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President Lungu picks former cabinet minster Luo as running mate

May 18, 2021by Nicholas Kabaso
  • On the political front, President Lungu picked former cabinet minister Nkandu Luo as his running mate for the August 12 general elections. Luo was the fisheries and livestock minister before parliament dissolved last week and higher education minister before that. If Lungu wins, Luo will become Zambia‚Äôs second woman vice president, replacing Inonge Wina, who in 2015 became the first female to hold the post. Note, Wina announced over the weekend that she was retiring from active politics after the elections as she is now 80-years old.
  • The price of copper advanced this morning during the Asian session as the weaker greenback and improved Chinese premiums drove price action. The Yanghsan copper premium as reported by Reuters spiked by some $1.50 to $38.50/tonne yesterday rising for the first time since February which points to increased demand for imported metal into China. The premium clocked its lowest level since February 2016 on Friday which fuelled concerns about Chinese demand going forward given the high prices.
  • Developments in Chile are also in the spotlight. The country voted to redraft its constitution over the weekend, and those that have been voted in are likely to push for an agenda which tightens the rules around the environmental and mineral rights coupled with increased taxes. How this may affect supply is not yet fully quantified, but it is something investors will be monitoring over the coming months.
  • Stateside, the Empire State manufacturing index, which describes general business conditions, declined to 24.3 in May from a reading of 26.3 in April. It was, however, a little better than market expectations of 23.9. It will, however, do little to convince investors that the Fed should be unravelling its ultra-accommodative stance any time soon and if anything, contributed to the USD’s slide at the margin.
  • Meanwhile, Dallas Fed President Kaplan has indicated that he could see the Fed hiking rates before the end of 2022. That is a long way off and suggests the Fed will not respond at all to the current bout of inflation which it will describe as temporary. It ultimately implies that the USD’s value will be debased through this time and unsurprisingly has encouraged the specs to persist with their short USD positions or build on them. The combination of ultra-loose monetary policy coupled with extremely loose fiscal policy means that the balance of risks rests firmly against the USD, which ironically will only compound the inflation episode and raise the stakes in the Fed’s policy stance.
  • Shifting to the FX markets, the kwacha extended is slump on Monday and is expected to remain under pressure this week amid importer demand and pressure arising from debt servicing.
  • Meanwhile, the USD again finds itself on the defensive, with the USD index looking to retest the 90.0 mark. Comments from Fed member Kaplan that a rate hike could be announced before the end of 2022 has raised the prospect that the Fed will remain ultra-accommodative for a while to come and tolerate bouts of higher inflation. There is simply no good fundamental reason at the moment to bet on the USD appreciating, especially with the debt levels rising aggressively and the trade deficit at record levels. The debasement of the USD is set to continue for a while, in the mistaken belief that it will also discourage spending on products abroad and bolster domestic manufacturing.

Nicholas Kabaso

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