Strong US dollar continues to weigh on SHFE copper

The strong job market in the U.S. is cooling moderately, weakening market expectations that the U.S. will enter an economic recession again. The ISM services purchasing managers index in the U.S. released during the week rose to a six-month high, higher than expected, strengthening market expectations that U.S. interest rates will remain at high levels for a longer period of time. Meanwhile, the Beige Book also pointed out that the U.S. economy is also growing moderately against reduced inflationary pressures and a cooling labour market. The market has strong expectations for a soft landing of the U.S. economy, and the U.S. dollar index remains strong.

In the eurozone, the weak manufacturing remains the main reason for weak European economic data. New orders received by manufacturers across the eurozone continued to plummet, and factory demand was dampened significantly. The possibility of the eurozone economy falling into a recession in the future thus increased.

China's total import and export value in August declined compared with the same period last year, but posted a month-on-month growth of 3.9%. Exports grew 1.2% on the month and imports increased 7.6% on the month. The recent barrage of measures has spurred the demand for Chinese real estate to a certain extent, but this has not affected upstream industries. Overall, domestic and overseas demand are improving. In terms of fundamentals, downstream buyers still restocked as required. The operating rates of copper rod plants using copper cathode as raw material rebounded as copper prices fell this week, keeping demand resilient.

U.S. inflation data and industrial output for August are due next week. China will issue informal financing and the consumer price index this weekend. In aggregate, the US dollar will remain strong, limiting upward momentum for copper prices. The most active SHFE copper contract prices are expected to move between 68,000-69,500/mt next week, and LME copper will trade between $8,150-8,400/mt. In China's domestic spot market, spot quotes will fall further if the price spread between the SHFE front-month and SHFE next-month copper contracts remains firm, with a maximum premium of 100 yuan/mt.