Monthly Sector Scopes Update June 2024 & High Grade Continuous Copper (HG.F)

It has been a somewhat mixed month in the world equity markets so far in June. In the past month, the major indices internationally have pulled back with Shanghai down 4.50%, France’s Index down 5.34% and Germany down 2.27%. Overall, Internationally, the iShares MSCI ACWI ex US ETF is down 4.61% over the past one-month time period. On our side of the pond, we see the US is continuing to show resilience as the S&P 500 is up 3.10% and the Tech Heavy Nasdaq up 4.71%. The TSX Composite, however, has struggled somewhat and is down 2.39% in the month.

With the continued resilience of the US Economy, many fed participants have reiterated the “higher for longer” stance on interest rates with many officials indicating that with bumpy inflation and general uncertainty they do not have enough confidence to lower rates. One Fed official indicated it may take one to two years to get consumer price inflation back down to the Fed’s 2% target and that further evidence of improvement in inflation readings must be witnessed before the FOMC can act. Some members such as Fed governor Michelle Bowen and Alberto Musalem suggested that not only are they against cutting rates but are open to raising rates if inflation picks up again. It has been a data heavy week thus far for economic data points. Here in Canada, the Consumer Price Index (CPI) numbers were released, and they came out worse than expected. Headline prices rose 0.6% m/m in May vs an expectation of a 0.3% m/m increase. The annual rate of inflation reaccelerated to 2.9% y/y from 2.7% in April vs an expectation of a 2.6% increase. These rather disappointing numbers have cast doubts on whether the Bank of Canada will cut interest rates again in the July Meeting. The expectation is the next rate cut will be pushed out to the September meeting.

On the US side, the June Consumer Confidence numbers were released. The numbers came out a bit negative due to an increase in worries about future income and business conditions. The Index fell to 100.4 in June from a downwardly revised 101.3 in May. US New Homes Sales numbers were released, and they declined more than expected year over year. Sales plunged to an annual rate in May to 619,000 from an upwardly revised 698,000 annual rate in April. The consensus was for the sales numbers to come in at 633,000. The overall number was a 16.5% drop from May 2023. In commodity news, US crude oil stocks, including those in the Strategic Petroleum Reserve, rose by 4.9 million barrels in the week ended June 21 following a decrease of 2.2 million barrels in the previous week. Other economic data points scheduled for later this week are the US Durable Goods Orders today and the Core PCE inflation and Chicago PMI on Friday. Since the Commodity Asset Class dropped

to the 5th spot in SIA’s Asset Class Rank List last week, in this edition of the Equity Leaders Weekly, we are going to look at the High Grade Continuous Contact (HG.F) to see what it is telling us about the health of the global economy and we will also take a look at our monthly review of the Sector Scopes to analyze the relative strength across sectors

The Sector Scopes feature in SIA Charts, found in the Markets – BPI section, provides investors with a visual snapshot of the Bullish Percent (percentage of stocks in the sector on a bullish signal) for 31 industry groups. This provides insight into which sectors are attracting capital and how those capital flows and investor sentiment change over time.

For the last month, sectors have been steadily shifting leftward on the spectrum, a sign of a market downturn and decreasing bullish percent across a broad range of groups. This is indicative of a retreating but not oversold market. It also tells us that Market Breadth is lacking as many sectors are retreating while only a few select sectors still attracting capital driving the overall indices.Looking at the relative placement of these 31 groups tells an interesting story. On the very left-hand side, you see Metals and Mining suggesting economically sensitive sectors are concerned about the overall health of the global economy. We are also seeing Financials, Automotive and Consumer Durables on the left side suggesting that a slowdown in consumer spending may be underway and is becoming a broader concern. On the Right-hand side, we only see a few areas showing bullish characteristics, specifically tobacco and drugs, both defensive groups.

Copper has widely been referred to as Doctor Copper as it is the base metal known to hold a Ph.D in economics because of its ability to predict turning points in the global economy. Copper has widespread applications in many areas of the economy, so it is often viewed as an indicator of economic health.

Coppers price action also has a strong link toward China which is a large source of demand for base metals. In looking at the price of copper lately, we see that it has dropped 7.80% in the past month and 16.6% from its recent high back in the second half of May.

In looking at the Point and Figure chart of High-Grade Continuous Copper (HG.F) at a 1% scale, we see a false breakout in the price of copper when the chart broke above a long-term resistance point at $4.96 and hit a ceiling at $5.06 last month. Since that time, the rally halted, and a rather sizeable pullback has materialized. Copper has already retraced 50% of its move in its recent rally earlier this spring, broke below a prior support level at $4.45 and is now approaching a key support level at the $4.23 to $4.27 area. If it doesn’t manage to hold this area of support, the next area of support can be found a little lower at $4.07. To the upside, resistance can be found at its 3-box reversal of $4.58 and, above that, $4.77.With a bullish SMAX score (which is a near-term 1 to 90-day indicator comparing an asset against different equal-weight asset classes) of 6 out of 10, HG.F is still exhibiting some short-term strength against the asset classes.