The direction of US stock markets and US stock futures will be the key mover and shaker. Traders have started pricing in a 0.75% interest rate hike in the June meeting by the Federal Reserve. I expect a 0.50% interest rate hike in the June FOMC meeting only if crude oil continues to rise for the next thirty days.
US April job numbers (ADP and NFP) have come in on the higher side of expectation. There is a decrease in labour participation rates in the USA. I will be closely watching for trend change signals in the US service sector. The continued rise in the cost of survival expenses should negatively impact the service sector. Right now it is too early to comment on the long-term negative impact of the rapid rise in survival costs. If survival cost continues to rise for the next two months, then US and global service sectors will get busted. US economic performance and global economic performance in the month of May and June will give us a fair idea for the rest of the year.
Industrial metal prices are down in the first week of May. Copper and zinc can test October 2021 lows if the price trades with a falling bias in the upcoming week. Industrial metal price inflation should be negative for the month of May. Similarly, other parameters of inflation as a whole will determine where we are headed.
Global stock markets are falling. Falling stock markets reduce the disposable income of the masses as extra income is not generated, or very low extra income is there. All I am trying to say is that if more and more people in the world come under the umbrella of “hand to mouth income”, then recession and social unrest will come in very early.
Physical stockholders of copper, zinc, and industrial metals are worried. The following things need to be kept in mind before complaining.
- There is a broad-based selloff in all asset classes and not just limited to copper and industrial metals. Sometimes. even the fundamentally strongest asset class sells off if and when there is a sustained sell-off in global stock markets. The same is happening with copper.
- Copper, and all industrial metals have a minimum fifteen percent investment demand portion. Till early February of this year, investment demand (in my view) constituted over twenty-five percent of the price.
- The current fall in copper price is mainly due to a sharp reduction in short-term investment demand for industrial raw materials.
- Physical buyers of copper need to worry only if they have maintained huge inventories.
- I will worry only if there are indications that LME copper will trade below $9000 for a fortnight.
- I will worry only if there are indications that LME zinc will trade below $3500 for a fortnight.
- Chances of recession is also the reason for the current sell-off. Recession fear has caused buyers to postpone their buys. The end-user is maintaining very low inventories on falling prices.
- Futures hedging is there to protect physical buyers.
The quicker copper, zinc, and industrial metals fall, the quicker are the chance of medium-term bottom formation. I expect all industrial metals to form a long-term bottom any time before the end of June. I am not bearish on global demand for industrial metals for the rest of the year. China is going to eat all the global surplus of industrial raw materials once it is lockdown free. It will be very difficult to fall more than five percent (from Friday’s close) in all base metals for the rest of May.
US ECONOMIC DATA RELEASES THIS WEEK
11th May (Wednesday): Consumer Price Index (April)
12th May (Thursday): Producer Price Index (April)
Higher inflation number has already been factored in by the traders. A lower side CPI and PPI numbers will result in a sharp rise in base metals and stocks along with a sell-off in bond yields.
COMEX SILVER JULY 2022 (current price $2229.00)
- Resistance: $2289.50
- Support: $2183.50
- 7-day View: Silver has to trade over $2183-$2205 zone to rise to $2360.60 and $2449.
- Silver needs a daily close below $2141 for four consecutive trading sessions to be cause a massive sell off below $1950.
WTI CRUDE OIL current contract 2022 (current price $109.95)
- Weekly Resistance: $115.70
- Weekly Support: $103.80
- Crude oil has to trade over $112.50 to continue its last week’s rise and target $119.20 and $125.80 and $133.40.
- For a bearish trend crude oil needs a daily close below $105.10 for five consecutive trading sessions to $93.60 and $86.10.
- Crude oil will also crash it does not break $117.80 in the next two weeks to $98.60 and $86.10.