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ZMW set to remain on the back foot

March 16, 2021by Nicholas Kabaso
  • It was a quiet start to the week in Zambia amid a dearth of domestic data.  Minister of Commerce, Trade and Industry Christopher Yaluma was on the wires stating that the government will only consider lifting the ban on the importation of edible oils for a limited period if local manufac-turers and suppliers fail to meet local demand. Yaluma added that a task force has been deployed to monitor and compare commodity prices as well as ensure there are no shortages.
  • Stateside, one of the major themes that is likely to unfold through the year ahead, is that of fiscal consolidation and recovery. Such has been the blow from the pandemic, that government fiscal positions have deteriorated alarmingly. Fiscal consolidation can be achieved in one of two ways. Either the government can find ways to shrink and become more efficient and effective while consuming fewer resources, or tax hikes will need to be implemented in order to build tax revenues. The latter could have longer-term consequences on growth in the medium to longer-term. Shrinking the size of government could have implications in the near-term. That would not be favoured in the context of a weak growth backdrop that has the authorities convinced that more stimulus is needed.
  • Looking at the day ahead, some important data will be released. US retail sales will be the first. They rose at their fastest pace in seven months in January, as stimulus injections and building momentum on the vaccine distribution front drove a surge in household spending. Following this recovery, consumption levels in the US are likely to have deteriorated marginally through February, albeit from a higher base. On the whole, the retail sector should continue to recover in the months ahead as consumers’ aggressive saving patterns of last year begin to ease and pent-up demand is unleashed. That said, the US labour market remains extremely loose at present, meaning retail growth could be capped until a strong recovery in hiring activity is seen.
  • Concerning productive data, industrial output is scheduled for release and has been on a fairly solid recovery path in recent months, with lean inventories and recovering demand driving up new production. The Fed’s index of manufacturing output is currently sitting at just 1.9% below pre-pandemic levels, and we should see this gap compress further as new stimulus measures and rising demand supports factory growth. The recent vaccination push will also see the challenges faced by supply disruptions dissipate.
  • In the FX markets, the local unit kicked off the week on the defensive with the USD-ZMW pair reaching a fresh high. The ZMW is set to remain under pressure this week amid sustained demand for hard currency and scanty inflows.
  •  No real surprise that the USD is marking time ahead of the FOMC decision and statement later this week. Investors will be waiting for the guid-ance from the Fed on the combination of inflation and the rise in bond yields. How the Fed chooses to frame the debate and what it’s conse-quent actions might be should inflation rise will likely guide the market reaction. It will therefore be the guidance that will drive USD direction in the latter part of the week

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Nicholas Kabaso

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