This is an excerpt and update following our Macro Brief: The Dollar Squeeze, Commodities and Credit originally published on April 29, 2019.
But, there is a divergence between the Chinese "green" shoots and the commodity complex. Especially, if you look at mining and base metals, they do not confirm the rally in Chinese manufacturing.
Copper is continuing to consolidate - not confirming the China bump. In fact, a continuing decline in the global trade data will begin to weigh on sentiment.
Admittedly early, we still see the CNYUSD as the primary catalyst for copper going forward. If the yuan begin to weaken, copper will retest the 2016 "global synchronized recovery" uptrend at 2.62.
If we look at copper and the Chinese 10-year yield, the duo trend very well with the 20-month correlation strong.
As markets look for green shoots out of China, the 10-year yield has rallied steadfastly; but, if markets begin to doubt China's recovery, we could see yields recouple.
Currently, copper has tagged the TACVOL range bottom. Unless factors begin to change, we'd be sellers of rallies near the near-term range top.