Copper hits 1-month high, will PBoC rate cut support further or not?

Copper hits 1-month high, will PBOC rate cut support further or not?

Base metals enjoyed a bullish rally for a second consecutive day after China lowered short-term lending rates to support economic recovery. Copper futures settled at 731.85, up 0.47%. Zinc prices are up by 2.82% at 220.95. Aluminium and Lead traded up by 0.39%, and 0.27% respectively.

Copper prices jumped above their 15 May 2023 ones, after the People’s Bank of China cut a short-term interest rate to support local economic growth.

Tuesday was the first time since August 2022 that the People’s Bank of China had lowered short-term loan rates. This was part of its efforts to significantly ease monetary policy and boost the nation’s sluggish economic recovery.

Furthermore, as Beijing intensifies its stimulus measures to support a wobbly economic recovery, China’s central bank reduced the borrowing cost of its medium-term policy loans for the first time in ten months on Thursday.

When China’s benchmark lending rates are established next Tuesday, the reductions may also pave the path for decreases in those rates. This week’s data revealed a dramatic decrease in the increase of overall credit in May

The People’s Bank of China (PBOC) announced that it had reduced the interest rate on some financial institutions’ medium-term lending facility (MLF) loans worth 237 billion yuan ($33.09 billion) by 10 basis points (bps), from 2.75% to 2.65%.

Following a string of poor Chinese economic indicators that sent prices to six-month lows in May, the action increased hopes for a China-driven comeback in copper demand this year. This helped the red metal’s price recover.

The action, which comes shortly after it cut two important short-term policy rates, indicates that policymakers are growing increasingly concerned about the economy’s brittleness.

Despite the removal of strict COVID restrictions in December, it was anticipated that activity figures that would be released later on Thursday morning would indicate additional weakness.

Recent data indicate that China’s recovery is slowing as domestic and international demand wanes. The crisis-hit real estate industry is struggling to recover. This has increased concerns that the government must take additional measures to boost development and keep unemployment under control.

From the economic data front, earlier today China released its Industrial production data which grew 3.5% in May from the prior year, data from the National Bureau of Statistics showed.

The reading was substantially lower than the 5.6% gain witnessed in April as well as the 3.8% increase that had been anticipated.

Industrial output growth for the year as a whole has stayed constant at 3.6%, which is slightly higher than the 3.3% recorded in the first five months of 2022.

While May’s retail sales growth was less than anticipated. Compared to May of last year, retail sales increased 12.7%, which was below the forecasted 13.7% growth and a significant decline from the 18.4% rise witnessed in April.

The manufacturing industry is one of the main engines of China’s economy, and a slowdown predicts that it’ll eventually affect other industries.

As a result, fixed asset investment grew at a slower-than-expected 4% annual rate in May, keeping capital investment in the nation mostly in check.

Data on Thursday indicated that China’s jobless rate stayed constant at 5.2%.

Technical Outlook

Since 29 May 2023, copper prices bottomed out and recovered nearly 2.50%. Prices gained sharply yesterday and after breaching the one-month high at 732.45 settled at 731.85, up 0.47%.

On the above chart, prices trading on the verge of massive resistance at 734.20, coinciding with 38.2% Fibonacci Retracement levels. A break above will lead to aggressive buying activities. Prices may test the next upside levels of 739.50-745.50 very soon.

Else, traders should wait for a temporary correction of 725-722 for fresh buy. Target expected at 734.00-745.00 Stop loss below 715.50.