Morning Update

Copper prices rallied to record highs this week amid stronger demand for the base metal and rising supply side concerns.

On the demand side, expectations of rising EV sales have seen investors rally towards copper, which serves as a key component in production. Bank of America has, for example, projected EV sales to increase 5% this year.

The AI boom has also seen demand for copper increase given that it’s used in data centres where it’s used in electrical connectors, busbars, power cables.

On the topic of data centres, the International Energy Agency is forecasting that power demand from data centres will hit 1000 terawatt-hours (TWh) by 2026. Given that energy demand from data centres was 460 TWh in 2022, such growth will put fresh demand on copper (assuming of course no alternative is found in two years).

On the supply side, copper production is expected to grow by just 0.5% this year (well below prior expectations of 3.7% growth) suggesting a gulf between supply and demand. This comes as Anglo American has, for example, said that they will cut copper output over the next two years in a drive to ease costs. Meanwhile one of the world’s largest copper mines has been forced to halt production over environmental concerns.

Copper futures are now trading around 33% up on the year, having appreciated 11% over the month.

Yesterday saw the Dow Jones briefly surpass 40,000 points for the first time in the index’s history. While the index ultimately closed 10bps lower it has seen record high closes this week having appreciated around 5% throughout 2024.

The rally comes amid speculation that the Fed may start loosening monetary policy sooner and quicker than previously expected, given easing inflation and a miss on US retail sales, indicative of a slowdown in consumer spending. A rise in jobless claims also suggests that the US labour market may be easing, though the market remains historically tight.

Elsewhere, the S&P 500 closed marginally lower, retreating just over 20bps from record highs while the Nasdaq closed 0.26% lower.

French unemployment held steady this morning at 7.5% over the first three months of the year, coming in line with Q3 and Q4 2023. Given that the market consensus was pointing to a 7.4% print, the latest figures suggest the labour market may be continuing to cool. The rise in the rate of unemployment came as the number of those unemployed rose by six thousand to 2.3 million.

At 10:00 this morning, focus will shift to the release of Eurozone inflation as markets continue to consider the ECB’s future monetary pathway amid expectations of rate cuts on the horizon. While inflation has continued to ease across the currency union, it remains marginally above the ECB’s 2% target rate.

This morning, Frankfurt’s annualised Harmonised Index of Consumer Prices (HICP) is predicted to come in at 2.4% which if realised would be unmoved from last month’s print.