Copper Lower After Chinese Factory Activity Loses Steam
Copper Analysis
After a strong fourth quarter and a powerful 2023 start helped by China's ditch of the strict zero-Covid policies, Copper dropped in February on expectations for a more aggressive Fed. It now heads to the conclusion of a mixed month as recession fears creeped in due to the banking turmoil, but this also forced the US Fed into a more conservative stance [1]. The Chinese central bank meanwhile, cut the reserve requirement ratio for large banks, to "effectively upgrade and appropriately expand the economic output". [2]
China's reopening has been cheered by markets and today the World Bank upgraded its 2023 GDP forecast to 5.1% from 4.3% in the previous forecast and compared to 3% actual growth last year [3]. The positive economic impact has already been evident in various economic indicators, as factory activity expanded for the first time in month in January and picked up speed in February. Today's data however showed a slowdown in March, since Manufacturing PMI stayed in expansionary levels (above 50), but the 51.9 print was lower than the month prior (52.6).
Copper is cautious today given the softer PMI in a subdued week and remains on a correction mode after January's peak. As such, there is risk of further pressure, but fears around the financial system have eased (at least for now) and a strong catalyst will be required for the 2023 lows to be challenged (3.706).
Despite the lackluster performance over the past several week, China's comeback and prospects of a tame Fed are tailwinds for the commodity. Above the EMA200 (black line) bias in on the upside, while the daily chart shows the recent formation of a Golden Cross (EMA50>EMA200), which is often a precursor to sustained strength. This gives Copper the chance to push for fresh 2023 highs (4.356) and bring 4.579 in the spotlight, although fresh impetus will be required for such moves. The trajectory of the commodity could be affected by today's US PCE Inflation update.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 31 Mar 2023 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20230322.htm | |
| Retrieved 31 Mar 2023 http://www.pbc.gov.cn/en/3688110/3688172/4756445/4821979/index.html | |
| Retrieved 27 May 2023 https://openknowledge.worldbank.org/server/api/core/bitstreams/2de8eeee-c254-4df4-904d-33cd888b6808/content |
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