What a turnaround in the markets this week. Talk of fresh restraint concerning US monetary policy normalisation (a 2018 rate hike, anybody?), reassurances from China that it will continue to meddle in its financial markets as required and hopes of coordinated central bank intervention have all helped boost the price of copper via a weaker US dollar and improved risk sentiment. This has in turn stopped a good portion of the record bearish speculative bets on the commodity, providing further support. You wouldn’t be wrong in concentrating exclusively on Brexit this week, but it’s probably time to start remembering that the wider world does still exist – even more so the fact that the wider world is far more of a going concern for the UK’s FTSE 100 blue chip miners than the country in which their shares are merely listed.
In particular, for all its imperfections, China is a godsend when it comes to copper. The world’s 2nd largest economy may be slowing (no arguments there) but it still currently buys 40 per cent of all the copper produced annually around the world. The Chinese government is doing everything it can to paint a positive picture, while regulators intervene in financial markets to keep all the balls in the air. And with ‘fiscal support’ (whatever that actually means in China’s case) constantly warming up on the touch-line, the positive impact on classic risk plays in the UK’s mining sector has helped offset global growth concerns emanating from Brexit.
Base metals haven’t been rocked as much as everyone thought they might have by the Brexit hit to global market sentiment. We know the miners are less exposed to the UK economy than they are to emerging markets and we’ve got this fantastic tool in the Chinese government primed to act the very moment things start to turn sour. Aside from the safe havens, copper could now be set to benefit most of all as trade talks commence in North America – with energy production a major talking point – and with the potential longer term for more of that between the UK and China. Energy is likely to be on the agenda here too, with the UK facing an impending shortage as coal plants close to be replaced by, er, well, nothing has been decided yet. But many renewables are likely to require a lot of a certain red metal to transmit what they can harness naturally.
This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.