Copper Records Worst Drop in 19-Months

Daily Analysis - 04/05/2017

China Growth Worries and Rising LME Stockpiles Hammer Prices

Copper prices fell the most in 19 months on Wednesday after a large jump in inventories increased concerns about an economic slowdown in China, the world's biggest consumer of the metal. Amid considerable efforts to cool the blistering local housing market, copper prices may stay subdued over the near-term.

Copper Stockpiles Grow

Sentiment has been bearish since the start of the week after Chinese manufacturing data came in below expectations, reigniting fears of a demand slowdown from the globe’s biggest source of demand. Last session’s selloff was triggered by a large build-up in the London Metal Exchange’s (LME) copper inventories. Stocks available for delivery at LME-registered warehouses soared by 32.00% or 38,950 tonnes, to 160,200 tonnes, the highest since mid-April.

Copper futures for May delivery are currently hovering around $2.530 per pound. Technical analysts reckon that the presence of a strong support zone around $2.500 could see prices rebounding intraday. The short-term trend remains overtly bearish, with any dip below the support region likely to push prices all the way to $2.450 per pound.

US Private Sector Hiring Slows

Data from US payroll processor ADP indicated that US companies hired workers at a slower pace in April, with figures showing private employers adding 177,000 jobs last month to notch the smallest gain since last October. Economists polled by Reuters had expected the April figure to be around 175,000 after ADP reported an addition of 255,000 jobs in March. That big March number had generated hopes that the recent strength in the labor market would endure.

Nevertheless, investor optimism was dashed after the government's official non-farm payrolls showed the economy created just 98,000 new jobs in March. The coming Friday will see the release of April nonfarm payrolls report, with analysts forecasting the creation of 185,000 jobs alongside the unemployment rate edging higher to 4.60%. After a modest pullback on Wednesday, Nasdaq futures are back on the rise, trending just north of 5620.

Australia Trade Surplus Narrows

After a strong report in February, Australia’s trade surplus contracted more than forecast in March, as growth in imports outpaced export activity. Accounting for seasonal adjustments, the Australian Bureau of Statistics reported a surplus of AUD$3.11 billion. The figure came in below analysts' expectations of a surplus of around AUD$3.25 billion, however, February’s trade balance was revised higher to a surplus of AUD$3.66 billion. While the value of exports edged 2.00% higher in March to $33.3 billion, imports surged 5.00% to $30.2 billion.

Australia had been posting record trade surpluses in recent months, helped by a jump in export volumes from new mines and higher iron ore prices. Nevertheless, the latest weakness in data suggests the surplus is past its peak. AUDUSD is dipping in early Thursday trade, with the pair last seen around 0.7415.

China Services PMI at 11-Month Low

A widely-followed gauge of China's service sector tumbled to an 11-month low in April, underscoring the fear of slower economic growth that has dented business confidence. The Caixin Markit Services Purchasing Managers' Index fell to 51.5 last month from March's 52.2, marking the lowest level of expansion since May of 2016. This was the fourth straight month of deceleration, and mirrored a similar trend of slowing growth in China's official services survey, data for which was released on Sunday.

The Caixin Markit Composite PMI which combines manufacturing and services also declined in April, falling to 51.2 from 52.1 back in March. After expanding by a better-than-expected 6.90% during the first quarter, analysts are now projecting China's gross domestic product momentum to slowly lose steam in coming months. USDCNH is up in early Thursday trade, trading just shy of the 6.9000-mark.