Copper drops on Chinese property sector concerns

Tuesday, April 21, 2015

Three month LME copper prices shed almost 3% yesterday after a positive start to the week saw the red metal open at a four week high at $6,173/tonne. The initial optimism after the PBOC announced a cut to the RRR were quickly overshadowed by worries regarding the property sector. Policymakers had targeted the most recent RRR cut as a way to free up liquidity for lending to small businesses, however, the influx of credit soon saw the focus switch to a heating property market, with speculation of a potential bubble weighing heavy on the base metals complex throughout the day, which was further exacerbated by a stronger USD. Copper prices slipped back below $6,000/tonne, stopping short of further declines at the 100 day MA as prices ended the session at $5,972/tonne. Three month zinc prices also faced substantial selling pressure yesterday and despite intraday gains pushing prices to a four month high just below $2,250/tonne immediate support failed to hold and prices slipped 2.23% lower, ending the session at $2,178/tonne.

Asian indices headed higher overnight as they tracked a stronger session on Wall Street and continued to mull over the impact of further stimulus measures by the PBOC. Despite a softer start to the week equity benchmarks across the region managed to recovery much of the lost territory as a renewed liquidity flooded into the market seemingly resuming the rally that has seen markets rally as much as 30% across Asia. However, market commentators expressed caution as concerns regarding China’s housing market still presented significant headwinds to the economy. The easing of the reserve requirement ratio has indeed proffered increased market liquidity but it is this continued easing that some market participants are citing as the main catalyst for the heady gains seen in the stock market. Unless the market can rally significantly higher which would suggest a positive shift in sentiment we could soon see investors lose their appetite for further gains suggesting the rally is overdone.

The dollar index headed higher early this morning as the greenback built on support offered at yesterday’s close. Having snapped a four session losing streak and adding 0.7% against a basket of major currencies yesterday the dollar index pushed back above 98.00 and at the time of writing has been finding tentative support around 98.300. Given a dearth of US macroeconomic data both yesterday and today the lack of any fundamental drivers could see the dollar fluctuate sideways within today’s already established range with the potential to push higher towards 98.500 on any additional gains against an already weakened euro.

3-M copper prices sell-off back below $6,000

LMCADS03 Comdty LME COPPER 3 2015 04 21 07 51 31

3-M zinc price fail to hold onto intraday gains

LMZSDS03 Comdty LME ZINC 3 2015 04 21 08 00 16

DXY pushes higher in attempt to recover lost territory

DXY Curncy DOLLAR INDEX SPOT 2015 04 21 07 45 29

Events for today

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Government Debt/GDP Ratio

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ZEW Survey

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May Crude WTI (NYMEX) 

Topics: Copper, DXY, LME, PBOC, Zinc
More from: Kash Kamal