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Local Market Commentary
- A Zambian firm has begun producing fuel from used tyres and plastic containers using technology that could hold the key to slash the country’s energy import bill while cleaning up its trash. The project by Zambia’s Central African Renewable Energy Corp. currently processes 1.5 tonnes of waste to make 600-700 litres of diesel and gasoline per day on a pilot basis. While that’s hardly enough to dent the country’s mountains of waste or its $1.4bn annual import bill for the 140mn litres of petrol a day it consumes, CEO Mulenga Mulenga sees it as the start of something bigger. According to Mulenga, “at the peak of it, we hope that we will be able to contribute even 20-30% of the current fuel used in the country.” The firm is seeking $60mn in investment to raise daily fuel output to 400 tonnes of diesel, 125 tonnes of petrol, and 30 tonnes of liquefied petroleum at roughly half the cost of imported fuel.
- Meanwhile, the Zambian government yesterday suspended the importation of onions and potatoes following an outcry from farmers. An official from the Ministry of Agriculture said that the government had decided to suspend the importation of onions and potatoes until further notice. Farmers had raised concern over the flooding of imported onions and potatoes on the market, saying it was detrimental. Note that experts have raised concerns over the government’s decision to allow the importation of some commodities that can be grown locally and are demanding a clear policy decision.
- Moving over to the U.S., there is nothing new concerning where the bulk of the focus will rest this morning, with developments in Ukraine still taking centre stage. However, economic data is being released, and yesterday saw the latest consumer confidence data slip again in Feb to reach a 5-month low. Fewer consumers were planning to buy a home, go on vacation or purchase a car. The savings built through Covid gradually unwound, so the underlying desire to spend will also dissipate. Confidence might be further dented by the prospect of tighter monetary policy, the persistent rise in inflation that has eroded disposable income and the current developments in Ukraine.
- The USD has drifted back into its familiar trading range and adopting very little directional momentum. Although a safe-haven bid will backstop the USD, it is notable that this has not been enough to propel the USD into a new bull run. Investors’ focus will now turn to the Fed, and the possibility that it may turn less hawkish on developments in Ukraine. The Fed will be concerned about the impact of geopolitical tensions. Sanctions on Russia could generate some retaliation and induce more financial market volatility and another headwind to global growth.
Rand and International FX Commentary
- It would appear that geopolitical tensions and the prospect of war in Ukraine are not enough to detract from the appeal of some emerging market currencies and bonds, especially South Africa. A slight wobble on Friday last week and Monday this week quickly faded, and the USD-ZAR came back under pressure this morning. Traders are positioning for the possibility that Russia’s aggression will be contained to the occupation of separatist regions in Eastern Ukraine and that the sanctions imposed by the West imply that an all-out war might still be averted.
- Furthermore, the Fed has indicated that Russia’s invasion of Ukraine and the financial market volatility that it has caused could complicate the central bank’s decision making. The Fed will not be alone, and other central banks will also become sensitive to the idea that the geopolitical tensions could detract from global growth and undo much of the work the ultra-accommodative monetary policies have done. The result is that equity markets in Asia are much better off this morning and posting gains.
- This would not be out of character for financial markets that have historically rallied at the onset of war-like conditions. The reason is the supportive conditions created by a combination of more expansive monetary and fiscal policies. This time will be no different if investors position for a Fed, and other central banks, that continue to boost their respective economies through another phase of uncertainty.
- For SA, the other major event for today will be the Finance Minister’s delivery of the annual budget. It has become an important event on the SA economic events calendar because it sets out the government’s plans on managing the economy and whether much-needed reforms will be forthcoming. This holds the potential to fuel even more optimism in SA’s outlook and the attraction of its bond market or plunge it into greater difficulty. It appears as though the optimism is winning and that the ZAR is primed to surge stronger if the budget is reformist and well-received.