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Chart: Copper and the China PMI

June 30, 2018

China's June PMI data were just out: the rolling 3 month combined reading (shown in the chart below) was virtually unchanged, and it continues a pattern of tightly ranging figures after topping out last year.  Copper prices have been following a similar path to the Chinese PMIs, and have likewise been range-bound.  The next steps for both the China business surveys and the copper price could well be down.  The main rationale behind my view here is: transition of stimulus indicators from big tailwind to now a slight headwind, the previous strengthening of the Renminbi which will act as a headwind to exports (although my view is the USDCNY will head towards 7), the US tariffs, and a tapering-off in the property market.  The only question on the slowdown scenario for China in my mind is where the pain point is - when will the authorities make a more decisive move on stimulus.  We've already seen some minor steps towards stimulus, but we probably need to see more softening in the data before they go all-in again.




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