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IMF still hopes to strike a deal before August general elections

April 16, 2021by Nicholas Kabaso
  • Speaking in an interview, International Monetary Fund (IMF) Director Abebe Aemro said that the IMF still hopes to reach a deal with Zambia on an economic program that will form the basis of the country’s planned debt restructuring. According to Aemro, “I hope we can move for-ward by reaching agreements and get broad endorsements of political leaders, but that will depend on agreeing on the parameters of the pro-gram, and we are not just there yet.” Aemro added that ongoing talks were set to conclude in the “next few weeks.”
  • Optimism of a potential deal before the IMF elections saw Zambian Eurobonds rally yesterday. The Eurobond maturing in 2027  fell to a more than one-month low, just below 20.00%, while the shorter-dated 2022 Eurobond closed just shy of 46.00%, marking levels last seen in October 2020. While the IMF has expressed optimism of a potential deal, the timelines are tight, and we remain sceptical a deal can be agreed upon. Progress on a lengthy list of reforms as identified by the IMF in previous talks in an election year is no mean feat, and risks exist that success at the polls will trump economic stability when push comes to shove.
  • On the base metals front, copper rallied strongly overnight adding some 2.28% on the day to finish at $9284/tonne. The red metal remains on the front foot this morning as the bullish undertone continued in the Asian session. We are currently on target to book a weekly gain as many banks adjusted their outlook on the metal to the topside. Goldman Sachs has pencilled in $11000/tonne for its 12-month forecast, while the likes of Citi were quoted as saying on Monday copper consumption could “materially overshoot our base forecasts in 2021” according to Reu-ters.
  • Meanwhile, China released its official Q1 2021 GDP data this morning. The economy experienced some brisk expansion growing by some 18.3% on a year-on-year basis. This did however fall short of the 19% forecast by economists in a Reuters poll, but it is the fastest growth recorded since quarter recording began in 1992.  Although the rebound was massive by any measure it must be noted that the number is heavily skewed by the plunge in economic activity last year as a result of the COVID-19 shutdown. The rebound has been driven by strong export or-ders and a general recovery in domestic consumption as locals return to pre COVID spending patterns such as going to restaurants, malls and car dealerships.
  • In the US, today could see Treasury Secretary Yellen release a report that may well see more countries join the list of those considered curren-cy manipulators. Taiwan and Thailand may join Switzerland and Vietnam as countries that will be placed on the list, which may attract negotia-tions with the US as it seeks to rebalance its record trade deficit. The challenge is that much of the deficit is being driven by the Fed’s behaviour in spurring on domestic consumption by suppressing interest rates.
  • In the FX markets, the USD-ZMW extended is rally moving further north of the 22.000 mark as the Kwacha remains under pressure amid in-creased demand for hard currency. While the bearish bias is expected to remain entrenched next week, VAT payments due next week could mitigate some losses.
  • Although the USD did not lose more ground yesterday, the bias remains firmly to the downside. The Fed’s lower for longer stance will count against USD resilience, while the recent trade deficit data and indications of a blow-out budget deficit will also ensure that the speculative in-terest in the market is tilted against the greenback. Heading into the weekend and only US Treasury Secretary Yellen’s guidance on currency manipulation will be of any significant interest. However, this is unlikely to be market moving enough to materially influence the USD’s behav-iour.
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Nicholas Kabaso

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