Copper Rally Gathers Steam

Daily Analysis - 01/08/2017

Chinese Data Lifts Industrial Metals Prices

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Copper soared to a fresh two-year high on Monday after an official gauge of manufacturing activity from top consumer China remained in expansionary territory during July. The weakness in the US dollar was another big tailwind for the metal, helping copper extend its most recent winning streak.

Copper Wakes Up from Winter Hibernation


Copper broke out of an eight-month trading range last week amid news of a potential Chinese ban on imports of scrap copper, with the ban likely to take effect in 2018. China is the world's biggest importer of scrap metal, and any ban could heighten the demand for refined copper and mined copper concentrate.

The copper rally accelerated after data unveiled on Monday showed that China's manufacturing PMI came in at 51.4 in July, signalling expansion in economic activity and strengthening bullish sentiment for the industrial metal. Copper futures reached as high as $2.9155 a pound on Monday before pulling back.  Immediate resistance on the upside sits at $2.9200, a close above which could drive prices to $2.9600 a pound. As long as copper remains above $2.8300, the short-term uptrend will remain intact.

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US Pending Home Sales Rebound


Contracts to buy previously owned homes in the United States, often considered a leading indicator of economic activity, snapped a three-month losing streak to rise in June. The National Association of Realtors said its Pending Home Sales Index, derived from contracts signed in the previous month, jumped 1.50%, easily surpassing economists' expectations for a 0.70% gain. A region by region breakdown showed that barring the Midwest, pending home sales increased everywhere.

Despite strength in the labour market, US housing activity has been constrained by a tightening supply, with inventory falling last month due to rising lumber costs. Nonetheless, stocks shook off the results, with Dow futures ending Monday at a record high, buoyed by a slew of better than expected corporate earnings. September futures have continued to rally, trending just shy of 22,000 in early European trade.

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Euro Area Core Inflation Rises


In an optimistic development for the monetary union, the core inflation measure surged to a four-year high in July according to a flash estimate from Eurostat on Monday.  On a headline basis, consumer prices in the Euro Area remained unchanged, holding steady at 1.30% last month which matched a forecast of economists surveyed by Reuters.

However, core inflation, which excludes the volatile food and energy components, went up to 1.30% in July from the 1.20% recorded a month prior, beating expectations of a dip to 1.10%. In a separate release, the European Union's statistics office said unemployment in the region slipped to 9.10% in June, the lowest since February of 2009 while topping market projections of a 9.20% rate. In the meantime, EURGBP is stuck within a narrow range, with the pair last seen trading around 0.8940.

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Australian Central Bank Holds Rates Steady


The Reserve Bank of Australia left its benchmark interest rate unchanged on Tuesday in a move that was widely anticipated by market participants. The cash rate has remained at a record low of 1.50% since August of 2016. On the Aussie dollar front, the Central Bank ramped up its warnings over the recent strength in the currency, saying it had become a potential impediment to economic growth and rising prices.

The RBA however stated that it still expected inflation to gradually pick-up while forecasting that the economy will grow at close to 3.00% over the next couple of years. The Central Bank is scheduled to release its quarterly statement on Friday, which should provide fresh updates on GDP and inflation. AUDUSD is off the highs of the session to last trade below the 0.8000-mark.

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