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Copper in focus ahead of HSBC data

Five markets in focus today: High Grade Copper, USD/CAD, Japan 225 Cash, Wall Street Cash and Spot Gold.

Copper
Source: Bloomberg

High Grade Copper

At 11:45am today the market gets to see a revised release of HSBC manufacturing PMI numbers and we should see the index being revised to 49.7 (from 49.4). This would represent the highest level of the year and could boost risk assets, including copper. If we see expansion (as measured by a number above 50) we could see an extended move higher and it seems that traders have been appeased by the strength of Chinese data in May, mixed with targeted monetary policy easing.

USD/CAD

On Friday we saw Canadian CPI running at an annual pace of 2.3%, 0.2 percentage points (or 20 basis points) higher than forecast. The question now facing traders is whether this strong print will cause the Bank of Canada to become more hawkish, or at least remove its stance that rates could be cut in the future. It should be remembered that the strong increase in prices was not driven by wage growth or demand, thus the underlying quality of inflation was fairly poor. Technically the trend is undoubtedly lower and on Friday broke and close below the May 8 low of 1.0814. There is a prominent wedge pattern formed over the last few months, with the 1.0748 being the declining trend line drawn from the April 9 low. With signs the pair is oversold, we could see this level being supported. It’s worth highlighting that the pair closed below the 200-day moving average on Friday for the first time since February 2013.

Japan 225 Cash

The Japanese equity market is finding good buyers and is outperforming of late. There seems to be strong divergence developing between USD/JPY and the Nikkei, with the currency finding a stronger correlation with US bond yields. I will look at this index in ‘one to watch’ this week, but there are signs this index could remain supported.

Wall Street Cash (Dow Jones index)

Equity bulls will be eyeing 17,000 on the Wall Street Cash index this week. Fundamentally the index is fairly expensive, but valuations are not outrageous. What is very positive though is the record levels of company buybacks we are seeing, and investors and traders continue to put money to work in companies that are cash rich and generating strong cash flow. Technically the index is making higher highs and lows, which is positive, however there is divergence between price and stochastics and RSIs. This divergence could indicate a pullback, or a possible reversal, so one to keep on the radar.

Spot Gold

I looked at Spot Gold last week in ‘one to watch’ and highlighted the downtrend on the weekly chart drawn from the October 2012 high. I will continue watching this downtrend this week, as its clear the market is respecting this trend. A close on Friday above $1318 could indicate a continuation of the short-term move higher.

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