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Local Market Commentary

  • USAID has announced that it will arrange a $30mn package which will in part assist Zambia in boosting food exports to two East African countries suffering from the surging prices due to the war in Ukraine. According to USAID, two companies in Zambia will start moving 17.500 metric tons of corn and soyabeans to Rwanda and Kenya in the coming days, with 30,000 more tons to come. The firms will be assisted by a revolving credit facility structured by USAID. East African countries, including Kenya, were already suffering from the worst drought in more than four decades before the war in Ukraine hit grain and fertilizer exports, significantly adding to global inflationary pressures. Zambia has a corn surplus of 1.2mn tons from the last growing season.
  • Headline inflation in Zambia slowed further in June, coming in below 10% for the first time in almost three years. Specifically, inflation slowed to 9.7% y/y from 10.2% y/y in May. Both food price and non-food price inflation slowed in June. Food price inflation slowed to 11.9% compared with 12.3% in May, while non-food inflation decelerated to 6.9% in June from 7.5%. The slowdown in inflation has been supported by a rally in the Zambian kwacha, which has gained almost 33% against the dollar in the last 12 months. That’s helped contain prices that are increasing due to supply-chain disruptions stemming from the war in Ukraine and intermittent Covid-19 lockdowns. The persistent slowdown in inflation may ease the pressure on policymakers at the Bank of Zambia to raise rates and allow them to support the economy’s rebound at the August meeting. Note that the decision by Zambia to extend fuel waivers due to end this month until September may help mute price growth.
  • Meanwhile, economic growth in Zambia slowed to 2.4% y/y  in Q1 from an upwardly revised growth rate of 5.0% y/y (Prior: 2.1% y/y) in Q4. This was the slowest pace of growth in the economy since Q1 2021 and was a result of negative contributions from sectors like mining (-0.9%), construction (-0.9%), and manufacturing (-0.2%). These declines were offset by positive performances in public administration and education at 1.9%, information, and communication technology at 0.7% as well as electricity generation and transport and logistics at 0.2%, respectively.
  • The trade surplus narrowed further in May, coming at ZMW3.4bn from ZMW3.9bn in the month prior. The surplus also narrowed in comparison to the corresponding month of 2020. The narrowing of the surplus extends a broader narrowing trend seen since December 2021. 
  • In the base metals complex, copper and aluminium extended declines yesterday and the London Metals Exchange Index of the six main industrial metals registered its steepest quarterly slump since the 2008 financial crisis. Recession fears are battering commodities at the moment and we may see this continue over the near term.
  • However, In China, there are signs the top metals-consuming economy is gradually recovering from Covid lockdowns, while the government is boosting stimulus, including monetary easing to boost infrastructure spending. This could help limit the downside for metals such as copper in the coming months, providing the metal with some much-needed support.
  • Shifting to the global FX market, although the USD retreated off yesterday’s highs, it has still performed well on the week and regained its composure as investors again turned towards the USD as a safe haven. Arguably the best performance against the USD came from the JPY, which extended yesterday’s recovery off its intra-day lows through Asian trade this morning. However, the GBP continues to find itself on the defensive as data disappoints and investors try to price in risks associated with Brexit negotiations concerning Northern Ireland. Equity markets are back in the red this morning despite some poor performances yesterday, which should offer the USD further support.
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Rand and International FX Commentary

  • Four consecutive days of heavy stage 6 load shedding has taken its toll on sentiment. Worse still is that it comes at a time when the global economy is vulnerable. Inflation remains stubbornly high and the drivers thereof ever-present. Central banks are raising rates, and countries across the globe are battling a cost-of-living crisis. Labour unions are in full swing, and negotiations are difficult as companies face challenging growth prospects and logistical supply chains remain deeply compromised by the lagged effects of the pandemic, which have yet to pass.
  • As it is, SA is missing out on the opportunities offered by a stellar coal price and the rotation back towards coal as a generator of electricity due to a dysfunctional Transnet and poor throughput at the Richards Bay coal terminal. The trade data yesterday was perhaps better than expected, but one wonders how much better it could’ve been had Eskom not been load shedding, mines could operate at full capacity, and Transnet was efficient in transporting SA’s main exports to the ports.
  • However, a better-than-expected trade outcome was not enough to stop the ZAR from depreciating. This time, one cannot blame the strong USD for the depreciation because it lost ground. Equally, the ZAR lost ground against both the EUR and the GBP to confirm that this had everything to do with ZAR weakness. If there is a culprit, it is Eskom. Investors have quickly turned to speculate on the impact of load shedding and the pressure it will exert on GDP growth, employment, government finances and eventually the country’s credit rating. Eskom is making an already bad situation worse, and the full consequences are not yet understood.
  • That being said, we continue to remind readers that the ZAR tends to perform better than expected in weaker growth environments when demand for imports remains constrained. Although the trade data yesterday reflected an improvement in import demand, it was not enough to offset the strong export performance brought about by resilient offshore demand and attractive commodity prices. Notwithstanding the recent volatility in the ZAR, the prognosis for the rest of the year is more constructive. Exporters should recognise the current bout of weakness as an opportunity to lock in attractive forward rates.

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