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Heavy Losses for Copper This AM

COPPER

After gaining 17% since the end of October and reaching its highest level in 4 1/2 months overnight, copper has reversed direction and is posting heavy losses this morning. The market is vulnerable to further long liquidation, but the near-term supply situation remains tight. News that the Chinese government instituted measures supporting for their property sector provided early support overnight, but a weekend spike in new Covid cases has diminished the chances for demand growth. News that the government was relaxing Covid restrictions was a key factor in copper’s rally last week, but losses in Chinese equity markets and significant rebound in the dollar are putting pressure on prices this morning. LME copper stocks had a sharp increase today that broke a 15-session streak of declines, but stock remain close to their lowest levels since late March. The market was able to disregard a 17,112-tonne increase in weekly Shanghai exchange copper stocks on Friday. Shanghai stocks are the second highest since early April.

copper wires

GOLD / SILVER

The euphoria from last week’s CPI number ebbed after Fed Governor Christopher Waller made some hawkish comments in Sydney overnight. The dollar rallied and gold and silver were lower. Waller commented that rates are going to stay high for a while until inflation gets closer to their target. Vice Chair Lael Brainard and NY Fed President John Williams will speak later today. Last week’s milder than expected CPI number has raised hopes that the Fed will moderate its fight against inflation, but the market seemed to get ahead of itself. Gold had its strongest week in 2 1/2 years, and the dollar fell to its lowest level since August. After the sharp gains of the past week and a half, the market has gotten short-term overbought and vulnerable to a setback. Prior to last week’s CPI report, the trade was giving a 50-67% chance that the December FOMC hike will be 50 basis points a not another 75 BP “Jumbo” rate hike, and that had risen to 71.5% by Friday. Easing Covid restrictions in China has also lent support, and the collapse in cryptocurrencies has driven investment flows towards precious metals. But even by the end of last week Fed commentary was pointing towards higher US Treasury yields, and that seemed to soften the metals’ gains on Friday, even pushing silver market into negative territory.

PALLADIUM / PLATINUM

The PGMs were lower this morning in the wake of the Fed commentary suggesting that rates would stay high for a while. The sector saw mixed results on Friday, with palladium sharply higher but platinum easing back from seven-month highs to lower on the day. Indications that China may be relaxing their “Zero Covid” policy supported ideas that auto catalyst demand will increase. China is shortening quarantines by two days for those who have had close contact with infected people as well as for inbound travelers. However, infections are still on the rise, and full loosening could still be a long way off. This could set both markets up for a pullback if any additional easing of restrictions is slow in coming. There is also talk that the Chinese government is preparing a bailout for their real estate sector, which could ultimately support PGM demand if it succeeds in supporting the Chinese economy.

 

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