Iron Ore and Copper Forecast: NFPs in Focus After China PMIs Flash Warning Signs

Iron ore, Copper, China PMIs, Commodities, US NFP, Covid – Talking Points

• Iron ore woes worsen after Chinese PMIs miss for August
• Copper prices recapture key trendline support after big drop
• US jobs report is the next big market driver this week

Iron ore is on track to close sharply lower for August, which will mark a second consecutive drop for the industrial metal. Prices have nearly erased a yearly gain that was north of 30% just two months ago. A slowdown in Chinese economic growth is likely the main culprit, with China being the largest consumer of the mineral ore.

The latest Chinese data didn't offer any relief for metal prices. China’s National Bureau of Statistics (NBS) reported gloomy PMI data on Tuesday morning. The manufacturing PMI print for August slowed to 50.1 from 50.4, missing analysts’ estimates. China’s services sector fared even worse, with a non-manufacturing PMI outcome of 47.5. That is the worst print since February 2020 (29.6), when Covid practically shut down the global economy.

China’s political aims have started to take an economic toll, with the economic powerhouse embarking on measures to limit financial markets. Increased regulations, as well as a crackdown on steel mills to reduce pollution, have also weighed on sentiment. The question now is how much economic pain is China willing to take before it rolls back those measures, if at all? The primary variable to consider is the Covid Delta variant, which has caused sporadic lockdowns and tight border controls across the nation.

The commodities market, along with the broader market, will be keenly focused on the upcoming US non-farm payrolls report (NFP). So far this year, the US labor market has performed well, but some indicators are signaling a slowdown. Analysts expect the jobs figure to cross the wires at 750k, according to a Bloomberg survey. A miss would likely reflect Covid-related restrictions and perhaps send a shockwave through broader markets, including demand-sensitive commodities.

Iron Ore Technical Outlook

Iron ore prices have moved sharply lower since a big gap under trendline support in late July. Since then, the fall has intensified, dropping as low as 147.10, the lowest mark since February before moderating. A recent bearish crossover between the 50- and 100-day Simple Moving Averages (SMAs) suggests downside may pick up. However, RSI is currently oversold, and MACD is picking back up, which may suggest the move is overdone for now.

Iron Ore Daily Chart

Chart created with TradingView

Copper Technical Outlook

Copper prices have fared better than iron, although prices are still tracking to record a monthly loss. The 4.000 psychological level withstood a big drop earlier this month when trendline support broke, turning back an intraday move below the key level. Prices are currently trading between the 50- and 100-day SMAs. Holding the recaptured trendline may see prices continue to drift higher.

Copper Daily Chart

Chart created with TradingView

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--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter