Chart of the Week - Macro Metals
Chart of the Week - Macro Metals
Industrial metal inventories are surging, that can mean only 3 things...
Industrial Metal inventories are on the rise — presenting an important macro signal at a time where recession concerns are mounting.
The chart below tracks industrial metal inventories in LME warehouses (copper, aluminium, zinc, nickel, lead) — it tracks the average z-score, giving an equal weight and thus serving as a coherent signal and key barometer for these economically sensitive commodities as a group.
Ultimately when you see inventories rising like this it means a lack of demand by heavy industry, and hence sends a signal on the macro backdrop (weak) and a risk-alert for industrial metal prices (bearish).
That said, it should be acknowledged that there are times when inventories will surge in anticipation of an impending uptick in demand… also, every now and then you see an uptick in inventories for specific commodities relating to derivatives trades and other financial contracts such as rent payments on warehousing the metals.
But the latest uptick in inventories does map to slowing in the Chinese economy (a major source of demand for metals globally), and the generally weak manufacturing PMIs across the world over recent months.
Hence I would be looking at this as something certainly to keep a close eye on as the so-called K-shaped economy (where there are winners and losers) represents a vulnerability and could easily turn into a (backslash) \-shaped economy.
As for metal prices, an update to a previous COTW follows below…
Key point: Industrial metal inventories are rising — an ominous macro signal
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Bonus Chart! >> a follow-up on the “Industrial Metals On the Edge” post…
After a glorious rally, industrial metals have completed a big round-trip, and now threaten to make another attempt on breaking support …after only just recently having a crack at resistance.
This speaks to the macro optimism we saw earlier this year where it looked like the PMIs were going to reaccelerate and metals rally, whereas more recently recession risk appears to be rising — certainly it is increasingly front of mind among the investors I speak with.
I still believe this chart will hold the key to the global macro outlook — a break down through support will mean global recession, whereas resilience and a break higher will denote recession-avoided, thematic demand online, and growth reacceleration.
But as things stand at the moment, I would be treading with caution here, I think in the immediate term the mixed macro signals suggest range-trade at best for base metals, and at worst a recession or recession-scare could take it lower.
Topics covered in our latest Weekly Insights Report
Aside from the chart above, the below topics were covered in the latest entry-level report here:
Market update: checking in on REITs, equities, fixed income, FX
Gold Price Outlook: what’s going on with the shiny metal
China Macro: taking the pulse on the Chinese economy
China Equities: reviewing the risk vs opportunity
China Fixed Income: charts and indicators on CGBs
Japan: updated outlook for Japanese equities
Agri: agricultural commodity prices
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