s produc-tion. In a separate statement, ZCCM-IH said that it is “now the holder of 100% of the issued shares in Mopani, transforming the company from an investment company to owning and operating a multibillion-dollar mining asset in Zambia.”
- Base metals are trading mixed in Asia although there is a broader sense of optimism post President Biden’s announcement of his $2.25trn in-frastructure plan, runaway pricing was however kept in check by the Republicans who indicated they would oppose the bill which would need to be funded by an increase in taxes.
- Copper for now will focus on rising inventories in the short term which are at their highest levels since December. We are however entering quarter two today which is traditionally is a heavier period of copper consumption so we may see inventories kept in check over the coming months,
- One point we would like to point out regarding Biden’s plan is that China has beat the US to it when it comes to restocking. The Chinese have been on a buying binge during 2020 which has caused may raw materials to skyrocket in price, unfortunately there is no sign of prices retreat-ing with a new super cycle predicted.
- The main news overnight, other than the private sector labour report which was stronger than anticipated and bodes well for Friday’s payrolls data was the announcement of President Biden’s infrastructural rejuvenation plan. The plan totals some $2.0trln and will be funded in the main by the rise in the corporate tax rate to 28%. The plan will focus on rejuvenating, transportation, water systems, broadband and manufac-turing, while also allocating a further $400bn into care for the elderly and disabled Americans. Furthermore, the focus on manufacturing will al-so come in the form of research, development, innovation and job training efforts.
- Following on from the ADP data yesterday, the all-important non-farm payrolls numbers will close out the week. The last US jobs report showed a healthy labour market recovery as nonfarm payrolls increased by 379k, far surpassing Bloomberg consensus expectations of 200k and January’s revised 166k gain. This was largely driven by the easing of restrictions following the US’ second wave of infections, with a surge of jobs in the leisure and hospitality sector. Continued vaccine rollout and the Biden administration’s $1.9 trillion stimulus package will certainly have a positive impact on the labour market going forward, but this is not without the risk of a third and subsequent waves. We will thus see continued accommodative policy from the Fed, especially as nonfarm payrolls remain 9 million fewer than pre-pandemic levels. However, con-tinued signs of labour market recovery will feed the view for rising demand-side inflationary pressures given the vast stimulus added to the economy over the last year, resulting in the market continuing to price in higher future inflation.
- In the FX markets, although the bias remains to the topside, there are some early signs that the move may be starting to lose some momen-tum with some divergence noted on the technical charts between the price movement and underlying stochastics. US growth bets have spurred on the improved USD sentiment, but that will ironically bolster the trade deficit at a time when the budget deficit is exploding. Neither of these fundamentally support the USD which will eventually succumb to these pressures once the current clear-out of short USD positions has completed and the speculative element driving up the USD loses some momentum.
- A bearish bias remains entrenched on the ZMW. A shortage of dollars, deteriorating fiscal dynamics and deeply negative real rates are some of the factors that have weighed on the local unit. While there are some factors supportive of the Kwacha going forward, risks exist that the local unit may not be able to fully capitalize as a deal with the IMF especially before elections may be difficult to reach. This, therefore, suggests that Zambia’s fiscal challenges could continue to detract from the Kwacha.
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