Written Commentary
COPPER
While the copper market is obviously undermined by the negative macroeconomic shift following hot US inflation readings yesterday, the bull camp is fortunate beleaguered Chinese equity markets are closed for holiday leaving room in the headlines for slightly improved sentiment from the Lunar New Year holiday. The bull camp hopes the Chinese holiday will temporarily lift Chinese animal spirits and that in turn should help March copper respect $3.70. Unfortunately for the bull camp, China also showed “combat readiness air patrols” off Taiwan with Chinese naval vessels coordinating the exercises and that could cloud the Chinese economic outlook. However, an Australian forecast predicting a strong start to 2024 Chinese commodity imports should cushion copper against bearish outside market forces of a strengthening dollar and rising interest rates. However, LME copper stocks fell again overnight and are at their lowest levels since September, which could reflect improved global demand. While China remains on holiday, reports that their Lunar New Year travel will reach a record high this year should provide support to the copper market as that could be a sign of stronger Chinese demand during the rest of the first quarter.
GOLD / SILVER
While the magnitude of yesterday’s US CPI upside surprise was not significant, the markets were clearly undermined by another US data point which appears to push back US rate cut timing. Today the markets will have a pause from US inflation news with several Fed speeches potentially providing some fireworks. However, the US dollar is sitting right on the spike up highs from yesterday early today leaving the currency influence on gold and silver bearish. The CME’s Fed Watch tool saw the probability of a March rate cut fall from 15.5% before the CPI results to only 8.5% afterward, while the chances of a May rate cut fell from 58.1% before the CPI results to 37.6% afterward, this morning the CME Fed watch tool gives the probability of a June rate cut at 50.3%. Fortunately for the bull camp today’s US scheduled data will offer little information except for the weekly mortgage approvals report for the week ending February 9th and with mortgage rates approaching the highest levels in nearly 2 months last week, that report could be soft and minimally supportive of the bull camp.
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