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Copper News: What’s Next? $3 a pound?

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Copper News: What’s Next? $3 a pound?

News out of China late last week continues to push copper prices up to start this week. No, a trade deal has not been made – yet. The red metal continues to tick up thanks to China’s announcement Friday that it will cut tax for manufacturers next month to boost growth in the world’s second-largest economy.

Copper has seen positive sessions since the announcement and opened this morning less than a dime short of $3 a pound.

On Friday, China’s Premier Li Keqiang said the country will cut value-added tax for manufacturing and other sectors on April 1, adding that cuts in taxes and fees remained a key measure to cope with downward pressure on its economy.

“Sentiment was largely constructive as investors continued to view China’s latest policy moves as positive for metals demand,” ANZ said in a note.

But gains were muted as the tax cut might not translate into higher earnings for companies, analyst Helen Lau of Argonaut Securities told Reuters.

“The tax cut will save tax burden for enterprises but companies will make use of a lower tax rate to boost research and development, so impact on earnings will not be much,” she said. “China’s economy in the second quarter should be growing at a lower pace compared to the same time last year but quarterly it should be up.”

China’s economy typically picks up in the second quarter from a seasonally slow first three months, which included a long holiday for the Chinese New Year.

Could It All Boil Down to a Trade Deal?

“The current trade dispute could put copper back on top as a cure for Chinese economic lethargy may turn out to be a new and improved trade deal with the U.S.,” states Andrew Hecht of Seeking Alpha.

“The $3 level is the next hurdle for the nonferrous metal. A move above there could ignite buying across a broad spectrum of industrial commodities market given copper’s leadership role. The path of least resistance for the prices of copper now depends on the negotiations in Beijing and Washington DC. A handshake between the leaders of the two nations in the aftermath of a deal that ends the dispute would be highly bullish for the price of the red metal and other building blocks for infrastructure.”

Looking Ahead

This week commodity traders will be monitoring the tone in the U.S. dollar ahead of a Federal Reserve meeting expected to shed more light on the outlook for U.S. interest rate hikes this year.

The Fed is widely expected to keep monetary policy unchanged at the end of its two-day policy meeting on Wednesday and policymakers will also update their projections for future rate hikes.

In January the Fed indicated that it will be patient as it considers more rate hikes, amid concerns over slowing global growth.

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

Monday, March 18

The U.K. released data on house price inflation.

The euro zone reported on trade figures.

Tuesday, March 19

The Reserve Bank of Australia is to publish the minutes of its latest policy setting meeting.

The U.K. is to publish its monthly jobs report.

The ZEW Institute is to publish a report on German economic sentiment.

Wednesday, March 20

The U.K. is to publish data on inflation.

The Federal Reserve is to announce its latest monetary policy decision and Chairman Jerome Powell will hold a press conference to announce the decision.

Thursday, March 21

Financial markets in Japan are to remain closed for a holiday.

New Zealand is to release data on fourth quarter growth.

Australia is to publish employment data.

The Swiss National Bank is to announce its latest monetary policy decision and hold a press conference.

EU leaders are set to meet in Brussels to discuss Brexit.

The U.K. is to report figures on retail sales and public sector borrowing. Later in the day, the Bank of England is to announce its latest interest rate decision.

The U.S. is to publish data on jobless claims and manufacturing activity in the Philadelphia area.

Friday, March 22

The euro zone is to release data on private sector activity.

Canada is to produce figures on retail sales and inflation.

The U.S. is to round up the week with a report on existing home sales.

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Jim Williams

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