Commodities Having a Ball
The markets have been going through an interesting period over the last month or so as traders continue to grapple with rising inflation expectations. One moment, yields are higher and equities are lower, the next yields are coming off and equities are taking off again. Away from the noise in those market, however, there have been some great opportunities elsewhere. one of the stand-out performers of the year so far has been copper.
Copper in Demand
Copper futures have racked up a nearly 40% gain this year. Though sitting slightly off the yearly (and all time) highs currently, the base metal looks well supported and likely to continue higher in the near term.The metal has been a key beneficiary of the commodities bull cycle which commenced during the recovery from the April 2020 lows and really accelerated over 2021.
China Rebound Good News for Copper
One of the main drivers of the move higher in copper has been the resilience and recovery within the Chines economy. As the largest global importer of copper, the crater in activity over Q1 2020 was terrible news for the copper industry. However, the subsequent bounce back has seen imports of the metal, as well as production and manufacturing usage in china soaring bac up to around pre-pandemic levels. Additionally, China’s economic plans aimed at furthering the recovery and capitalising on the rebound look set to keep copper demand elevated over the coming year.
Inflation Expectations Driving Copper High
Notably, copper also tends to trade in tandem with inflation, or more specifically, inflation expectations. So, with inflation expectations, especially in the US, having risen firmly this year, copper has found strong support via this correlation. Looking ahead, expectations of a spike in inflation as economies continue down the path of reopening, look set to keep copper supported in the near term. As we progress through the year and the reality of the forecast spike in inflation becomes known, there are risks that a removal of easing by central banks will start to stifle the rally in copper. However, with the Fed, the BOE and others, for now at least, reaffirming their commitment to maintaining easing this year, the path ahead looks good for copper prices.
Technical Views
Copper
The correction in copper from the 812.75 highs has seen price underpinned by support at the 768.25 level for now. With the MACD having crossed bearish and the RSI turning lower, there is room for a deeper correction here with the local rising trend line and the 735.35 level the next support region to watch.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.