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Copper Prices – Keep on Swinging

By Jim Williams

Another day, another swing in copper prices. After seeing the cost for the red metal spike after an earthquake in Chile last week, the price took a tumble after news out of China and lack of news from the Fed.

An earthquake in the world’s largest copper producer, Chile, upset operations at two key mines last Thursday. The disruption appeared to spark fears about supply for some investors, but others say, despite the quake, supply remains robust and copper production will soon outpace demand.

“Outright production curtailments – the most effective measure to rebalance oversupplied markets – have been few and far between,” BofA Merrill Lynch said in a report. “As such, we forecast surpluses all the way to 2018 at present.”

It’s Beginning To Sound Like A Broken Record

For those too young to remember record albums, when they had a scratch the needle would keep playing the same part over and over and over again until someone got up and moved the needle.

Well, investors are waiting for someone to move the needle in China.

Hopefully we can get some kind of a read on things after today’s release of the Caixin manufacturing purchasing managers’ index (PMI) for September. The announcement comes in the middle of continued concerns over a China-led global economic slowdown.

China’s economy is expected to grow less than 7 percent this year, the Asian Development Bank predicted on Tuesday, warning of widening fallout from the country’s economic slowdown. In revisions to its annual Asian Development Outlook, published in March, the U.S. and Japan-led bank lowered its growth forecast for China to 6.8 percent from 7.2 percent. The Chinese government has targeted economic growth of “about 7 percent” in 2015.

Meanwhile, China’s President Xi Jinping is in the U.S. this week. He was in Seattle Tuesday to meet with American business leaders before heading to Washington to meet with President Obama Wednesday. The two global leaders are expected to talk about several issues including cybersecurity, the South China Sea, North Korea’s nuclear threat, human rights, and a widening trade deficit.

In his first interview with foreign media since Chinese stocks nearly crashed this summer, President Xi told The Wall Street Journal that government intervention to arrest the plunge was necessary to “defuse systemic risks” and was similar to acts taken by governments in “some mature foreign markets.”

Staying Here in the States

Trading remains volatile as investors try to get a feel for when (and if) the Federal Reserve will raise interest rates. Last week the Fed kept rates at near-zero levels, based on the turbulence in a tightly linked global economy, including the above mentioned growth slowdown in China.

Atlanta Fed President Dennis Lockhart said on Monday a rate hike later this year was still possible. Fed Chair Janet Yellen is scheduled to give a speech at the University of Massachusetts Amherst on Thursday.

“The market is fragile as it is,” said Art Hogan, chief market strategist at Wunderlich Securities in New York. “The volatility will continue until we get some clarity from the Fed and China.”

We will keep an eye on both and report here what that means to the markets, and more specifically, to the price of copper.


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