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Political chatter dominates headlines

April 22, 2021by Nicholas Kabaso
  • The news wires yesterday focused squarely on the political front, with President Edgar Lungu launching the Patriotic Front manifesto for the next five years. The Lusaka Times reported the following – The Head of State said the PF Government would create a Stabilization Fund to cushion challenges and work towards eliminating road taxes in light of the road tolling program being implemented in Zambia. He said the PF Government would roll out affordable loans to Zambians, recapitalise local banks to build capacity and reduce interest rates, consolidate taxes into single tax paid by companies as well, as investigate and quickly prosecute cases reflected in the Auditor General’s Report to fight corruption. (please click here for the full text)
  • What is certain is that a stable fiscal and political environment will provide the country with a platform to launch an economic recovery driven by tailwinds being experienced in the copper markets.
  • Copper prices have rallied some 21% this year, driven by strong growth prospects as governments and central banks opened the taps on spending and money printing. The copper price has more than doubled since the start of the COVID-19 pandemic; however, any further gains have been slow of late, given signs of a slowing economic recovery out of China. This does not mean that we are paring our expectations of higher copper prices; it means that copper may be experiencing a well-needed phase of consolidation where we clear out stale short-term investors.
  • Speaking to Chinese demand, we point to the National Bureau of Statistics data released yesterday, which showed refined copper output rising by 18.2% year on year in March, but the monthly total of 870 000 tonnes was the lowest since July. We would like to point out that we are heading into a quarter where demand traditionally picks up and this supports our view that the current loss in price momentum may be short term in nature.
  • Internationally, all eyes will be on the ECB meeting later this afternoon. No major changes are expected at the ECB monetary policy meeting this week. The bank no longer needs to worry about rising yields, meaning that any changes to bond pur-chase levels will likely wait until the next meeting. The bank will unlikely change its assessment of the balance of risks facing the regional economy, but the more hawkish among them will look to contained yields and a recovery across globe as rea-sons to not push for more stimulus. The tone of Lagarde’s press conference will be key, but it is most likely that this week’s meeting will turn out to be a damp squib.
  • In terms of FX markets, although downside momentum appears to have stabilised, the bias remains intact. The USD has succumbed to pressure which has mounted as US Treasury yields have moderated back down. However, the recent volatility in equity markets has bolstered demand for USDs and some investors have sought to buy the USD dips. Given the lack of data to trade on and the upcoming ECB guidance today, the USD may well consolidate through the final two sessions of the week, before a busier data week resumes next week.
  •  The local unit will continue to trade in a defensive manner, we are heading into the end of the month period where price action becomes more aggressive as month end commitments become due. For now caution is advised
  • Please click here to access the full Market Watch

Nicholas Kabaso

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