The coppers strong acceleration in January, when the metal gained about 11%, was blamed to good economic news. In two months the macroeconomic environment has quickly changed, in fact last week sharp fall was caused by Chinese gross domestic producer data. In fact Chinas economy expanded 8.1% percent in the first quarter from year earlier, disappointing consensus expectations of an 8.4% outcome. This data is the lowest in almost three years and strongly weighted on the copper, seen China is the first consumer of this metal, absorbing 40% of total production. Yesterday International Monetary Fund, which boosted its growth outlook, restored coppers strength.
We can see that the macroeconomics environment becomes increasingly uncertain, making commodities more and more sensitive to each economic news, especially those cyclic. Chinese growth will slowly accelerate also in the second half of the year, for this reason the government will intensify policy preparations by injecting cash and facilitating loans. This policy could give new power to investments, and consequently will increase copper demand. According to Andrew Harding, head of Rio Tinto copper unit, Chinese red metal demand may gain more than 8 percent annually in the next five years. In this context we note that the inventories in London reached the lowest level since 2008, while in Shanghai are on the highest for two years.
Graphically the asset is in bearish trend on the short-term. The last weeks downward movement pushed the copper outside of the USD 8320 / 8658 range, where the metal traded since January. Moving averages are bearish oriented, especially 20 periods moving average in daily data and the 50 periods in weekly data. Both macroeconomic uncertainty and technical pattern push us to forecast a downward trends perpetuation towards USD 7900 short-term support. This point could be a stepping stone for a possible rebound. This scenario is possible only if we have clarification of macro economic environment, which could arrive in the second half of the year, for our opinion.