- Copper drops, crude oil could follow suit
- Stocks struggling but downside limited
- FX majors undermined by US dollar
- FOMC minutes coming up
The main source of uncertainty is almost entirely due to the resilience of Covid and virus-related restrictions which have negatively impacted the global economy recovery. The latest economic data from the US and China have in fact been quite weak in recent days, adding to signs that the world’s largest economies may have already peaked. Although demand concerns have started to hurt commodities, stocks have not weakened too much, certainly in the US and Europe anyway. Here central banks are still providing ample support in terms on monetary stimulus and investors are happy to be keep buying the dips.
Commodities: The above macro concerns are currently hurting crude oil and copper prices, with the latter dropping to its lowest levels since June this morning.
- Crude oil: Investors are worried that oil prices went too high during its rallying phase when optimism was sky-high about demand returning to normal. But now, investors are forced to re-assess those rosy views and are realising that demand is actually a little softer. Crude oil investors will be watching today’s publication of US stockpiles report closely. Analysts expect to see a 1.5 million-barrel drawdown. But in recent weeks, US crude oil stocks have missed expectations, with the previous sharp inventory drawdowns coming to a halt. If we see an unexpected build, then expect to see oil prices take a tumble. Beyond the short term impact of inventories data, the weakening signs of demand for oil and the ongoing return of OPEC+ oil means the market is no longer going to be very tight. So, there is a good chance we will see further weakness in oil prices.
- Copper: Crude oil is not the only commodity likely to come under pressure if demand concerns intensify. Copper has already been selling off with Chinese imports falling for four consecutive months. This is not a good sign given that China is the world’s largest copper consumer. Bullish investors better hope the rising trend line around $4.15-$4.16 area doesn’t break down – see the copper chart below.
- Gold prices have recovered sharply on increased haven flows of late and the drop in bond yields, but with the US dollar rising, the upside for the precious metal has been capped. Gold thus continues to trade inside a wide range and will remain that way until either the dollar makes a decisive break in either direction, or we see some major risk-off event to cause a significant rise in haven demand.
Stocks: The global stock markets have been struggling across the world in recent days, although the selling has been limited for the European and US indices thus far as the short sellers have largely stayed on the side-lines after being repeatedly shaken out on insatiable dip-buying appetite. Other risk assets such as crude oil and copper prices have also weakened on signs of weakening demand (see below). This has hurt commodity stocks and
FX: Commodity dollars have struggled with the Aussie undermined by the virus situation in Australia and kiwi being hurt as investors abandoned their bets that the
RBNZ would hike rates (and they didn’t). The
pound has not been able to regain its poise with today’s weaker-than-expected CPI inflation readings (2% headline and 1.8% core CPI) reaffirming the 'transitory' narrative, although house prices rose the most since 2004 and PPI input and output, as well as the RPI measure of inflation, all came in hotter.
Chart to watch: Copper
Source: ThinkMarkets and TradingView.com
Macro events coming up this week
Wednesday
- Canadian CPI
- US building permits and housing starts
- FOMC minutes
Thursday
- Australia employment report
- Unemployment Claims and Philly Fed Manufacturing Index
Friday
- Retail sales from UK and Canada
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