Copper: China Downgrade Weighs On Red Metal, But Losses Recovered Mid-Week
The red metal came under pressure initially this week, tracking movement in the broader commodities markets as traders reacted to Moody’s downgrading of China’s credit rating from A1 to Aa3. The downgrade, which marks the first lowering of China’s credit rating since 1989, was received sharply by commodities traders who began offloading the metal. The downgrade came as China’s debt to GDP topped 300%. With China being the world’s largest producer of Copper the news provoked fears of liquidity problems for producers, leading to the sell-off.
Alongside this, the latest FOMC minutes release further raised markets expectations of a June rate hike as the minutes revealed that members feel a rate hike will be “appropriate soon.”Rate hike expectations for June are now over 80% and are adding to downside pressure on the metals complex.
Despite these headwinds, however, copper managed to recover earlier losses as the US Consumer Confidence reading came in well below expectations on Tuesday causing some Dollar weakness. Traders now await the US jobs report on Friday which is likely to be the key catalyst for Copper’s direction over the short term.
The congestion in copper continues as markets await a proper directional catalyst. A lack of momentum in Trump’s policy campaign has been the main source of stagnation in the market while in the near term a potential Fed rate hike is likely to be the key driver. Main resistance still sits at a retest of the 2015 high along with bearish trend line resistance from the 2011 highs. Below market local support sits at the December 2016 low and below that the mid-2016 highs.
Iron: Down 40% Over the Last 3 Months
Ahead of a long weekend in China, the metal, which has now plummeted around 40% over the last 3 months, sustained further losses. Reduced trading volumes ahead of the long weekend created a difficult environment for those in searches of buyers and exacerbated the losses seen. Meanwhile, the latest data shows that iron ore inventories at Chinese ports continue to grow, rising by a further 600,000 tonnes to hit a record high of 136 million tonnes.
