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Copper: It’s Been A Long Week

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Copper: It’s Been A Long Week

A lot has happened since we last met. The highlights, if you want to call them highs, include the Fed cutting interest rates by what some say was a disappointing 25 basis points and the tit-for-tat trade war between the U.S. and China taking another couple of turns.

Last week, a day after the Fed announced its cut of 25 points, President Trump imposed further tariffs on China – leveling 10% tariffs on $300 billion worth of consumer electronics, sneakers, and toys. Yesterday, the U.S. Treasury Department said it had determined for the first time since 1994 that China was manipulating its currency, knocking the U.S. dollar sharply lower and wreaking havoc with the Yuan and the U.S. stock market. The market suffered its worst trading day of the year.

That brings us to today. China’s central bank says Washington’s decision to label Beijing as a currency manipulator would “severely damage international financial order and cause chaos in financial markets”. This comes after China announced its suspension of U.S. agricultural product purchases in response to the new American tariffs.

As a result, copper fell for the sixth straight session in overnight trading, its lowest price of 2019 and hovering around a two-year low. Clear away the dust that never seems to settle and the price of copper opened this week at $2.53 a pound. That’s down from $2.80 from just a few short weeks ago on July 19. The red metal has dropped by 9.7% mainly on the shoulders of this latest round of tensions with China.

The Chinese economy is key. The metal markets, including copper, are particularly sensitive to the health of China’s massive industrial economy, which is struggling, according to both the official and Caixin PMIs released last week. Both indices edged up in July but both remain below the expansion-contraction threshold.

Frequent tED contributor Andrew Hecht of Seeking Alpha remains optimistic despite many other factors beyond the trade dispute – including the potential for a hard Brexit by the end of October and Iran continuing to be a problem in the Middle East.

“The latest news on trade could change the landscape when it comes to rate cuts in the coming months,” says Hecht. “The post-Fed meeting selling in many commodities markets could turn out to be a buying opportunity if the U.S. central bank becomes more dovish in the coming months.

“I believe China and the U.S. will eventually agree to a deal on trade,” continues Hecht. “It is highly unlikely that the Chinese will meet all U.S. demands. However, the world’s most populous nation will give some concessions that move the needle on trade, at some point.”

Further Reading

Want to take an in-depth look at the latest tariff situation? Check out this Seeking Alpha article, Round 3 Tariff Wars. It isn’t about copper, but digs deep into the overall impact on the economy.

 

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Jim Williams

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