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Will Copper Hold As Fears Over Global Economic Slowdown Intensify?

COMMODITIES

Executive summary

  • Interestingly, copper prices have not been impacted by the escalation in the Russia/Ukraine conflict in the past week, which has left most of the risky assets vulnerable.
  • Market participants use the nickname ‘Dr Copper’ for the industrial metal due to its sensitivity to the global economic activity.
  • With more and more indicators pricing in a significant slowdown in the economic activity, investors have been questioning if copper prices will hold this year.

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The chart below shows the strong divergence between China 10Y yield and copper prices in the past year. The drop in China 10Y yield in the past year has been mainly driven by the deceleration in economic activity combined with the sharp contraction in ‘liquidity’ in 2021. On the other hand, momentum in DM risky assets driven by global liquidity has been supporting industrial commodities such as copper. It is also important to add that investors also use some commodities as an ‘inflation-hedge’, particularly oil/nat gas and copper to a lesser extent.

Source: Bloomberg/MNI.

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