Macro surprises beat the dim fundamentals, copper contract prices got off to a good start post-CNY holidays

During the Chinese New Year holidays, domestic trading was suspended, and the market focused on the trend of the US dollar index and LME copper prices. During this period, the US CPI in January exceeded market expectations and did not fall back. That, coupled with the constant hawkish tone from the Federal Reserve, sent the US dollar index rising to a high of close to 105; LME copper prices fell to a low of $8,127/mt. However, as the market has gradually priced in the Federal Reserve's hawkish stance that "it will not consider cutting interest rates for the time being", the US dollar gradually rolled back its gains after peaking. After the CNY holidays, most risk assets were off to a good start, with stock markets in the United States, Japan, Europe, and China all showing gains. In addition, the United States planned to announce a package of "major" sanctions against Russia last Friday. Aluminium and nickel futures prices rose significantly, and copper prices were also driven higher.

In the European market, European economic data were released in the second half of last week. France's February manufacturing PMI was higher than expected and the previous value, actively driving the European market sentiment; although the manufacturing PMIs in Germany and eurozone were slightly lower than the previous value and expected, the overall sentiment in European stock markets and the euro and the US dollar were still strong. And the US dollar index was under pressure again. LME copper prices hit $8,600/mt after rising, which provided positive guidance for SHFE copper prices. In the Asian market, the Governor of the Bank of Japan said that "Japan is experiencing inflation." The market expects Japan to emerge from the era of negative interest rates in the next two to three months. The Nikkei Index continues to break through historical highs, and the US dollar and the yen fell from a week earlier. In the Chinese market, after the reserve requirement ratio cut in early February, the market saw interest rate cuts again. The 5-year Loan Prime Rate (LPR) dropped by 25 basis points. A-shares continued to rise, with the high almost touching 3,000. LME copper prices touched $8,600/mt, and SHFE copper prices exceeded 69,500 yuan/mt.

On the other hand, the fundamentals after the CNY holiday were not promising. Ore supply tightness has not yet eased. The market focused on whether smelters will be overhauled in advance. Inventory accumulation reached a new high in recent years after CNY holidays in 2024, but the total volume did not show a significant year-on-year increase. Due to weak consumption before CNY and nearly 200 yuan/mt contango structure between the SHFE 2402 and 2403 contracts, most sellers converted spot cargoes into warehouse receipts. In addition, invisible inventory turned into visible inventory, resulting in a significant increase in inventory after the CNY holiday. This week, the spot market activity may increase after the Chinese Lantern Festival on February 24. Spot discounts in various places will also converge. Shipments are expected to increase compared with last week, and the structure of SHFE forward-month contracts will turn into backwardation structure. This week US PCE data and multi-country PMIs will be a market focus. LME copper is expected to trade between $8,450-8,700/mt and SHFE copper prices will fluctuate between 68,000-70,000 yuan/mt. Spot copper is expected to trade with discounts of 100 yuan/mt to premiums of 20 yuan/mt.