Commodities outlook: Fed triggers copper reaction

Major global events continue to drive commodity markets, with gold, copper and oil prices all impacted.

Most commodities took a hit yesterday after the US Federal Reserve cut its main interest rate by 25bps but did not signal much in the way of further loosening.

Fed Chair Jerome Powell, who has been under pressure from President Trump about the strength of the US Dollar, chose only to deliver the cut that was priced into the markets before the event.

As such the greenback rallied and took out levels not seen since May 2017. This led to gold taking a drop along with copper and most of the other major commodities.

Oil managed to contain losses due to the larger than expected drop in DoE inventory levels and lower supply numbers from OPEC. Yesterday it was reported that OPEC oil output hit its lowest level since 2011 as voluntary cuts by Saudi Arabia filtered through.

OPEC nations produced around 29.42 million barrels per day (bpd) last month, which was 280,000 bpd lower than the June figure. The daily chart below shows that the futures contract is in a consolidation phase between US$60 per barrel and $55.85 per barrel.

Tensions between Iran and the US have softened slightly as Trump has turned his attention to China and this has been reflected by a lack of conviction in any move to the upside.

Nevertheless, these levels remain key as any escalation could cause $60 per barrel to be tested again and over the last two sessions $55.84 per barrel must be monitored as it is an important level of support. 

Source: TradingView Past performance is not a guide to future performance

Pressure on copper

Copper has not had the best time of late after the trade talks between China and the US have stalled once again and are to be picked up in September.

The Global Times editor who seems to be the authority on the talks said the "vibe" was good between the two nations but there are still issues to overcome.

Overnight the Caixin manufacturing data beat expectations of 49.6 to print at 49.9 but this means the sector is still in contractionary territory in the world's largest copper consumer.

This coupled with the aforementioned USD strength ensured that the base metal price fell.

Interestingly in the last few sessions volume has backed the move lower which means the support zone of $2.60 per pound could come into play again but only time will tell.

KAZ Minerals (LSE:KAZ), Anglo American (LSE:AAL) and Glencore (LSE:GLEN) are all feeling the heat but earnings season is here and there have been some disappointments on that front too.

Glencore has reported a 2% fall in second-quarter copper production and also downgraded its full-year production guidance for copper production by 1%, citing problems at its copper business in Africa. 

Source: TradingView Past performance is not a guide to future performance

Rajan Dhall is a freelance contributor and not a direct employee of interactive investor.