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Consumer Confidence Pushes Copper Higher

Consumer Confidence Pushes Copper Higher

By Jim Williams

Copper started the week out on a down note, but has rebounded nicely to its highest level in more than two weeks thanks in part to a 16-year high in U.S. consumer confidence.

The surge in confidence stems from growing labor market optimism while the goods trade deficit narrowed sharply in February, indicating the economy is regaining momentum after faltering at the start of the year.

“Base metals rebounded strongly as investor sentiment picked up after the strong consumer confidence number in the U.S. saw Trump worries fade,” ANZ said in a report.

“Sentiment was also boosted by secondary economic data in China that showed March activity was strong. The China Satellite Manufacturing Index rose to 51.8, its strongest level in five years.”

Investors will cautiously watch what President Donald Trump does as he turns his attention from healthcare reform to economic stimulus – which, according to Yahoo Finance, is one of the four keys to the price of copper.

Trump’s $500-billion infrastructure plan has already driven copper prices up and, coupled with Chinese demand, this has real staying power.

  1. Continued workers’ strikes at major copper mines (mainly in Chile and Indonesia) are further boosting prices.
  2. The Fed raised key interest rates after a two-day policy meeting last week, and this has weighed on the dollar and benefitted copper prices.
  3. We’re going to be short on supply, and the shortage is expected to become evident in the first half of this year, where we could see a repeat of the ‘China boom’ of 2005—or even better.

Frequent tED contributor Andrew Hecht, of Seeking Alpha, concurs with numbers two and four. “London Metal Exchange warehouse stocks have been up and down like a yo-yo over recent months,” states Hecht.

“The price action in copper is constructive and the fundamentals could ignite the red metal and send the price over the $3 per pound level if the settlement at Escondida (Chile) falls apart and Grasberg (Indonesia) remains problematic in the months ahead. At the same time, watch those LME stocks if they begin to decline once again we could see another leg up in the price of the red metal which has been making higher highs and higher lows since November.”

“Copper is one of the input variables that affect inflation’s movements,” states D. H. Taylor also of Seeking Alpha. “The products that use copper go up as the cost of copper goes up. Overall economic activity is getting firmer and firmer. Inflation, being strongly correlated with an expanding economy, will move higher. The price of copper will follow suit. I am looking for a move to $2.80 in copper.”

“Eventually, copper will cross the $3.00 level but I am not holding for that move,” continues Taylor. “I still see a significant amount of sideways activity before a concerted bigger move breaks above that key level.”

Things to Watch
Politics in the UK. Yes, we are talking Brexit. Britain’s Prime Minister Theresa May made the breakup official this morning with a letter to president of the EU to start the two-year process of negotiations, including trade, immigration and the future of Britain’s $2.6T economy.

We will keep an eye on this and see what impact it has on the U.S. economy and the price of copper.


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