US Economic Data Indicates Economic Cooling, Supporting SHFE Copper To Hover At High Levels

Last week,  a series of economic data from the US, such as the initial jobless claims and the total number of existing home sales in the US for June, reflecting the gradual cooling of the US economy. The market is gradually pricing in the expectation that there may only be one interest rate hike in July this year. As a result, the US dollar hovered at a low level, while copper prices hovered at highs at the beginning of the week. In the eurozone, the UK's CPI for June recorded 0.1%, significantly lower than the expected 0.4%. As a result, market expectations for the future interest rate hike process of the Bank of England have shifted, leading to a weakening of the pound and assisting the gradual strengthening of the US dollar.

Domestically, the highly anticipated “mid-year report" of the Chinese economy has been released, revealing a clear trend of recovery. China's GDP grew by 5.5% YoY, significantly higher than the 3% economic growth for the whole of last year and the 4.5% economic growth in Q1. However, monthly data for the second quarter showed a slowdown in indicators such as exports and industrial profits. Overall demand remains insufficient, and attention needs to be paid to the total employment volume and structural issues. The real estate development sector remains relatively sluggish. In general, the foundation of the recovery is not yet solid, and continuous effort is needed to provide momentum for economic revival. In terms of fundamentals, when copper prices experience volatility at high levels, downstream buyers mainly purchased as needed, thus limiting the support for copper prices.

On the whole, the recent copper prices fluctuating at high levels is mainly due to macroeconomic sentiment. The US dollar index remains at a low level, but attention should still be given to the interest rate path in the eurozone. An upward trend in the US dollar index may occur if the eurozone pauses its interest rate hikes, which would suppress copper prices. In addition, the "half-year report" of the domestic economy indicates that China's current focus is on "stability". To ensure the achievement of the economic growth target in H2, more policy measures are still needed to stimulate domestic demand. Therefore, macroeconomic sentiment will continue to provide upward momentum for copper prices. However, the fundamental support for copper prices remains insufficient, and copper prices are likely to fall from high levels.

It is expected that the most active SHFE copper contract will trade between 67,500-69,000 yuan/mt this week, while LME copper is expected to trade between $8,350-$8,700/mt.

In the spot market, due to end-of-month cash flow pressures and the delivering of long-term contracts, spot premiums can hardly improve. It is predicted that this week, spot premiums will range between 20-100 yuan/mt.

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