Chart of the Week - Industrial Metals
At the center of the most important global macro cross currents...
Chart of the Week - Industrial Metals on the Edge
Make-or-Break? After a failed breakout in 2022, industrial metals have drifted lower — punctuated by a brief rebound from China reopening — and now are sitting at a major support level.
On the downside is softening global growth (especially trade and manufacturing), a weak Chinese economy (and deep downturn in their property market), and rising inventories.
On the upside is long-term thematics (energy transition, reshoring, infrastructure investment, war, space, etc), and the potential for more meaningful stimulus from China (so far it has only been piecemeal, incremental moves).
Meanwhile sentiment and positioning have been heading south, raising the prospect of capitulation selling should the cyclical downdrafts mentioned earlier start to outweigh the thematic demand drivers.
Indeed, as noted, one of the most concerning developments has been an uptick in LME warehouse inventories — we’ve seen this pattern before: during the early-90’s recession, late-90’s Asian financial crisis, early-2000’s recession, and into the 08/09 crisis and recession.
Indeed, while metal prices are interesting for the direct opportunities (futures and metals producers), a breakdown through that major support level in the chart below would be a clear confirming signal of global economic weakness/recession.
So this key market, which is at the cross currents longer-term themes vs short-term cyclical demand swings, China macro, and more — is going to be key to keep an eye on. And for the optimists, the macro bull case would be that support holds and metals begin a new bull market. But a few things will need to go right for that (China stimulus, soft/no landing, weaker USD, stronger and sooner thematic demand, to name a few). Definitely one to watch.
Key point: Industrial metals are at a key support level + macro cross currents.
Aside from the free Chart Of The Week, this email gives you a brief overview of what was covered in our latest Weekly Insights Report (which is a key part of the Topdown Charts entry-level service on Substack).
Topics covered in the latest Weekly Insights Report
Aside from the chart above, we looked at a bunch of other charts across some important and interesting macro/asset allocation issues:
Global Equity Technicals: examination of a turning point in US vs global
Leading Indicators: an aggregate look at what 25 indicators are telling us
Treasuries: outlook for US bond yields and the most likely outcome
Stocks vs Bonds: look at relative value, lead indicators, technicals
Chinese Equities: the catalysts and the prospect of inverse goldilocks
Industrial Metals: inventories, sentiment, China and the global factor
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