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Local Market Commentary
- In an attempt to reassure creditors, President Hakainde Hichilema yesterday took to Twitter to emphasize that creditors will be paid. Note Hakainde earlier this week had warned that country’s debt burden is bigger than previously thought. Hakainde’s message on Twitter read as follows. “Creditors to Zambia need not worry about our current financial position. We will arrive at an amicable and mutually beneficial solution to our debt. We will engage transparently and in good faith.” Zambia first needs to secure a deal with the International Monetary Fund that will form the basis of talks with creditors.
- Meanwhile, the Chamber of Mine sees Zambia as having “every chance” to more than double annual copper production to 2mn tons by 2026, in line with the new government’s target. According to a statement from the Chamber of Mines, most of the growth is expected to come from investment in existing and proved reserves in the so-called old Copperbelt and exploration and mining in non-traditional areas across Zambia. Meanwhile, growing demand for the red metal from the electric vehicle industry as well as the renewable industry is set to benefit Zambia.
- At a weekly briefing yesterday World Health Director for Africa Matshidiso Moeti said that roughly 80% of the African countries will miss the month-end vaccination target of fully vaccinating 10% of their most vulnerable populations against the Covid-19. Data from WHO shows that at the current inoculations and vaccine delivery rate, 42 out of 54 African nations will miss the goal set in May. According to Moeti. “Only 39mn people, less than 3% of Africa’s population are fully vaccinated compared to more than 50% in Europe and the US.” The low vaccination rates not only threaten Africa’s ability to curb the virus but the rest of the world’s as new Covid-19 variants develop. To date nine nations, including Seychelles, Morocco, and South Africa, have exceeded the 10% target.
- The price of copper recovered yesterday with the 3m LME benchmark closing some 0.44% higher on the day at $9376.50/tonne. The posi-tive tone has extended today with the fall in the USD underpinning the bullish narrative. The USD has moved onto the backfoot ahead of the US Non-Farm Payrolls data.
- With Jackson Hole out the way, the focus for monetary policy in the U.S. is trained on the August jobs report. The August nonfarm pay-rolls report will provide additional clarity on the broader economic recovery and, specifically, the labour market’s recovery. Recall that the U.S. labour market recorded solid gains in July as the economy continued to reopen and worker shortages eased. Looking ahead, not-withstanding the risks pertaining to the Delta variant, we expect the level of slack in the labour market to continue tightening in the months ahead. Given the importance of the jobs report to policymakers, a surprise in the print will almost certainly prompt fresh price ac-tion across global markets.
- Following Jackson Hole and the latest ADP data, the USD has corrected weaker. Investors have moved swiftly to price out the need to ta-per immediately and lowered expectations of the labour market rebound thanks to the spread of the Delta variant and the loss of some momentum. Therefore, the danger is that investors have moved pre-emptively and that too much of a recovery has been priced out of the market. Given the USD’s weakness through the past week, the market may correct in the USD’s favour, even if the outcome only meets expectations.
- The USD came under significant pressure yesterday and the weekly jobless claims figures, that met expectations, did little to help. Through the past two weeks, the USD has corrected and looks more appropriately priced for the taper risk. It also means that the taper timing has been pushed a little further out and that today could yield a surprise if the data meets lowered market expectations. As the USD approaches strong support, in addition to what has already been priced in, the risk is that the USD recovers from its currently over-sold position.
- Locally, the Zambia Kwacha is expected to hold onto gains against the greenback in the coming week amid positive sentiment driving in-flows non-resident investors in government bonds.
Rand and International FX Commentary
- On the back of strong domestic data on Wednesday and weak US private sector employment data, the USD-ZAR continued its decline yesterday with similar dynamics which have pressured the dollar over the past couple weeks persisting. Little has come in the way of the dollar’s ongoing bear run, not even a decline in late August US initial and continuing jobless claims data seen yesterday was able to pro-vide the greenback with much support. However, this does point to continued improvement in labour market conditions, suggesting markets could trade more cautiously ahead of the all-important nonfarm payrolls print due today.
- While the USD remained broadly on the defensive yesterday, continuing to retreat on a trade-weighted basis, the ZAR gave up gains in late afternoon trade. The local currency ultimately fell 0.40% from the prior day’s close, bringing an end to its eight-day rally, its longest winning streak since March 2010. While the local unit sits at the 14.4500/$-handle, this may not be overvalued considering its trading range for this year. However, given the short timeframe in which it has appreciated as well as the risks and impediments still facing South Afri-ca’s economic recovery, there are little doubts that the currency has appreciated well into overbought territory in the past two weeks. This is in addition to the potential risks stemming from outflows once the eventual tightening of US and other developed nations’ mone-tary policy begins.
- As such, for the local currency and domestic assets, much depends on the outlook for US monetary policy tightening which has dominat-ed dollar flows this year. On that front, a USD-bearish outlook should remain favoured for as long as the Fed remains cautious over scaling back policy support too soon. Due to this being the major source of market stability as well as potential volatility, all eyes will turn to the US labour market report today as the central bank remains committed to an inclusive recovery and achieving full reemployment. While most signs and expectations are pointing to a softer nonfarm payrolls print than the 925k jobs added in July, any positive surprises are likely to have a significant kneejerk reaction given the USD’s 1.45% trade-weighted loss over the past two weeks.
- As for the domestic data card, the week is rounded off with the Standard Bank PMI. Given the gravity of the external data card, attention to the PMI may ultimately fall by the wayside, but it will still offer insight into the state of the broader economy following riots and unrest. Recall, Wednesday’s Absa manufacturing PMI surged by largest monthly gain on record in August. Thus, today’s data will be significant if the same did not follow through for the broader economy.