Copper remains a favorite long of the investment community. The EV revolution, as well as the reflation trade, are the main long arguments most investment banks and research firms use to justify the bullish view but recently but copper is
Global Growth Slowing
Copper’s nickname is “Dr. Copper” due to its wide industrial usage it’s a barometer of the health of the global economy and if we look at the global economy it’s slowing and so too is China which is the world’s biggest consumer of commodities.
China the Impact of Evergrande
China has major problems and the problems of Evergrande a heavyweight property developer could dent Chinese growth further. China’s The property sector accounts directly for 14% of the China economy and 25% if the indirect contribution is added in – “As such, the economy would take a knock if the property sector were to slow drastically.” (JPM)
TS Lombard goes beyond the above, and points out the real risks, beyond what we are seeing play out now:
“A different risk, though, is facing the entire property sector: potential new home buyers will be increasingly reluctant to advance their life savings to other real estate firms in pre-sale deals, particularly if they no longer expect housing prices to rise. And since such firms currently depend on pre-sales for over half of their financing, an ongoing slowdown in property activity will be exacerbated next year.”
Evergrande If the Government lets it collapse or they save it won’t make a difference to investor confidence which has taken a hit.
Copper Iron Ore Correlation
While there is a big difference between iron ore and copper in terms of usage, the two have moved in tandem for a long time. Chinese demand for all commodities is going to drop going forward and copper is expected to play catch up with Iron ore.
The global economy is slowing which means slowing demand for copper and speculators are heavily long which points to a correction in Copper.
On the weekly chart qwe can see that after a strong up trend we are now in a period of sideways action or distribution after the peaking of the up trend back in April. We view copper as a sell on a move to resistance or on a break of support weekly and daily charts below.
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