Head of Commodity Strategy
Summary: What the charts currently tell us about the direction of copper, gold-platinum and crude oil.
HG copper jumped yesterday on the Trump administration’s decision to resume talks with China while delaying some tariffs from September 1 to December 15. Although we are seeing the rally fade somewhat today the white metal’s ability in recent weeks to manage a deterioration technical and fundamental outlook could bode well for the short-term outlook.
The technical picture has improved following the failed attempt to break below the $2.57/lb neckline on the weekly chart. The fundamental outlook has been weighed down by concerns that the trade war would accelerate the slowdown in global growth, thereby erode demand, not least from the world’s two biggest consumers.
Macro driven funds looking for a hedge against recession have accumulated a record short in HG copper futures. During a two-week period to August 6 money manager more than doubled their net-short to 74.6k lots, a position which is now somewhat under water. Continued short covering will find resistance at $2.67/lb. and most importantly $2.70/lb.
Gold’s phenomenal rally to a six-year high was tested yesterday following the US tariff announcement. The violent $55/oz retracement from $1535/oz was more an indication of how crowded the trade has become than a change in the fundamental outlook. We maintain a bullish view on gold driven by the race to bottom in global yields and central banks turning into easing mode. But in the short-term it might be worth take a closer look at platinum which has been struggling amid the downturn in global car sales and production.
The discount to gold reached a record $668 yesterday before recovering to the current $650. While the speculative gold net-long reached a near record high in the week to August 6 the equivalent long in platinum is bang on the five-year average so not stretched at all. Traders worried about a technical correction in gold may find some value in switching to platinum instead.
Crude oil has spent the past month trading within a near 15% range with continued downgrades to global demand growth only somewhat being off-set by tightening supply from Opec+. One key development has been the contraction in WTI’s discount to Brent crude oil from $11/b back in June to the current $4.5/b. The spread has narrowed in response to the global slowdown impacting Brent, the global benchmark, and increased concerns that US shale oil producers will struggle to meet their production growth targets. This as many producers continue to burn cash while relying on funding to stay operational.
While Brent crude has recovered back above $60/b the technical outlook for WTI looks somewhat better after once again managing to find support above $50/b. The range-bound behavior however looks set to continue with focus on US-China trade talks and continued production restraint from Opec led by Saudi Arabia.
The WTI chart below points towards resistance at $68.80/b, the recent high and trend-line from the April high.
Later today at 14:30 GMT the US Energy Information Administration will release its ‘Weekly Petroleum Status Report’. Some fireworks can be expected given the discrepancy between market expectations for a 2.5 million barrel drop and the 3.7 million barrel increase reported by the American Petroleum Institute last night. The table of expectations can be found here.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
