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Has The Consolidation on Copper Just Started?


Executive summary

  • Selling pressure on ‘risk on’ commodity copper has been rising in recent weeks after reaching an all-time high at 501 on March 11; hence, investors have been questioning if the recent correction is only starting.
  • Weakening fundamentals (strong deceleration in Chinese economic activity) have been pricing in cheaper copper prices in the near to medium term.
  • With recession risks rising globally (particularly in Europe), sentiment on ‘risk on’ assets could remain negative and the lack of visibility and convictions in markets could leave copper price vulnerable in the coming months.

Link to full publication:

Copper charts.pdf

As for the rest of ‘risk on’ assets, copper prices have been mainly supported by the drastic surge in global ‘liquidity’ following the Covid19 shock. The chart below shows the strong co-movement between copper prices and the G4 central bank’s total assets in recent years.

With liquidity drying up (i.e. Fed starting QT) and demand falling due to China slowdown, is the correction on copper just beginning?

Source: Bloomberg/MNI.

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