Copper prices reached their strongest level in 10 weeks on Tuesday, following China’s unveiling of new stimulus measures to bolster its economy. Concurrently, the Chinese yuan appreciated to a 16-month high against the U.S. dollar.
People’s Bank of China (PBOC) Governor Pan Gongsheng announced plans to lower borrowing costs, inject additional liquidity into the economy, and reduce the mortgage repayment burden on households. In a significant move, Pan also introduced the use of structural monetary policy tools for the first time, aimed at stabilizing China’s capital markets.
Three-month copper (CMCU3) on the London Metal Exchange surged 2.7%, reaching $9,802 per metric ton, after hitting its highest level since July 15 at $9,825, reflecting China’s critical role as a top consumer of metals.
Additionally, the yuan’s recent gains, despite downward pressure from interest rate cuts, reflect market confidence driven by China’s comprehensive stimulus package. The strong “risk-on” sentiment in Chinese equities further supported the yuan, as well as gains in base metals prices.
At a joint press conference with top regulators, the PBOC announced a 50 basis point reduction in banks’ reserve requirement ratios, alongside a 20 basis point cut to the seven-day reverse repo rate, following a 10 basis point cut in July. The central bank also signaled a 30 basis point reduction in the medium-term lending facility rate. Meanwhile, benchmark loan prime rates, which were unexpectedly held steady last week, will be reduced by 20-25 basis points.
While markets had anticipated some monetary easing, expectations were tempered due to previous policy disappointments from Beijing. However, the broad stimulus package unveiled on Tuesday has helped alleviate concerns that China may not take sufficient steps to revive its economy.
Moreover, the PBOC expects existing mortgage rates to be cut by around 50 basis points, potentially reducing household interest payments by approximately 150 billion yuan. Down-payment requirements for second homes will also be lowered to 15%, aligning with those for first homes.
In a third wave of stimulus measures targeting the stock market, China’s securities regulator announced efforts to encourage medium- and long-term funds to enter the market and promote mergers and acquisitions. As a result, the Shanghai Composite Index jumped 1.8%, while Hong Kong’s Hang Seng Index surged 2.4%.
With Beijing reaffirming its commitment to achieving the 2024 GDP growth target of 5%, this broad economic support package is expected to bolster confidence and provide a positive outlook for metals prices in the near future.
Technical Outlook – Copper Futures
Copper prices experienced a sharp intraday rally of over 3% yesterday, marking the highest gain since August 12, 2024. The metal reached a high of 837.20 before settling at 836.45, compared to the previous session’s close of 806.50.
On the technical front, prices decisively broke through the major resistance level at 835.00, forming a robust bullish candlestick on the chart. Additionally, copper successfully traded above its five-month supply zone, signaling potential for further bullish momentum in the near term.
Technical indicators suggest that any consolidation towards the 828-825 range is likely to attract buying interest. Upside targets are projected at 838.50-842.50.
On the downside, initial support is identified at 820.80, with further support levels seen at 816.50 and 812.50.
Happy Trading!
Commodity Samachar Securities
We Decode the Language of the Markets
Also Read: On the Edge of 26,000: Nifty’s Next Big Leap? BoE’s Bailey: Ultra-Low Rates Unlikely, Forex Focus Ahead
Recommended Read: MCX Commodities Uncovered: The Must-Knows and Essential Insights [2024]
Want Help On Your Trades ?
Chat with RM