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Copper Report: Sink or Swim?

Copper Report: Sink or Swim?

Have you ever tried to tread water? You flail just to stay afloat. Most likely it is easy at first, but then the longer you fight to stay above water, the harder it gets. Well, copper has been treading water for the last month with the pressures of the global economy making it more and more difficult. The question now is, will the red metal continue to float, or will it sink?

With no U.S.-China deal finalized yet, concern over global growth, Brexit concerns slowing UK business investment and the Fed in ‘wait and see’ mode, copper continues to fight to see which way it will go.

That trend continued in overnight trading as London copper prices were flat in early Asian trading as fears of a recession in the U.S. were offset by the declaration of force majeure at a key copper mine in Peru.

Copper opened this morning at $2.86 a pound. That is up slightly to start the week, but follows a down week as copper lost just over 2% last week.

Force Majeure – Superior Force

Reuters reported this morning that Chinese copper miner MMG Ltd will declare force majeure under sales contracts at its Las Bambas mine in Peru. For those of you, like me, who don’t speak French, force majeure translates to superior, or irresistible, force. It is a standard clause found in construction and supply contracts which exempts the contracting parties from fulfilling their contractual obligations for causes that could not be anticipated and/or are beyond their control. In this instance, MMG claims a protest from an indigenous community caused a road blockade. Production is expected to be impacted later this week.

Chilean state miner Codelco said on Monday it had terminated its contract with Canadian company SNC-Lavalin Group Inc at its Chuquicamata mine in northern Chile, accusing the engineering firm of failing to comply with its work commitments at the world’s largest open-pit mine.

Recession or Not?

What a difference a day makes. Yesterday, the sky was falling after the bond market flashed a recessionary warning last week because the spread between 3-month Treasury bills and 10-year note yields inverted for the first time since 2007 after it was announced on Friday that U.S. manufacturing data missed estimates. This inversion of the yield curve is widely seen as a leading indicator of recession.

This morning, Seeking Alpha reports U.S. stock index futures are on course to climb 0.5% after the markets closed the session on Monday back where they started. Bond yields are edging higher, with the 10-year Treasury note up, easing the market’s worries about an inverted yield curve and a looming recession.

U.S. and China

A U.S. trade delegation, headed by Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin is scheduled to travel to Beijing this week to meet with Chinese Vice-Premier Liu He for yet more talks aimed at resolving the trade conflict between the world’s two largest economies.

Brexit Already!

Reports out this morning say Parliament has taken control of the Brexit process. The move comes after Prime Minister Theresa May admitted her Brexit deal didn’t have enough support to put it to another vote. May has also said she won’t lead the UK over the no-deal cliff without parliament’s consent.

Bottom line, it looks like a long Brexit extension is shaping up as the most likely outcome. UK lawmakers are scheduled to vote tomorrow on alternatives to May’s unpopular deal, which could include a second referendum, staying in the customs union and single market, or even canceling Brexit altogether.

The Week Ahead

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

Monday, March 25

The Ifo Institute published a report on German business climate.

Chicago Fed President Charles Evans, Philadelphia Fed President Patrick Harker and Federal Reserve Bank of Boston President Eric Rosengren all delivered remarks.

Tuesday, March 26

The U.S. is to release data on building permits, housing starts and consumer confidence.

Chicago Fed President Charles Evans, Philadelphia Fed President Patrick Harker are to speak again, as is Federal Reserve Bank of San Francisco Mary Daly.

Wednesday, March 27

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

European Central Bank President Mario Draghi is to speak at an ECB event in Frankfurt.

Canada is to release data on the trade balance.

Bank of Kansas City President Esther George to deliver comments at an event hosted by the Money Marketeers of New York University.

Thursday, March 28

New Zealand is to release data on business confidence.

The U.S. is to publish the final revision to fourth quarter growth as well as data on initial jobless claims and pending home sales.

Fed Vice Chair Richard Clarida, Fed Governor Randal Quarles, Fed Governor Michelle Bowman, and St. Louis Fed President James Bullard are all due to speak.

Friday, March 29

Canada is to produce data on GDP and raw material price inflation.

The U.S. is to wrap up the week with reports on personal spending, the core PCE price index, business activity in the Chicago area and new home sales. Fed Governor Randal Quarles is also to speak.

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Jim Williams

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