In early November, copper prices stabilized and rebounded, mainly due to favorable overseas macroeconomic conditions and support from domestic industries. First, as the Palestinian-Israeli conflict continues, market risk aversion gradually subsides; second, as U.S. economic data in the fourth quarter weakens, the U.S. dollar index oscillates downward, and the market also begins to speculate on expectations of interest rate cuts. The favorable overseas macroeconomic situation has largely given the impetus for the rebound in copper prices. At the end of October, domestic favorable policies were frequently released, and after the stimulus of trillions of national debt, the market turned from empty to bullish, driving the copper price to rise. In the industrial market, after the copper price fell sharply, there was a strong willingness to support the bottom, and the downstream operating rate increased significantly. However, after the copper price rebounded sharply, the overall operating rate declined significantly.
The U.S. dollar index begins to weaken
From an overseas macro perspective, the US dollar index will oscillate downward in the fourth quarter of this year and the first quarter of next year. Due to the strong financial attributes of Lun Copper, it will be greatly affected by this positive impact. The Fed's current interest rate hike cycle may have ended, the key is when to cut interest rates. In early November, U.S. PMI and non-farm employment data weakened, and market interest rate cut bets were once moved from June next year to May or even March. However, after being suppressed by the expectation management of Federal Reserve officials, interest rate cut expectations have faded. Under the pressure of high overseas interest rates, the U.S. economy is more likely to weaken. We believe that the U.S. dollar index will continue to weaken as the economic data for the fourth quarter are released one after another. Moreover, weaker economic data will also help reduce inflation expectations, which will in turn help fuel interest rate cut expectations, which will also put pressure on the U.S. dollar index. In addition, the Palestinian-Israeli conflict has exceeded five weeks, and Israel has switched from air strikes to ground attacks. There are no obvious signs of risk spillover. Global risk aversion has significantly cooled down, and rising risk appetite is not good for the U.S. dollar, but good for risk assets.
Strong domestic policy expectations are coming again
Domestically, since the stimulus of the trillion-dollar national debt policy, favorable macroeconomic policies have been issued frequently, and domestic economic strong expectations have been fermenting for nearly three weeks. The black series has performed well, but has a weak radiation effect on copper, and the overall market differentiation is large. We believe that this is due to the fact that favorable policies have less substantive benefit to non-ferrous copper. On the other hand, it is due to the overall high level of the US dollar index that still exerts some pressure on copper.
In terms of industry, China currently has a low-inventory situation driven by strong supply and demand. Data show that in the third quarter, the monthly domestic refined copper output has reached 1 million tons, a year-on-year increase of 10%. At the same time, the import volume is at the same period in previous years, but the domestic explicit inventory did not rise but fell, which illustrates the strong domestic demand.
Judging from relatively high-frequency data, the downstream industry has a strong willingness to support low copper prices, but a weak willingness to raise them. From late September to mid-October, when copper prices fell sharply, the operating rate of refined copper rods increased significantly. Before futures prices bottomed out and rebounded, spot premiums took the lead in expanding. As copper prices continue to rebound, downstream operating rates have dropped significantly, which shows that downstream copper is not pessimistic, but it is hardly optimistic. Generally speaking, industrial transformation views tend to lag behind macroeconomic policies. When industrial views gradually match macroeconomic policies, market sustainability will increase significantly.
Generally speaking, domestic and foreign macroeconomic factors will resonate at the end of the year. The downward oscillation of the overseas US dollar index and the strong domestic economic expectations are the main driving forces for the upward trend of copper prices. The sustainability of the upward trend in copper prices can be expected. At present, the overseas dollar index is not falling smoothly, so there is no obvious resonance phenomenon. The copper industry is also showing a bullish trend. After the peak season, inventories are still low and continue to be removed, making copper prices easy to rise but difficult to fall. Supply and demand are expected to weaken slightly in the future, and the overall low inventory pattern is difficult to change. However, while high interest rates are maintained overseas, the absolute values of the U.S. dollar index and U.S. bond yields remain at high levels, which inhibits the rise in copper prices from a financial perspective. Therefore, the market only remains in the hype of expected interest rate cuts. The space above copper prices should not be overly optimistic. You can refer to the high point of the year.
