Morning Copper: The Bias is Down Unless Significant Risk-On Sentiment Surfaces
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With a sharp setback in iron ore prices overnight, the initial weakness in copper is justified. However, copper prices should be underpinned because of news that the Chinese manufacturing sector in 2021 posted the highest percentage of GDP reading in 27 years. In other words, the Chinese economy remains heavily dependent upon its industrial capacity. On the other hand, US trade data has sparked renewed trade tensions between the US and China, with the data making it clear China has not fulfilled its trade agreement commitments to the US. At least for the time being, the copper market is relatively uninteresting with the most likely action ahead a sideways consolidation within a trading range bound by $4.52 on the upside and $4.37 on the downside. Apparently, the market did not give credence to a story suggesting the potential for a looming short squeeze involving LME copper warehouse stocks. While daily declines in LME copper stocks have not been as significant (the overnight decline was 2600 tons) as was seen throughout last year, stock levels have been declining and a squeeze is certainly not out of the question. From the demand front, market expectations have softened given a weak January manufacturing PMI reading from China. In a minimally supportive development this week, a copper mine in South America continues to be hindered by road blockades and the company has suggested they will see production losses in the event the roads are not cleared soon.
MARKET IDEAS
We do not see a definitive edge in the Copper market as Chinese copper demand news has been lacking lately and supply news has not been able to notably move the needle of the speculative trade. Underpinning copper prices is the potential disruption of Russian copper exports, a modest supply threat in South America and the markets aggressive capacity to reject a test of the $4.40 level yesterday.
TECHNICAL OUTLOOK
Note: Data is collected using the closing values of the previous session and calculations and analysis are run at the same time. Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report. Data sources can and do produce bad ticks that can cause computation errors. Please verify before use.
COMEX COPPER (MAR) 02/09/2022: Positive momentum studies in the neutral zone will tend to reinforce higher price action. The market's short-term trend is positive on the close above the 9-day moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The next upside objective is 4.54. The next area of resistance is around 4.51 and 4.54, while 1st support hits today at 4.43 and below there at 4.37.