PPI Plummets

Expectations for a large new stimulus package in China have grown further overnight on the back of the latest data. China CPI was seen at 0% last month, down from the prior and expected 0.2% reading. Additionally, PPI was seen plunging 5.4% on the month, below the -4.6% seen last time and the -5% the market was looking for. At this level, factory gate price suffered their sharpest fall in seven years.

The data is yet further worrying evidence of the trail off in the Chinese economic recovery on the back of covid restrictions being reversed at the start of the year. While the economy was initially thriving over Q1, key indicators have since fallen back. Economic concerns have recently led to the PBoC cutting rates for the first time in almost a year.

China Premier Pledges Fresh Support

Speaking last week, Chinese leader Xi JinPing pledged “targeted and co-ordinated policy support” for the Chinese economy. With China now on the brink of consumer deflation, traders are eyeing a fiscal rescue package from the government though no clue as to timing has been given. Given the uncertainty, metals are coming under fresh pressure with copper prices turning lower at the start of the week. With further data due from China this week, including trade balance and new loans, copper prices look vulnerable to further downside.

Technical Views

Copper

For now, copper prices are clinging to the bull channel support level, just atop the 3.6745 area following the failure at 3.9410. With momentum studies weakening, risks of a deeper drop are growing. On a break of 3.6745, 3.3445 will be the next support to note.