Strong US dollar continued to weigh on SHFE copper

China's informal financing data in August recorded an unexpected rebound, driven mainly by government financing efforts in August and September. There was no significant change in economic activity, though. Bolstered by the real estate stabilisation policy, household credit showed a slight recovery in August. However, the recovery of domestic real estate sales in August was still slow, and the growth of medium and long-term household credit continued to decline. With the issue of additional favourable real estate policies at the end of August, household credit will perform better in September. Corporate credit is stable currently, but is likely to trend downward in the medium to long term. China's economy recovery is still slow, undermining market confidence. As such, copper prices weakened after a brief rise at the beginning of this week. During the week, the People's Bank of China lowered the deposit reserve ratio of financial institutions by 0.25 percentage point to provide liquidity to the market. Positive domestic policies boosted market trading sentiment.

Overseas, affected by the rebound in energy prices, U.S. inflation rebounded more than expected in August, recording the largest monthly increase this year. But core CPI is declining moderately. The market believes that the Federal Reserve will maintain interest rates in the 5.25-5.5% range by the end of this year. The U.S. dollar index thus remained strong, weighing on copper prices.

In the eurozone, industrial output in July recorded -1.1%, lower than the expected -0.7%. The manufacturing in the eurozone continued to slump. And as the largest country and main growth driver in Europe, the German economy remained under pressure. As energy prices rise in winter, inflation in the eurozone can hardly fall to the level expected by the European Central Bank. As such, interest rates will remain high for an extended period. European economy is likely to fall into a recession.

On fundamentals, the current social copper inventories remain at low levels, which still provides support for copper prices.

The U.S. will still maintain high interest rates for a period of time. Market expectations for interest rate cuts within the year have gradually weakened, and the U.S. dollar is expected to remain strong, pressuring copper prices. The probability of the Federal Reserve raising interest rates next week is low. Should the Markit’s manufacturing and service PMI in September be upbeat, the U.S. dollar index will remain high. China's economy still lacks impetus to rise. This will also weigh on copper prices. The most active SHFE copper contract prices are expected to move between 68,000-69,500 yuan/mt next week, and LME copper will trade between $8,150-8,400/mt. In China’s spot market, spot premiums are expected to stand at 150-250 yuan/mt over the SHFE 2310 copper contract.