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Surging Recession Risks Push Copper Prices To New Lows

  • Selling pressure on ‘risk on’ commodity copper continues to rise as risk off sentiment intensifies due to surging recession risks.
  • Leading economic and financial indicators have been pricing in lower copper prices for a while.
  • For instance, the top chart below shows that the China 10Y yield, which could be considered as an alternative barometer of the Chinese economic activity, has been pricing in much lower copper prices.
  • The Li Keqiang index (another alternative measure of China ‘growth’) has also been pricing in a significantly lower ‘fair’ value for copper.
  • The surge in inflation first led to a significant divergence between copper prices and ‘fundamentals’ with investors chasing the industrial metal as an inflation hedge, but it seems the correction is now happening.
  • Copper is down over 25% since its March all-time high, breaking below the 400 level this week and currently trading at its lowest level since February 2021.
  • Next key support to watch stands at 353.50, which corresponds to the 50% retracement of the 206 – 501 range (2020-2022 low high).
  • RSI indicator shows that the industrial metal is now significantly ‘oversold’ following the June selloff; hence, copper could first experience a technical ‘bull’ bounce before reaching new lows.

Source: Bloomberg/MNI

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