Copper Awaits US Job Reports

COPPER

In retrospect, given several soft Chinese PMI readings, escalating US/Chinese trade tensions, periodic strength in the dollar, signs of rising US interest rates and a risk off vibe from global equities, the bear camp has control in copper to start the Thursday US trade. However, the bull camp should see some support from the supply-side of the equation with evidence this morning of a decline in Chilean copper production from excess rain. In fact, with Chile May copper production declining at various mining facilities, Codelco’s CEO has projected full year 2023 copper production at the company will be down. In addition to expanding concerns of slowing Chinese copper demand following disappointing scheduled data releases, the trade is also concerned export curbs between the US and China as that could produce additional headwinds to the Chinese economy. So far, the US announced restrictions on the export of certain AI-related technology and services, China released export curbs on 2 key materials necessary for the manufacture of computer chips and Chinese officials have indicated more export curbs of other materials are in the offing. However, while US factory orders data was disappointing versus expectations yesterday, factory orders did manage to post a 3rd consecutive monthly expansion and the US also posted very strong US vehicle sales yesterday. While the copper trade usually takes its direction from Chinese news, the copper trade today could see a temporary reaction from US jobs information especially with an avalanche of US jobs reports scheduled in the coming 36 hours.

GOLD / SILVER

The path of least resistance is pointing down in gold and silver to start today with the dollar overnight initially posted a 4-day high and potentially poised to receive further lift from today’s active US scheduled report slate. In retrospect, the release of the Fed meeting minutes yesterday afternoon revealed some Fed members were in favor of a 25-basis point rate hike last month despite the Fed’s ultimate decision to leave rates unchanged. Given numerous indications from the Fed they are data dependent, US jobs related data over the coming 2 sessions will be quite important and likely to set the trend in gold. However, we see the potential for continued divergence between gold and silver, with gold vulnerable and silver attempting to trade like a physical commodity market less impacted by action in the dollar. While the gold market was not undermined by the significant washout in treasury bond prices yesterday (surging interest rates), another pulse up in rates again today could ignite a wave of interest rate selling in gold. However, expectations for the US initial claims report this morning project an increase which if documented would dampen US rate hike prospects modestly and in turn undermine the dollar. In short, good US data is bad for gold while bad US data is good for gold. While gold and silver could see flight to quality lift from uncertainty from a full-blown US China trade war, it is likely that trade war dialogue from the US and China battle could be a negative from fears the fight will cause a global recession. On the other hand, with the Chinese trade envoy threatening to expand China’s export ban of strategic materials beyond the chip making materials outlawed yesterday, we suspect a trade war of sorts is already in motion. Fortunately for silver bulls, ETF outflows have not been consistent in silver as in gold and silver recently has displayed the ability to diverge with gold.

PLATINUM / PALLADIUM

We hesitate to suggest that the strength in PGM prices yesterday was associated with the potential global supply flows of PGM’s could become restricted because of signs on escalating trade barriers between the US and China. However, it is possible that PGM supplies are seen as a strategic material which in turn probably stoked some speculative buying. On the other hand, the real force behind platinum and palladium strength yesterday was likely much stronger than expected US vehicle sales. Unfortunately for the bull camp, Chinese economic data continues to leave future vehicle sales in China as a concern. While the palladium recovery yesterday might have been speculative buying from the Chinese US trade row, the market reaction was not nearly as significant as the action in platinum yesterday.

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