U.S. economic data signals expectations of an interest rate cut, with strong fundamental support driving copper prices higher overall [SMM Macro Weekly Review]

On the macro front, US employment and inflation data strengthened expectations for a US Fed interest rate cut in September. Multiple Fed officials signaled the possibility of three rate cuts this year, and some financial institutions also raised their rate cut expectations, driving the US dollar weaker and copper prices higher. July's CPI and core CPI were mild, further solidifying loose monetary policy bets. Geopolitical uncertainties temporarily elevated risk aversion, and combined with Fed officials' concerns about the labour market and tariff-driven price increases, led to a correction in market expectations for aggressive rate cuts. Mid-week, the US dollar index rebounded, subsequently suppressing copper prices. Overall, loose monetary policy expectations and US dollar fluctuations still dominate short-term trends, but trade policies and geopolitical events may exacerbate volatility. This week, LME copper fluctuated around $9,800/mt, while SHFE copper rose to around 79,000 yuan/mt, moving sideways. Marginal improvements in the supply and demand landscape provided some support from below.

On the fundamental front, production at the El Teniente copper mine resumed this week, with an estimated production loss of approximately 20,000-30,000 mt. The Grasberg copper mine continued to sell off a large volume of ore in the market, and spot processing fees continued to rebound. Domestically, policies related to investment attraction in some regions may undergo changes starting from September 1st. Secondary copper rod enterprises are concerned that policy changes may affect their profitability. After completing orders on hand, they have chosen to halt production and adopt a wait-and-see approach. As a result, copper cathode consumption has increased, with a notable "stronger-than-usual off-season" phenomenon. Spot premiums have continued to climb. Overall, the supply side has shown some improvement, and the substitution effect between refined and scrap copper has become evident in consumption, leading to an increase in copper cathode consumption.

Looking ahead to next week, the macro front is expected to be quiet. After both sides agreed to extend the reciprocal tariff for another 90 days following the China-US talks, they will once again enter a tug-of-war phase, reigniting market wait-and-see sentiment. Driven by expectations for a US Fed interest rate cut in the second half of the year, the US dollar index has shown a trend of recovery, providing strong support at the bottom of copper prices. It is expected that LME copper will fluctuate between $9,650-9,850/mt next week, while SHFE copper will fluctuate between 78,000-79,500 yuan/mt. On the spot front, the substitution effect between refined and scrap copper is expected to continue, and domestic inventory is expected to remain at low levels or even experience destocking. It is anticipated that spot prices against the SHFE copper 2509 contract will range from a premium of 50 yuan/mt to a premium of 250 yuan/mt.