The US government has reached an agreement with the House of Representatives last week, which avoided a possible default. Market concerns eased. At the same time, the focus of the market has also shifted from the debt ceiling issue to bets on whether the Federal Reserve will raise interest rates in June.
The latest Beige Book released by the United States during the week shows that the growth rate of the US economy is gradually slowing down. The US Manufacturing Purchasing Managers Index (PMI) has been below 50 for half a year. US real estate, logistics and other data indicate that the US economic momentum has gradually weakened. The market believes that the Fed will stop raising interest rates in June. Therefore, the US dollar index fell last week and copper prices rebounded. The job market is still the focus of the Federal Reserve at present.
The ADP non-farm data far exceeded market expectations in May, but wage growth has slowed down, and continued increase in inflation caused by wages is less likely. In the eurozone, the May harmonised CPI increased by 6.1% year-on-year, which was expected to be 6.3%, far lower than the previous month's 7%.
Inflation data of major European economies slowed down in May. As the largest economy in the eurozone, inflation in Germany slowed down sharply. The inflation data in Germany and many eurozone countries fell to the lowest in 15 months.
In China, the manufacturing PMI, non-manufacturing business activity index and comprehensive PMI output index in May were 48.8%, 54.5% and 52.9% respectively, 0.4 point, 1.9 points and 1.5 points lower than the previous month. The economic prosperity has declined, and both production and demand have slowed down. Domestic demand was weak.
Fundamentally, consumption has shown strong resilience when copper prices fell, and downstream companies purchased actively at lows. When copper prices rose, consumption weakened. The average operating rate of copper cathode rod plants last week dropped by 3.68 percentage points from 80.33% to 76.65% last week. Many companies reported that orders dropped significantly last week.
On the whole, the debt ceiling issue has been resolved, and the Fed is more likely to suspend interest rate hikes in June. Therefore, risk aversion has weakened, and the US dollar index is expected to continue to fall. The constraint on copper prices will thus be reduced. Although the PMI indicates that internal consumption motivation is insufficient at this stage, local governments have released macroeconomic policies for real estate sector to boost consumption. This will help copper prices rise. It is expected that the most active SHFE copper contract will run at 65,000-67,000 yuan/mt this week, and LME copper prices will move between $8,200-8,500/mt. In the spot market, copper prices rose and the price spread between the SHFE front-month and SHFE next-month contracts narrowed. Sellers will be reluctant to sell at lower prices. Spot premiums will remain firm between 200-350 yuan/mt.
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