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Copper This Week – Weak Data and the Fed

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Copper This Week – Weak Data and the Fed

After a strong finish to last week, copper slipped on Monday thanks mostly to weak Chinese data fueling worries about demand. Data released Monday showed China’s industrial production grew at the weakest pace in more than 17 years last month.

The bar is normally set at a 6% increase for China. Yesterday’s number released by the National Bureau of Statistics showed a 4.4% rise in factory output. Well below forecasts, and the lowest reading since February 2002.

“It was definitely weaker than expected. Copper has rallied pretty decently over the past couple weeks, but this was a little reminder that the underlying fundamentals are still questionable,” Colin Hamilton, director of commodities research at BMO Capital told Reuters.

Chinese Premier Li Keqiang said it is “very difficult” for the world’s second-largest economy to keep growing at a rate of 6% or more, after a 6.3% expansion in the first half of the year.

On Friday, copper rebounded 8% since touching a two-year low on September 3. Yesterday’s numbers brought that trend to a screeching halt.

In afternoon trading in New York yesterday, copper for delivery in July was trading down more than 2% on the day. The markets across the pond nearly mirrored the U.S., as three-month copper on the London Metal Exchange (LME) slipped 1.8% after hitting a 1-1/2-month high the previous session.

The red metal opened on the COMEX this morning at $2.61. Click on the chart below for up-to-the-minute pricing.

The CEO of the world’s number one producer of copper threw a wet blanket on any thoughts of a rally for the red metal, saying that prices will remain depressed through 2020.

Codelco’s new chief executive Octavio Araneda told Reuters, “Everything indicates that the price of copper will not improve next year. The trade war is difficult to predict,” adding that the state-owned company would instead seek to immediately boost production.

All Eyes are on the Fed This Week

Today marks the start of the Federal Reserve’s two-day meeting. It is anybody’s guess as to which way the Fed will go. Will they cut rates? Talk has been of a 25, or even a 50 basis point cut. Others think the Fed may stand pat and not cut rates at all.

“We should fasten our seatbelts for lots of volatility in markets across all asset classes after the Fed’s decision,” says Andrew Hecht, of Seeking Alpha. “A minimal 25 basis point rate cut, and a more hawkish message could cause disappointment and selling in stocks. No rate cut could cause a period of carnage on the downside. However, a 25 or 50 basis point cut with dovish tone in the statement and press conference would likely support rallies. I believe the Fed will cut interest rates by 25 points this week, which is ultimately bullish for stocks and metals.”

Here is a Reuters article looking at a Fed divided.

We will keep an eye on the Fed as well as all things involving copper and report right here next week.

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Jim Williams

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