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Copper Gets a Shot in the Arm

 

By Jim Williams

The price of copper got a boost after news out of China and a forecast of strong growth here in the States. Copper shot up to $2.63 a pound during trading on Tuesday. It opened at $2.60 this morning.

The latest push to help the red metal came from China after the release of Chinese manufacturing data.

The Chinese producer price index (PPI) for December was released yesterday. The PPI was at 5.5%, beating the expected 4.6% and smashing November’s 3.3%. The head of China’s central planning body also announced the country’s economy expanded by around 6.7%. If you are reading this you probably have a vested interest in copper and know that China accounts for over 40% of global copper demand and the health of China’s economy is particularly influential on the global price.

“The base metals are looking more bullish…and the strong PPI data in China is no doubt driving that,” said Benjamin Wong of ADM Investor Services. “The metals look well placed to extend higher; the main concern is if and when markets turn risk-off ahead of Donald Trump’s inauguration.”

Another shot in the arm for copper was the World Bank’s prediction of the United States economy. In its global economic outlook released yesterday, the Bank predicted growth in the United States is expected to pick up to 2.2%. The World Bank went further to suggest that number could go up to 2.7 or 2.8 if President-elect Donald Trump’s is able to implement his fiscal stimulus plans.

The Impact of the Fed and the Dollar
In December, the U.S. Federal Reserve Open Market Committee hiked the short-term Fed Funds rate for the second time in nine years. In their statement following the December meeting, the FOMC told markets to expect three 25 basis point rate hikes in 2017. At 63 basis points, the current Fed Funds rate is at a historically low level.

“The threat of a runaway dollar is a clear and present danger to the U.S. economy,” says frequent tED contributor Andrew Hecht. “As the dollar rallies, U.S. exports become less competitive on the global market as demand for U.S. goods will decline as they become more expensive. Therefore, I believe that we will see a gradual implementation of fiscal stimulus and a continuation of gradual rate hikes from the Federal Reserve.

“Any sudden moves higher in the dollar could cause problems for equities and commodities but gradual appreciation of the currency will likely be the main focus of the new Treasury Secretary and the central bank,” Hecht adds. “Managing the ascent of the dollar is likely to become one of the central focuses of the incoming administration.”

We will keep an eye on what the market will do over the next couple of weeks leading up to the inauguration and the looming Chinese New Year at the end of the month.

 

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