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March CPI print in focus

March 25, 2021by Nicholas Kabaso
  • The domestic data card picks up today with the latest inflation and trade numbers on tap. In February headline inflation accelerated further, coming in at 22.2% y/y from 21.5% y/y in the month prior, underpinned by food prices which rose at the fastest pace in at least a decade. With inflation moving further away from the upper band of the  Bank of Zambia’s (BoZ)  6%-8% target range, risks exist for the bank to hike rates further in the coming months, as communicated at the last policy meeting. A Kwacha, which is down by nearly 4% on a YTD basis, making it the worst performing African currency, is also driving inflation.
  • Meanwhile, Zambia’s trade surplus surged to ZMW 9.3bn in January from an upwardly revised ZMW 6.5bn (prior: ZMW 6.3bn) in December, marking a record high according to Bloomberg data. A bullish copper narrative should see the trade account remain supported in the coming months.
  • Base metals have fallen in the Asian session as concerns build surrounding the EU economic recovery as it deals with a third wave of COVID-19.
  • Copper is some 1.3% lower at $8860/tonne at the time of writing. While the spot price of copper is trading at a $4.25/tonne discount to the 3m benchmark which is indicative of the change in supply dynamics. LME warehouse stocks have risen by some 64% this month and the Yangshan copper premium has fallen to $64/tonne, its lowest level since January 12 which points to weakening demand for imported copper into China.
  • Shifting to global dynamics, geopolitical tensions are on the rise this morning following the launch by North Korea of two ballistic missiles into the sea near Japan. This will ramp up pressure on the US administration under Joe Biden to finalise is policy on North Korea who continues to defy the international community regarding its illicit weapons programme. Japan’s coast guard stated that it detected the first missile soon af-ter 07.00am which flew about 420 kms, followed by a second missile some 20 minutes later.
  • German Chancellor Angela Merkel yesterday rejected demands for a vote of no confidence over the government’s U-turn over the Easter Holiday circuit breaker lockdown. Merkel has ditched plans for an extended Easter break just two days after it was agreed with the governors of Germany’s 16 states, which  is raising concerns that she is losing a grip on the crisis which is currently enveloping Europe. Reuters reported – “No, I will not do that,” said Merkel, when asked during an interview on public broadcaster ARD about calls by all three opposition parties that she submit a vote of confidence. “I asked people today to forgive me for a mistake. This was the right thing to do, I believe. I also have the support of the whole federal government and parliament.”
  •  In the FX markets, the Kwacha continues to sell-off and closed at a record high yesterday. Meanwhile, the USD remains on the front foot this morning with the safe haven play very much in focus as the EU grapples with the third wave of COVID-19. The USD Index is currently trading just north of the 92.5600 mark as the time of writing while the EUR-USD is marking four-month lows. The single currency touched an intra-day low of 1,1811 in the Asian session and we expect investors to continue selling on any upticks.
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Nicholas Kabaso

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