Commodities breaking lower as demand concerns intensify
After a busy week for central bank meetings and sharp moves across financial markets, stock indices in Europe started the new week on a stronger footing this morning amid short covering and bargain hunting. But commodities painted a different picture. We saw Iron ore prices tumble overnight, while copper has extended its falls after dropping more than 6% on Friday. On Friday we also saw crude oil slump, with Brent shedding nearly 5% and WTI 6%. Both oil contracts have started the new week on the back foot, too. More losses could be on the way for commodities.
Demand concerns are on the rise because of growing expectations that the global economy is heading for a sharp slowdown in the coming months, with China – a major importer of commodities – being a major source for concern.
Without a doubt, demand for raw materials has dropped sharply because of troubles in China. Unlike the rest of the world, China, the world’s second largest economy, has been unable to put coronavirus behind it. As a result, it has been going into repeated lockdowns, which has had ramifications in all areas of its economy, not least the property market. This is reducing demand for metals such as copper and iron, used in the construction industry.
Globally, consumers’ disposable incomes have fallen sharply because of the big rise in inflation, hurting some emerging markets particularly badly. It is possible that the slowdown will be more severe than expected, and that’s what investors are worried about the most. If you look at recent price action across asset classes – from stocks to cryptos – they are all pointing to the same thing.
Brent crude oil has now reached a potential support area near $110 handle, which is where the long-term trend line comes into place:
So, a small bounce here may not come as major surprise. But if the trend breaks then we may see a sharp move down to $105 initially ahead of $100 thereafter.
Copper has now reached below $4.00 and thus created a new lower low:
Copper remains inside a bearish channel, so we are continuing to look to fade rallies into resistance and expect support levels to break down. The Fibonacci extension levels shown on the chart could be the next downside objective for the bears.
How to trade with City Index
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
For further details see our full non-independent research disclaimer and quarterly summary.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.
City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.
City Index is a trademark of StoneX Financial Ltd.
The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.
© City Index 2024