Benefiting from reports of increasing infrastructure spending in China and shrugging off the trade tensions with the United States, the industrial metals rallied on Friday.

Up 5 percent, copper had its biggest one-day gain in more than five years after the International Copper Study Group reported a tight market, while Chinese copper inventories kept on falling in line with the seasonal pattern.

That said, these news do not justify such a sharp move in our view, suggesting that speculative traders in the futures markets continued to cover their short positions as sentiment towards China improved.

We do not see this as a lasting trend and expect the short-covering rally to run out of steam eventually. Sentiment towards copper in particular and the industrial metals in general should remain somewhat shaky as long as the concerns about the emerging markets and the trade tensions between China and the United States persist.

Following news over the weekend that China cancelled trade talks with the United States because of the introduction of more tariffs as of today, the metals are giving away some of the gains this morning.

While we think that prices have bottomed, we do not see the most recent moves as a resumption of the recent rally, which in our view was driven by sentiment rather than fundamentals.

We believe the markets should remain sufficiently supplied from a fundamental point of view and prices should trade sideways around current levels.

Any opinions expressed here are the author’s own.

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