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Copper Labors Through a Tough Summer

Copper Labors Through a Tough Summer

The Labor Day holiday did not show any relief for the price of copper, as U.S. investors woke up this morning to the red metal’s fifth straight negative session in overnight trading. The losing streak is attributed to a few factors – inventories continue to plunge, the trade dispute between China and the United States continues to fester and the dollar keeps getting stronger.

You may remember when the base for copper’s success was $7,000 per ton on the London Metal Exchange (LME). Then the magical number slid to $6,000. This morning, benchmark LME copper dropped to $5,905, its lowest since August 23.

Surprisingly, falling inventories are keeping physical prices high in China, where copper premiums are near two-year highs. The absence of fresh inflows into warehouses “leaves us with a very nervous and twitchy market as there is no real direction to follow and investors, in particular, seem to be trading metals on the basis of influences from other markets,” Malcolm Freeman, director of Kingdom Futures, wrote in a note.

Yet another key factor weighing heavily on copper is manufacturing data out of China. The Caixin/Markit Manufacturing Purchasing Managers’ Index released Monday shows manufacturing activity in China grew last month, but at its slowest rate in more than a year, with export orders shrinking for a fifth month and employers cutting more staff. The Caixin/Markit Index is a private survey that focuses on small and medium-sized businesses. China’s official PMI gauge focuses on large companies and state-owned enterprises.

Copper prices look likely to remain under pressure this week with the prospect of higher U.S. interest rates being in the front of traders’ minds ahead of Friday’s U.S. jobs report. The non-farm payrolls report for August is due out on Friday and is expected to show that the economy added 190,000 jobs while the unemployment rate ticked lower.

Concerns over trade tensions and emerging market turmoil will also remain in focus. Last week the U.S. reached a deal with Mexico aimed at overhauling the North American Free Trade Agreement, but talks with Canada stalled hours before Friday’s deadline. Separately, the Trump administration is reportedly preparing to slap a fresh round of tariffs on Chinese imports, escalating a trade war with Beijing. The next round of tariffs is expected to be in the $200 billion range.

“As we move into the fall season, the path of least resistance for the prices of commodities will be a function of the price path of the dollar, interest rate policy by the U.S. Fed, and trade issues that continue to face global markets,” states frequent tED contributor Andrew Hecht of Seeking Alpha. “China is the 800-pound gorilla in the commodities market. An eventual deal with the Chinese would likely lift prices of raw materials as it would remove the threat of a trade and currency war and contribute to global economic growth. Commodities prices are likely to gain during an extended period of global economic expansion which is now in the hands of trade negotiators in Washington DC and Beijing.”

Investing.com has compiled a list of significant events likely to affect the markets this week.

Monday, September 3

Australia released data on retail sales and company operating profits.

The UK published data on manufacturing activity.

Markets in the U.S. and Canada were closed for the Labor Day holiday.

Tuesday, September 4

The Reserve Bank of Australia is to announce its benchmark interest rate and publish a rate statement which outlines economic conditions and the factors affecting the monetary policy decision.

The UK is to publish data on construction activity.

Bank of England Governor Mark Carney along with other policymakers are to testify on inflation and the economic outlook before Parliament’s Treasury Committee.

Later in the day, the Institute for Supply Management is to publish its manufacturing index.

Wednesday, September 5

Australia is to release data on second-quarter gross domestic product.

The UK is to publish data on service sector activity.

Canada is to produce figures on trade and labor productivity.

Later in the day, the Bank of Canada is to announce its latest monetary policy decision.

Thursday, September 6

Australia is to release trade figures.

In the U.S., the ADP nonfarm payrolls report and the ISM’s non-manufacturing index will be released.

Friday, September 7

China is to publish trade data

Canada is to publish its latest employment report.

The U.S. is to round up the week with the non-farm payrolls report for August.

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Jim Williams

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