Copper prices have recorded three consecutive sessions of gains, primarily due to market expectations of supportive economic signals from the Chinese government.

However, actual outcomes will require further concrete evidence. The fundamental information surrounding these expectations is now relatively saturated, so copper prices are likely to await macroeconomic factors, with a focal point being the Federal Open Market Committee (FOMC) meeting minutes from late January, which will be released tonight.

Given the slower-than-expected decline in inflation, recent FED officials have shown a more hawkish stance on maintaining high interest rates for a longer period before transitioning to a loosening phase. The latest Reuters survey indicates that most economists believe rates could begin to ease from June. This makes the “soft landing” scenario somewhat more tenuous and is not favorable news for copper prices, which are seen as a barometer of economic health.

Analysts have noted increasing demand from hedge funds in the U.S. options market for “receiver swaps,” or put options on swap contracts, a type of trade that profits when interest rates decline. This means that buyers are engaging in interest rate swaps where they receive a fixed rate and pay a floating rate. This typically reflects concerns about the U.S. economic outlook.

Overall, while the soft landing scenario still holds the majority view, the hard landing scenario is gaining momentum recently. Therefore, the mid-term trend for copper prices is likely to face challenges in making strong breakthroughs when considering the broader macroeconomic perspective.

Source: MXV