Amid concerns of a looming US recession and sluggish global economic growth, copper and other base metals have experienced a downward trend in recent months. These declines reflect the cautious sentiment among investors and highlight the vulnerability of industrial commodities to broader economic uncertainties.
Mike McGlone, a senior commodity strategist at Bloomberg, confirmed on July 7 that ‘the three Cs’ in the commodity market – crude oil, copper, and corn – have indeed entered a bear market.
Analyzing the correlation between copper and S&P 500, McGlone noted that copper first traded the July 6 price of around $3.75 a pound in May 2006, when the stock market index stood at roughly 1,300, “which may augur downside risks for the metal in recession.”
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Further, the first quarter of 2020 was the last time S&P 500 stretched to a similar premium against copper on the same scale as now, McGlone added. This raises a question about how copper prices will react if the stock market witnesses a typical decline in the looming recession.
Copper could slip toward $3 support amid recession headwinds
Although economists at Bloomberg are projecting a recession and an increase in unemployment rates to 4.3% in the second half of 2023, the federal funds rate is still forecasting a jump in interest rate hikes into November.
In turn, this could put additional pressure on copper, crude oil, and corn prices. More specifically, if copper fails to stay above the $4 threshold, the commodity “may portend a move toward $3 support,” the strategist noted.
Meanwhile, the S&P 500 index rose over 15% since the start of the year, driven by a rebound in the broader stock market rally after a challenging 2022. However, as recession risks persist and the odds of more interest rate hikes increase, equities could also come under pressure in the second half of the year.
