Traders Looking for the Safety Net
Bonds – The meltdown in global equity prices has sent traders scrambling to the relative safety of U.S. treasuries. Commodity prices have been much lower for the most part over the past week, due to worries about the growth prospects for the global economy. Nonetheless, continued inflationary pressures may curb traders' appetites for treasuries, which typically underperform other investments in periods of high inflation. Going forward, the markets will likely take their cues from economic indicators to determine direction. If growth continues to slow in emerging markets, it could signal the current high inflation environment may moderate, making government debt attractive. On the other hand, if these markets are not cooling at the pace previously thought, investors may flock to commodities at the expense of bonds. The upward crossover of the 18 and 50-day moving averages and close above resistance at 116-26 can be viewed as a bullish for the September contract in the mid-term. Momentum continues to outpace both price and RSI, adding to the bullish sentiment. The RSI indicator is currently at overbought levels, which may temper some of this bullish enthusiasm. Support comes in at 116-20, 116-01 and 115-20, while resistance can be found at 117-19, 118-00 and 118-19.
Copper – Copper prices are slightly lower this morning, despite reports that workers at Freeport's Cerro Verde mining strip in Peru plan to strike at the end of this week. The market was sharply lower yesterday ahead of the news before a big rally. Today's lack of enthusiasm may be attributed to growing LME stocks and slowing Chinese demand. Outside forces – in the forms of lower Crude Oil prices and a stronger U.S. Dollar – also have depressed prices. The market will be monitoring the worker unrest at the Peruvian mine to determine what, if any, impact it would make on supply. At the moment, it appears that supplies are ample, but an extended strike may cause end users to begin hording the base metal to ensure supplies, which could drawdown LME stocks. Thus far, the market has been unable to build off yesterday's strong close, which put the September contract right at the 50-day moving average. Closes above the average and near-term resistance at 3.75 may be needed to reverse the recent slide, but a close above 3.85 may be needed to swing the market favor to the bulls. Support comes in at 3.67, 3.60 and 3.56, while resistance can be found at 3.78, 3.82 and 3.89.
Rob Kurzatkowski, Commodity Analyst
