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Copper Near 3-Month High

Daily Analysis - 30/06/2017

China Demand For Industrial Metals Alongside Weak Dollar Boosts Copper Prices

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Copper reached a three-month high on Thursday, buoyed by strong demand from top consumer China, and a weaker US dollar. Prices are holding ground just below that level in early Friday trade after a Chinese manufacturing PMI figure released overnight managed to top expectations.

Copper Supply-Demand Mismatch Unlocks Further Upside


China accounts for almost half of the global copper demand. Power consumption in the country, normally a good indicator of the metal’s demand, rose 6.00% in April, encouraging investors to increase their bullish bets on copper.

The recent weakness in the US dollar is further supporting prices, as a cheaper greenback makes the dollar-denominated industrial metal cheaper for foreign consumers.

Furthermore, strengthening manufacturing fundamentals highlighted by the PMI figure overnight suggests that economic activity remains robust, helping improve the copper outlook.

On the supply side, copper stocks in London Metal Exchange warehouses are down over -30.00% since early May to 243,300 tonnes, reflecting the tightness in the market. The resulting price action has seen the near-term trend turn decidedly bullish.

If prices manage to record a daily close above $2.700, copper could conceivably rally all the way to $2.800 a pound.

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US GDP Growth Revised Higher


The US economy slowed less than initially estimated in the first quarter, revised figures from the Commerce Department showed.

Gross domestic product rose at a 1.40% annual pace during the final reading of first quarter figure, topping the 1.20% rate reported last month. It nevertheless was still the slowest pace of growth since the second quarter of 2016.

Economists polled by Reuters were expecting GDP growth to remain flat at 1.20%. First quarter activity was lifted by an upward revision to consumer spending, which increased by a 1.10% clip instead of the previously estimated 0.60%.

Exports also rose at a faster pace, climbing 7.00% compared to the 5.80% rate reported during the first revision.

Most other key components of GDP — inflation, government spending, business investment and inventories — were little changed. USDCHF is edging higher Friday to currently trade around 0.9565.

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UK Consumer Confidence Slips


Consumers in the UK suffered a sharp drop in confidence in June amid rising inflation and tepid wage growth.

A leading survey conducted by market research firm GfK showed that the group’s monthly measure of consumer confidence sank to -10 this month, easily missing a median forecast of -7.

The survey covered the period before and after the June 8th parliamentary polls, which saw the ruling Conservative party lose its majority. The domestic-driven UK economy managed to weather the initial post-Bexit uncertainty on the back of consumer resilience. However, growing inflation accentuated by depreciation in the pound has squeezed consumer wallets, resulting in a slump in sentiment.

The FTSE 100 index is dipping in early Friday trade, with the benchmark last seen trading around 7280 after rebounding earlier from strong support sitting near 7250.

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China Factory Activity Accelerates


Manufacturing activity in China accelerated more than projected in June, suggesting continued momentum in the world's second-largest economy.

The official manufacturing PMI climbed to 51.7, up from a May reading of 51.2 while beating the Reuters consensus forecast of a 51.0 print. The official services PMI also increased to 54.9 in June from May's 54.5, helping spur additional optimism.

Since the start of the year, Chinese economic activity has proven more resilient than was previously expected, giving policymakers more room to focus on curbing financial risks and cooling a booming property sector.

First quarter growth came in at 6.90% - the fastest pace since the third quarter of 2015. The government is currently targeting 6.50% expansion in output for the year.

AUDNZD, which is prone to fluctuations in Chinese economic data, is down in Friday morning trade to currently hover around 1.0500.

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