SHANGHAI, Nov 15 (SMM) - On the macro front, the US Federal Reserve raised the interest rate by 75 basis points for the fourth time in a row in November, and suggested that the rate hike pace may slow down in December. However, the US job report, a gauge for inflation, was mixed. The growth of non-farm payrolls and hourly wages was better than expected, but the unemployment rate unexpectedly rose, which made the prospect more ambiguous for the investors. The US dollar index fell below 110, boosting risk assets including copper. Entering November, the US mid-term elections have started, and the market expects that the Republicans are expected to at least win the House of Representatives. It is necessary to continue to pay attention to whether the Republicans can lead the elections. If the Republicans win the Senate and the House or it is bipartisan, the US inflation is expected to fall more quickly, and the Federal Reserve will probably stop raising interest rates ahead of schedule.
Back in China, the National Health Commission stated that it insisted on "dynamic zero", but at the same time, the pandemic prevention policy shall balance the economic development, and excessive pandemic prevention behaviour was criticised by name. German Chancellor Scholz visited China on November 4, and the voices calling for decoupling with China and reducing Sino-German economic and trade cooperation may be tuned down. Under these circumstances, some domestic and foreign investors began to trade the expectations of relaxing pandemic control in China. On the evening of November 10, China disclosed that the increase in social financing in October was 907.9 billion yuan, a decrease of 709.7 billion yuan compared with the same period last year, which weighed slightly on the macro sentiment. But the market is now more focused on the US October CPI data due on the night of November 10. If the CPI reading beats market expectations and continues to fall, it may sway the expectations for further US monetary tightening, and the US dollar and US bond yields may continue to contract, which is expected to boost the stock and commodity markets in the short term.
On the fundamentals, as of November 10, LME inventory dropped to a dangerously low of 80,025 mt, while the proportion of cancelled warrants was at a high level of around 51.48%, heightening the probability that LME copper inventory will flow out into the market in the future. SHFE copper cathode inventory, on the other hand, was less than 60,000 mt, and the bonded zone stocks were around 25,100 mt. With both Chinese and LME inventory recording historical low, the same old song of a short squeeze is likely to play again when SHFE 2211 is delivered. Nonetheless, domestic copper cathode social inventory has shown signs of accumulating with the inflow of imported copper, throwing cold water to the expectations of short squeeze as SHFE 2211 and 2212 spread narrowed. But the open interest of SHFE 2212 is now as many as 200,000 lots, and the “game of inventory” is still on. On the demand side, spot premiums dropped on surging SHFE copper, pandemic outbreak and poor downstream demand. The popularity of copper cathode rod also weakened with a wide spread between copper cathode and scrap, evidenced by contained new orders. On the terminal end, the China Southern Power Grid slowed down the placing of orders. The delivery in east China that is covered by State Grid was normal, while the orders in north China were delayed until next year on spreading covid.
On the whole, copper prices are likely to rise to some extent with support from low inventory and the macro front. The most-traded SHFE copper is expected to move between 63,500-68,000/mt in November, and LME copper between $7,650-8,300/mt.