Macroeconomic uncertainty increased, US dollar stabilised, copper prices fell before rising

The US dollar trend was flat during the week ending January 12. The market was still unsure of the timing of the first interest rate cut in 2024. Copper prices stopped falling and rebounded, almost the same as the trend of US stocks. Market expectations for an interest rate cut in March by the US Federal Reserve have decreased, but that did not bolster the US dollar further. During the week, Federal Reserve officials reiterated that the United States needs to consider the 2% inflation target, and some economists predict that US inflation will gradually approach 2% by the end of 2024. Any pressure on copper prices from the US dollar should be insignificant. The unemployment rate in the eurozone registered a record low of 6.4% in November. However, ECB officials still maintained their "hawkish" remarks and have made it clear that they will not cut interest rates before summer.

In the Chinese market, the continued decline in A-shares lowered copper prices at the beginning of the week. Nonetheless, the market was still expecting additional cuts in domestic reserve requirement ratio and interest rate cut at the beginning of the year. Domestic macro sentiment was not overly pessimistic. Copper prices fell to the 68,000 yuan/mt mark during the week, and spot copper was quoted below contract prices. Downstream buying interest picked up, weakening some negative impact from supply. Copper prices were supported at 68,000 yuan/mt.

In the week of January 15, the CPI data of various countries in December 2023 will be released. The Beige Book of US economic conditions and the minutes of the European Central Bank's December monetary policy meeting will be a focus of markets. Whether the Federal Reserve and the European Central Bank continue to maintain their hawkish tones may have some influence on market expectations over interest rate cuts. China's CPI in December is expected to be upbeat. The market expects that the Medium-term Lending Facility (MLF) interest rate will be adjusted on January 15. The Loan Prime Rate (LPR) may also change. If the interest rates are cut as scheduled, copper prices will be supported. LME copper is expected to trade between $8,250-8,550/mt in the week of January 15 and SHFE copper prices will fluctuate between 67,500-69,000 yuan/mt. The spot premiums are expected to stand at 0-200 yuan/mt.