- Reports from a French Finance Ministry source suggest that Zambia and Ethiopia are the countries most likely to follow in Chad’s steps and seek a debt restructuring under a new G20 common framework. According to the sources, “ the debt sustainability situations suggests that they could be candidates for the common framework”, adding that Sudan was also a concern although it could get debt relief under an existing initiative for heavily indebted poor countries. The first restructurings are likely with the next six months.
- The big news over the weekend yesterday was that the Zambia Finance Ministry announced that it had skipped a $56.1mn coupon payment on January 30 on its Eurobond maturing in 2027. Note, Zambia, prior to defaulting in November after it missed a $42.5mn Eurobond coupon payment, had warned that it would not be able to meet obligations on foreign commercial debt unless creditors provided it with relief while the government worked to restructure its loans.
- Supply constraints out of Chile have caused copper import premiums to jump to their highest level in more than 5 months. The northern port of Angamos in Chile which handles the copper cathode exports for the state run Codelco has been plagued by a sea swell which has affected a large amount of shipping traffic. Reuters reported – “As in previous years, at this time of year Codelco’s main export port in the north of Chile has experienced storm surges that have impeded normal operation of shipments,” Codelco, which ships at least 100,000 tonnes per month of cathodes – a basic form of copper used to make rods and tubes – said in an emailed comment. “Even though the situation has lasted longer than in previous periods, we have adjusted the delivery plan with our clients without major impacts,” the company added.
- Stateside, politics remain central to developments occupying the headlines this morning. The Biden administration would like to press ahead with its massive $1.9trln stimulus package. Republicans within the Senate have their misgivings and ten of them urged Biden to scale it back, out of concern for the longer-term consequences. In response, Biden has invited them for discussions at the White House in a bid to be inclusive. It is however doubtful that Biden will back down. With people like Treasury Secretary Yellen who will be advising Biden to bolster the stimulus package, any moderation in the size of the deal will be marginal. Talks will likely unfold in the coming weeks.
- Former President Trump’s impeachment trial will begin next week. Ahead of the trial, a group of Republicans led by Rand Paul tried to get the impeachment trial ruled unconstitutional. They lost that effort, but the voting split of 55-45 against suggests that there are still many Republicans that will not vote in favour of convicting Trump. It is looking highly improbable that the Democrat effort to convict Trump of impeachment will succeed. It requires a two-thirds majority which does not look like it exists at the moment, which could mean that Trump would once again be free to contest the 2024 elections.
- Beyond the usual PMI data at the start of each month, this week will see some focus return to the labour market with the ADP, jobless claims and non-farm payrolls data all scheduled for release. From a data perspective, these will offer good context as a backdrop to the stimulus discussions. Further indications that the labour market is struggling to gain much traction would only further build the argument for a strong stimulus package to build the exit velocity of the economic recovery.
- Shifting to the FX markets, the local unit is seen as remaining under pressure this week as the country’s struggle to service its foreign debt remains a drag on sentiment despite supportive copper prices globally.
- Not much to report back on concerning the performance of the USD which for the time being remains largely range bound. Stocks had a volatile week last week which kept the USD underpinned but most of that volatility was due to transitory factors. This week and next, there will be some key risk events concerning the US stimulus discussions, Trump’s impeachment trial and some key data in the form of the latest non-farm payrolls data that will keep investors relatively conservative in their position taking. Technically speaking, there is very little in the way of directional momentum to speak of.
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