Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Copper up 20% and at a crossroad
Ole Hansen
Head of Commodity Strategy
Summary: HG copper has now rallied by close to 20% since the March collapse. In the process it has reached key resistance at $2.50/lb. A break may attract fresh buying, not least from hedge funds who have only just managed to reduce their exposure from short to neutral
What is our trading focus?
COPPERUSJUL20 - HG Copper
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HG Copper continues to challenge key resistance around the $2.50/lb. The general risk-on currently sending most asset classes higher and gold and Japanese yen lower, has together with the steady revival of copper-intensive activity in China and the weaker dollar been supporting the rally.
Hedge funds according to my weekly COT update have only just returned to a neutral position and they are likely to start rebuilding a long position on a break above the mentioned level. A level which coincides with a 20% recovery and with a break attracting media comments about copper having returned to a bull market.
From the peak of despair in mid-March exchange-monitored copper inventories have declined by 165,000 tons or 26%. While COMEX in New York and LME in London both have seen rising inventories, the reduction has all come from China where stocks monitored by the Shanghai Futures Exchange have dropped by 235,000 tons or 62%.
Economic data from China has improved but we remain skeptical that the reduction has only been driven by industrial demand. Recent reports from China have shown renewed demand from commodity traders hoarding tangible assets such as metals. Whether the hoarding is driven by speculation about a weaker currency or other economic developments remains unclear. It does however create the impression of increased demand with stocks being moved to unmonitored warehouses.
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