The US dollar index and US Treasury bonds saw no significant volatility after the US Personal Consumption Expenditures (PCE) data for October was released Friday October 27. On Wednesday, the ADP job report was lower than expected, with US wages growth slowing to its lowest level in two years. The market expected that the US would suspend interest rate hikes in November. However, Powell's speech shed no light on whether the suspension of interest rate hikes will continue in December. During the week, the US dollar surged before falling, and was by and large bearish, alleviating pressure on copper contract prices. Germany's CPI recorded 0% in October, lower than the previous value and expectations. The inflation rate in the eurozone fell to its lowest level in nearly two years in October. A number of data are gradually validating the market's expectations that the European Central Bank may end its path of raising interest rates. The euro fell back against the US dollar. Except for the ADP’s job data, other economic data for the US was still strong, which hampered the euro from rising.
China's manufacturing and Caixin PMIs in October were both lower than expected, with the former standing below 50. Nonetheless, economic data fluctuations were within the normal range. Prices of copper futures contracts rolled back gains but remained above the 5-day moving average. The central financial work conference held in Beijing from October 30 to 31 pointed out that financial work tasks should be focused on strengthening financial supervision and preventing financial risks, and steadily promoting the internationalisation of the yuan. The central government's intervention in financial activities has released many important signals to the market, sending A-shares returning to 3,000 before stabilising.
SHFE copper prices have risen significantly, with the price spread between copper cathode and copper scrap recovering to above 1,000 yuan/mt. This in turn weakened copper cathode consumption. Meanwhile, spot market trading declined as most of the spot market participants attended in the SMM Metal Industry Annual Conference. These, combined with the inflows of imported copper, lowered spot premiums. Weaker domestic fundamentals hampered SHFE copper prices from rising further. LME copper inventories continued to decline last week, with a decrease of 3,575 mt on Thursday, the largest drop since June this year. LME copper prices rose and outperformed SHFE copper, lowering the SHFE/LME copper price ratio from 8.3. The US non-farm payrolls data in October due on Friday is expected to slow down compared to September’s. If the non-farm payrolls cool down as expected, the US dollar index can hardly return to its previous highs.
LME copper is expected to trade between $8,100-8,250/mt this week and SHFE copper prices will fluctuate between 67,000-68,000 yuan/mt. There will be continued influx of imported copper into the domestic spot markets this week. This, combined with depressed consumption due to the rebound in copper prices will lower spot premiums to 50-200 yuan/mt.
