US housing data supports copper prices higher

Tuesday, August 19, 2014

Three month LME copper prices gained further momentum yesterday as prices built on Friday’s close, supported higher by encouraging US data. Figures released by the National Association of Home Builders (NAHB) showed an uptick in sentiment as the housing market index climbed to 55 in August from 53 the previous month. The encouraging outlook pushed three month copper prices to a close above $6,900/tonne with buying activity early on this morning holding firm after an optimistic Asian session. Prices may gain further support from the release of HSBC’s preliminary manufacturing PMI reading for August, due out on Thursday with market participants polled by Bloomberg expecting a reading of 51.4 which would mark a third straight month of expansion after manufacturing activity contracted throughout most of the first half of the year.

Wall Street rallied higher yesterday, spurred by stronger housing data and easing tensions in Ukraine while the dollar managed to stabilise against its major peers yesterday. With fresh optimism carrying over from the European trading session both the S&P 500 and DJIA rallied higher from the open and proceeded to find firm support at these levels throughout the day. Stronger housing data and an increase in M&A activity increased investor appetite as the Nasdaq composite closed at a fourteen year high.

The dollar index regained a firm footing above 81.5, ending the session at 81.576 with activity this morning building on this level as early gains targeted recent highs towards 81.673. We expect the dollar index to remain within the range that has dominated trading activity throughout much of August ahead of tomorrow’s release of July’s FOMC meeting minutes as well as comments from Jackson Hole starting on Thursday. The positive mood from the US session managed to spill over to Asian trading with most major benchmarks in the region rallying higher on positive risk sentiment. However, investors will be closely watching the situation in Ukraine with any potential flaring in unrest increasing the demand for safe haven assets. 

Front month Brent prices slipped lower yesterday, posting a close below $102/bbl for the first time since June last year as news of Kurdish forces retaking Mosul dam from Islamic State fighters calmed oil markets. Peshmerga forces, backed by US airstrikes have made steady territorial gains in recent weeks culminating in the recovery of the strategically important dam resulting in a sharp erosion of risk premium in Brent contracts. Choppy trading activity throughout August has seen significant reversals as knee jerk reactions to the situation in Ukraine and Iraq have seen the 30 day historic volatility for front month Brent contracts increase to almost 17%. However, the overall trend seems to be prevailing on the downside as a combination of OPEC members ramping up output in anticipation of an expected decline in Iraqi and Russian output which has yet to materialise and sluggish global demand have weakened the fundamental outlook.

LME 3-M copper prices move higher on encouraging US housing data

LMCADS03 Comdty LME COPPER 3 2014 08 19 07 57 31

DXY holds firm ahead of FOMC meeting minutes

DXY Curncy DOLLAR INDEX SPOT 2014 08 19 08 15 45

Events for today

0230

CN

Jul

Property Prices

1000

EZ

Jun

Eurostat Trade

1500

US

Aug

NAHB Housing Market

Topics: Copper, Brent, DXY, LME
More from: Kash Kamal