- Data from the Bank of Zambia showed that Zambia’s foreign reserves fell to a record low of $1.24bn in November from $1.28bn in the month prior. Note, dwindling reserve levels have seen Zambia look to gold to bolster reserves. At the end of the year, the Bank of Zambia signed gold-purchase deals with a local unit of First Quantum Minerals Ltd., which produces the precious metal as a by-product at its Kansanshi copper mine. It also signed a deal with a state-owned mining investment company that in turn buys gold from small-scale producers and owns a small mine.
- The copper market continued to build on last week’s gains driven by expectations of stronger demand and tight supply. US Treasury Secretary Janet Yellen on Friday urged the G7 leadership to “go big” with additional fiscal stimulus telling them that the Biden administration was commit-ted to multilateral engagement and fighting climate change reported Reuters.
- 3m LME copper cleared the $8400.00/tonne mark during this morning’s trade, which was last seen in September 2012. Trading was however light with the Chinese out for the Lunar New Year celebrations.
- Stateside, the Democrats did not succeed in convicting Trump. They took turns at displaying their anger and again criticized their Republican colleagues for allowing the events of the 6th Jan to go unpunished. The Republicans for the most part have hidden behind the technicality that Trump was not a sitting president when the trial was underway and therefore could not be removed from office. This now leaves Trump to pursue his political ambitions, although there are serious question marks around whether he will in fact do so, or whether it was more of an effort to save face.
- US Treasury yields have continued to rise. As the vaccination drive rolls on and the numbers of infections and deaths gradually come down, so investors are expressing greater optimism that the economic recovery currently under way will extended will into 2021 and that the pandemic will be overcome in the upcoming months. The Biden administration is also pushing hard for the $1.9trln stimulus package to pass soon which will further bolster US GDP prospects and further embolden the bond market bears.
- Inflation expectations priced into the US Treasury market have risen to 6yr highs. It is not surprising when one considers the weakness in the USD and the strength of the expansion in money supply, with M1 money supply growth expanding more than 70% y/y. There are clear indications that the QE efforts of the Fed have been successful in bolstering the next credit cycle and while that will likely trigger a stronger GDP result, it may come attached to an inflation episode.
- Shifting to the FX markets, the USD-ZMW resumed its upward trend on Friday. Note, The kwacha is seen as remaining on the defensive in the week ahead as demand for hard currency continues to surpass supply.
- Although the USD has resisted the temptation to weaken substantially, it remains on the defensive. There appears to be limited demand to buy USDs for now, while the likes of the GBP are tearing higher for the fifth week in succession. Strategically, the strong stimulus efforts by the Fed as well as the Federal government will help to debase the currency and encourage speculators to persist with a short USD position. Net shorts on the CFTC data persist, even though they trimmed them slightly on the week.
Please click here to access the full Market Watch