Amid concerns of a looming US recession and sluggish global economic growth, copper and other base metals have experienced a downward trend in recent months. These declines reflect the cautious sentiment among investors and highlight the vulnerability of industrial commodities to broader economic uncertainties.
Mike McGlone, a senior commodity strategist at Bloomberg, confirmed on July 7 that ‘the three Cs’ in the commodity market – crude oil, copper, and corn – have indeed entered a bear market.
Analyzing the correlation between copper and S&P 500, McGlone noted that copper first traded the July 6 price of around $3.75 a pound in May 2006, when the stock market index stood at roughly 1,300, “which may augur downside risks for the metal in recession.”
Further, the first quarter of 2020 was the last time S&P 500 stretched to a similar premium against copper on the same scale as now, McGlone added. This raises a question about how copper prices will react if the stock market witnesses a typical decline in the looming recession.
Copper could slip toward $3 support amid recession headwinds
Although economists at Bloomberg are projecting a recession and an increase in unemployment rates to 4.3% in the second half of 2023, the federal funds rate is still forecasting a jump in interest rate hikes into November.
In turn, this could put additional pressure on copper, crude oil, and corn prices. More specifically, if copper fails to stay above the $4 threshold, the commodity “may portend a move toward $3 support,” the strategist noted.
Meanwhile, the S&P 500 index rose over 15% since the start of the year, driven by a rebound in the broader stock market rally after a challenging 2022. However, as recession risks persist and the odds of more interest rate hikes increase, equities could also come under pressure in the second half of the year.
Source: https://finbold.com/the-three-cs-in-commodities-crude-oil-copper-and-corn-hit-bear-markets/