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Zambia Market Watch – Chinese copper imports fall for the fifth straight month

September 7, 2021by Nicholas Kabaso
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Local Market Commentary

  • It is worth noting that the degree of market volatility in the Southern African FX basket has subsided in recent sessions, with the most ap-parent improvement taking hold in the ZMW, followed by the MZN. Although the price swings are now less and less often, there is still a considerable degree of uncertainty priced in for regional markets. This may be the case in the months ahead until there are concrete signs of a nascent recovery in the respective economies. Additionally, headwinds from the pandemic, easing commodity run, and concerns over the global economic slowdown in the world’s largest economies could keep FX volatility levels elevated. Idiosyncratic risks such as mounting political uncertainty ahead of SA’s municipal elections will also support FX volatility.
  • Chinese copper imports have fallen for the 5th straight month according to data provided by the Chinese General Administration of Cus-toms. The high prices and slower economic growth in China have both been cited as a reason for the 41% year on year and 7% month on month drop in imports. The world’s second largest economy imported 394 017 tonnes last month.
  • Not surprisingly we have copper on the backfoot this morning as investors reprice risks for the red metal. 3m LME copper is currently trad-ing 0.4% lower on the session at $9415.00/tonne into the EU open.
  • The USD appears to have stabilised to some degree despite the bad payrolls miss. Investors will still be digesting the outcome and the im-plications longer term. On the one hand, investors might feel more comfortable on stocks knowing that the Fed will not look to taper as early as Sep. However, on the other, the data also showed that the economy was under considerable pressure and may struggle to main-tain its current momentum. At the moment, earnings have held up, and that will prevent stock markets from experiencing a correction, but the concerns persist, with the spread of the delta variant still unknown at a time when global vaccination rates are slowing in some parts of the globe. Normal trading behaviour will resume today following the long weekend, and a better perspective on the perfor-mance of the USD will be formed.
  • In the wake of Hurricane Ida, more than 80% of production in the Gulf of Mexico remains offline. This equates to some 1.5mn bpd of lost production, and although a temporary disruption, it will still influence the region’s economic activity in the short term. Stockpiles will en-sure that no crisis emerges, with production expected to start coming back online this week. Another effect of the hurricane was the 350 reports of oil spills in the region, which will pose a different challenge for the authorities. The disruption from this hurricane was significant and will take a little longer to recover from. In related news, President Biden will be travelling to New York and New Jersey today to as-sess the degree of the damage wrought by hurricane Ida.
  • In pandemic related news, the U.S. is still pushing ahead with allowing booster shots for the fully vaccinated and vulnerable members of society. The E.U. will be studying the data from Pfizer BioNTech and Moderna that has now also applied to the EMA for approval. The E.U. position, for now, is that booster shots are not urgent.
  • In the FX markets, the Zambia Kwacha was little-changed at the start of the week and is expected to hold onto gains against the green-back this week amid positive sentiment driving inflows non-resident investors in government bonds. Meanwhile, the  USD tread water yesterday while the U.S. was on holiday and enjoy a long weekend. In the aftermath of the payrolls data, it is notable that the USD did not come under more pressure than it did. Those anticipating a big collapse may be disappointed, with even speculators now turning net bullish the USD. It appears that the wave of negative USD sentiment has largely played out, and while there may be more downside for the USD left in the current move, it will take a catalyst that convinces investors that the taper will only materialise in 2022, to spark anoth-er significant leg lower.


Rand and International FX Commentary

  • The ZAR shrugged off broader trading momentum at the start of the week as it gained against a firmer USD. While the emerging market currency basket traded more mixed, major currencies were weaker on aggregate as the dollar bounced off lows after last week’s payrolls miss. Nevertheless, riskier assets remained largely upbeat, aided by hopes that US stimulus measures would stay in place for the remain-der of the year. Global equity markets, barring stateside markets which were shut for a holiday, continued to surge ahead as a result, while it should be no surprise that the local currency continues to gain amid positive risk appetite. 
  • The ZAR advanced 0.55% to close the first trading session of the week on the front foot at 14.2300/$. In terms of domestic data, this week’s consumer confidence release was fast-tracked to yesterday. The FNB/BER consumer confidence index (CCI) improved to -10 dur-ing Q3 from -13 in the second quarter. According to the Bureau of Economic Research (BER), the recovery comes off the back of upticks in the household financial position component and the time-to-buy durable goods sub-index, with consumers less pessimistic about the ap-propriateness of the present time to buy big-ticket items. As for household finances, the contributing factors were primarily temporary welfare measures and the public sector wage agreement reached at end of July. 
  • While growth is expected to continue to improve, the pace of which ultimately depends on improvements in aggregate demand. Despite the rebound in Q3’s consumer confidence, overall levels of the CCI remain subdued relative to 2018/2019, while the government will not be able to fund households through welfare measures indefinitely. Although dated, Q2’s GDP data will now hold focus. The economy has battled through the majority of the year with low levels of consumer confidence, and thus it will provide insights into growth pressures, or rather lack thereof, from the domestic demand side.  Nevertheless, the second-quarter growth numbers could surprise given it is the first since the revisions made by StatsSA regarding the base year and how the output from specific sectors is calculated and allocated. 
  • In the spot markets at present, sentiment has remained supported overnight in favour of riskier assets as data out of China showed ex-ports rose faster than expected in August, bolstering the outlook for global economic growth. Meanwhile, the ZAR has held steady as it awaits a stronger catalyst. Given the local unit’s meteoric rise since the back end of August, some profit-taking could hold it back from fur-ther gains in the near term, especially with markets expected to trade more cautiously ahead of a slew of central bank policy decisions this week.

Nicholas Kabaso

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