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Copper Report: Two-Day Meetings… Times Two

Copper Report: Two-Day Meetings… Times Two

Copper prices rose on Monday before planned U.S.-China trade talks and a flood of economic data, including the Federal Reserve’s Open Market Committee (FOMC) two-day meeting.

Benchmark copper on the London Metal Exchange (LME) ended up 0.9% to $6,018 a ton. For those who like to see it broken down by pound, the red metal opened this morning near $2.70.

“This will be an eventful week for base metals as investors await signals from key economic data releases and trade talks restart between China and the U.S.,” ING analyst Wenyu Yao told Reuters. “Metals markets will be more influenced by the macro side.”

The FOMC is meeting today and tomorrow to determine monetary policy. The Fed is expected to lower interest rates when they wrap up their meeting Wednesday. The question is, will it be a 0.25% or 0.5% cut. Most believe it will be a quarter-point. However, President Trump tweeted about the Fed Monday suggesting the central bank is not doing enough to stimulate the U.S. economy. Some analysts think the President’s heat on the Fed could prompt a half-point cut.

Lower rates typically weigh on the U.S. dollar, which when it falls makes dollar-denominated commodities, like copper, cheaper for importers using other currencies, potentially boosting demand.

“The Fed holds the key to the path of least resistance for the dollar,” states Andrew Hecht of Seeking Alpha. “Meanwhile, the administration could quickly step in if it decides the Fed is not acting in the best interest of U.S. multinational corporations when it comes to exports or trade negotiators who are looking for an edge in talks with the Chinese.”

Trade Talks Resume

The FOMC isn’t the only two-day meeting taking place this week. U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are meeting today and Wednesday in Shanghai with a delegation led by China’s economy czar, Vice Premier Liu He. This is the first meeting between the U.S. and China since a G20 truce last month.

President Trump has said he thinks China may not want to sign a trade deal until after the 2020 election.

“We doubt anything will come out of these talks, but if the two sides keep the dialogue going, that would be a positive in our view,” INTL FCStone analyst Edward Meir said in a note.

Further Impacting Copper

There is more than just the Fed and trade talks that will move the needle for the red metal this week. Data due over the next few days includes surveys of purchasing managers in China’s manufacturing sector, the U.S. monthly jobs report and ISM manufacturing survey, industrial output from Japan and growth figures from the euro zone.

Potential changes in China’s capital financing rules could boost infrastructure spending by 10% in the second half of this year from the same period last year. “If the additional infrastructure investment were to be spent on China’s utilities sector, this could result in 500,000 tons of additional copper demand,” analysts at JPMorgan said in a note.

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Jim Williams

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