Energy Cable: Copper prices are too high!
![WS Energy Cable](https://stenoresearch.com/wp-content/uploads/2023/01/WS-Energy-Cable.png)
Take aways:
- Copper diverging from its fundamentals
- Inventories in the are US building
- Shipping lanes are easing
- Our Trump basket gives you the green light to continue in crude et. al.
Greetings from sunny Copenhagen! This week, we will take a look at copper, which has rebounded in July, and also discuss freight rates, where calmer weather at the Cape of Good Hope is finally allowing ships to sail again.
Starting with copper, we continue to hold a bearish outlook as prices and positioning appear disconnected from macro variables. Analyzing copper through the lens of a ratio against crude oil as a proxy for reflation versus inflation, we observe that copper has outperformed crude oil’s choppy July.
However, the surprise in economic data hasn’t really leaned towards reflation and growth. In terms of positioning, macro hedge funds’ rolling beta is approaching the levels seen during 2021’s ‘reflation boom,’ highlighting the divergence from fundamentals.
Although we are positive about the economic outlook, it is far from the conditions of 2021’s ZIRP (zero interest rate policy) and the era of easy money.
Chart 1.a: Macro variables not scream reflation
Chart 1.b: Macro hedge funds’ beta to copper approaching 2021 levels
The inventory data is starting to support our bearish view on copper, while the precious metals story depends on whether we are in a bull- or bear-steepening scenario. Loads of copper will arrive on Western exchanges before the end of the month.
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