CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money.
Summary: The short-term outlook for HG Copper has deteriorated this week following unexpectedly weak readings on manufacturing activity in China and the United States, the world's two biggest consumers of the industrial metal.
Copper, which is widely used as a conductor of heat and electricity, dropped almost 3% yesterday – the biggest fall since last August – to a ten-week low of $2.777/lb, close to its 200-day moving average. The forecast for tight supply, the continued move towards electrification, combined with infrastructure projects, is likely to provide a long-term support for copper. In the short term, however, the focus will primarily be on finding support with $2.717 representing a key line in a sand below $2.777/lb as mentioned.
Source: Saxo Bank
The range-bound nature of the market since February has left many speculative investors sidelined with the hedge fund net position not swaying much away from neutral during this time. The renewed downside momentum is likely to have attracted some additional length to the short side and those recently established short positions will now be watching closely the above mentioned support levels for signs of an even deeper sell-off.
Apart from the recent dollar strength, which during the latter part of April reduced the appeal for metals, both precious and industrial, it was the slowdown in manufacturing activity in both US and China that did most of the damage. The drop in the US ISM manufacturing index for April was particularly aggressive as it dropped to the lowest level since October 2016. While still in expansionary territory above 50, the broad-based declines in new orders, new export orders and production suggest a further cooling which contradicts but also explains why the market failed to get excited about the Q1 GDP reading last Friday.
These and other recent data from the world’s two biggest economies also highlight why the market is increasingly expecting that a trade deal between the two countries will be reached sooner rather than later. A deal will undoubtedly create a lot of market-friendly headlines but we see an overriding risk that it could by over-hyped with weak control mechanisms put in place to police a deal.
Industrial metals, as seen through the Bloomberg Industrial Metal Index, have been tracking the developments in the US stock market relatively closely since last October. A dislocation, however, has occurred during April and it raises the question of who is right. Bearing in mind the compressed levels of volatility and elevated speculation in lower volatility as seen through the Cboe VIX futures we can potentially look forward to a bumpy stock market ride ahead of the annual holiday season between July and August.
Where is the potential support coming from?
While demand may struggle to pick up amid the continued worries about weaker economic growth, the physical market is widely expected to remain tight during the coming years. Inventory levels at exchange-monitored warehouses are currently 442,000 tons, some 24% below the three-year average. The forecast for tight supply the continued move towards electrification combined with infrastructure projects is likely to provide a long-term support for copper.
Just last week in the US, the Democratic congressional leaders emerged from a meeting at the White House and announced that President Trump had agree to pursue a $2 trillion infrastructure plan to upgrade the nation’s highways, railroads, bridges and broadband. The big question, however, remains who should pay for this initiative. Not least considering how the US has become increasingly maxed out on debt and tax cuts which so far have failed to boost the economy.
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Equities: The AI fever pushes market to new extremes
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
Fixed income: To hike or not to hike, that is the question
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Artificial Intelligence: a promising gamechanger for the portfolio?
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Japan’s riposte to aging and productivity headwinds: robots with generative AI
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
China faces challenges from generative AI amidst the fragmentation game
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Your browser cannot display this website correctly.
Our website is optimised to be browsed by a system running iOS 9.X and on desktop IE 10 or newer. If you are using an older system or browser, the website may look strange. To improve your experience on our site, please update your browser or system.