The Impact of U.S. Monetary Easing on Industrial Metals: Copper and Aluminium Analysis
As the Federal Reserve prepares for rate cuts in the upcoming meeting, investors are closely watching how this will affect industrial metals like copper and aluminium. HSBC analysts have outlined two scenarios: a soft landing where the economy avoids a recession and a more severe downturn leading to aggressive rate cuts.
In the soft landing scenario, similar to 2019, copper and aluminium prices may remain range-bound initially before gradually recovering. However, in a recession, prices could see a sharp drop of up to 20% over the next year, mirroring the dot-com bubble period.
Despite the challenges, HSBC favors aluminium due to supply constraints and strong demand from the energy transition. Chinese capacity caps and limited global production growth make aluminium a more resilient investment option during economic slowdowns.
Looking at past rate cut cycles, history shows that metal prices can rebound as macroeconomic indicators improve. However, the relationship between industrial metal prices and monetary easing is only part of the picture, as supply chain tightness and energy transition demand also play significant roles.
In conclusion, while rate cuts can impact industrial metal prices, other factors like supply and demand dynamics and government spending on energy transition initiatives also influence their performance. Understanding these factors can help investors navigate the current economic climate and make informed decisions about their finances.