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May Stanbic/ Markit PMI signals a fractional deterioration in business conditions

June 4, 2021by Nicholas Kabaso
  • Zambia’s Stanbic/Markit PMI edged marginally lower to 49.7 in May from 50.1 in the month prior, signalling a fractional deterioration in busi-ness conditions during the month. Survey results show that output returned to growth in May, one month after the same had been the case for new orders. New business ticked back down slightly in the latest survey period, but there were further signs that overall business condi-tions are more conducive to growth than has been the case for some time. As a result, firms continued to expand their purchasing activity and kept their staffing levels broadly unchanged. Encouragingly, companies remained optimistic that output will increase over the coming year, with positive sentiment reflecting expectations of improvements in new orders. Confidence dipped slightly but was the second-highest since February 2020, suggesting that despite the marginal decline in the headline PMI number, business conditions are more conducive.
  • Meanwhile, Zambia’s electoral body yesterday suspended campaign rallies before the August general 12 elections amid a surge in coronavirus cases. The Electoral Commission of Zambia Chief Electoral Officer said that political parties should use alternative methods of campaigning that avoid crows and that the election will go ahead as planned unless a state of emergency is declared. The suspension of rallies will likely heighten tensions before voting with President Lungu’s biggest opposition the United Party for National Development having last month accused Presi-dent Lungu of using the pandemic to effectively block it from campaigning.
  • Copper sold off sharply yesterday with the benchmark 3m LME contract shedding around 3.6% on the day. Upbeat jobs data out of the US yesterday put stale long positions to the sword as they were forced to run for cover as the market raised expectations of a Fed entering a pe-riod of tightening in the near future. We have seen a slight recovery this morning but the contract is still on track to post its largest weekly fall since September 2020.
  • There are a number of data releases which will hold specific relevance to the fortunes of base metals over the coming days. First off, we have the US Non-Farm Payrolls data out later this afternoon which will give further insight into the recovery of the US economy, second, we have the Chinese reporting trade figures on Monday. This data will give insight into the appetite for commodities in the world’s second largest economy.
  • Stateside, the Biden administration has listed a further 59 companies on the political front in which U.S. companies are banned from investing in. The Executive Order was signed yesterday and puts to rest any debate around whether the Biden administration would undo much of the stronger stance the Trump administration adopted concerning China. On the contrary, Biden appears to be extending Trump’s efforts which will do little to improve US-Sino relations, which were frosty even before this. Add the growing U.S. claims that Covid-19 was man-made and leaked from a virology institute in Wuhan, and US-Sino relations are low and set to deteriorate a lot further.
  • Labour market data in the form of weekly jobless claims and the private sector ADP data met or exceeded loftier expectations that reflect the big improvement in the labour market. That improvement will only gather momentum through H2 2021 and be further gauged in today’s pay-roll release. Investors will specifically be focused on whether the Fed has justification to taper. Any strong data releases will build this narrative and hold implications for a stock market that has rallied hard, bonds that have weakened in recent months and the USD, which finds itself un-der considerable pressure
  •  In the FX market, strong labour market data released yesterday helped the trade-weighted USD surge stronger. The market is now set for further gains should today’s all-important payrolls number surge to stronger levels. Given the extent of the USD’s slide since early April, it is now ripe for a phase of recovery that could last a week or two. Technicals have turned stronger, and any further talk of monetary policy taper-ing is bound to assist the USD secure another leg higher into the weekend. The weekly chart reflects a very strong double bottom formation on the USD index and some clear signals that the bias has shifted to the topside. Meanwhile, the Kwacha is expected to remain on the back foot as demand for hard currency outweighs supply next week.
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Nicholas Kabaso

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