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Copper: Trade Talks, Manufacturing and a Hit List

Copper: Trade Talks, Manufacturing and a Hit List

Copper prices hit five-month lows on Monday thanks mainly to the ongoing trade dispute between the U.S. and China. Benchmark copper on the London Metal Exchange (LME) ended up 0.2% at $5,842 a ton to close Monday as funds took profits on short positions (bets on lower prices). Earlier prices hit $5,801, the lowest since January 4.

The futures market opened this morning at $2.64 a pound, down almost a full penny from the previous close. Click the chart below for up-to-the-minute pricing.

The trade war is not the only thing impacting the price of copper. Investors were also keeping an eye on manufacturing activity released from China to see which way the market may be heading in the near future.

A private survey of China’s factory sector released Monday showed manufacturing activity was slightly better than expected in May. The Caixin/Markit factory Purchasing Managers’ Index for May came in at 50.2. PMI readings above 50 indicate expansion. Analysts expected the indicator to come in at 50. The PMI reading for April was 50.2.

Reuters reported this morning that front-loading of exports to the U.S. in an effort to avoid higher tariffs may have masked underlying weakness in the economy and boosted the Caixin/Markit report.

Last week, China’s official manufacturing PMI for May came in at 49.4, lower than the 49.9 economists had forecast. It was lower than April’s reading of 50.1. The official non-manufacturing PMI for May was 54.3 — unchanged from April.

“Pessimism has taken hold. A recovery will need an end, or at least conciliatory moves, between the two sides,” a fund manager trading metals told Reuters in reference to the U.S.-China trade dispute. “Manufacturing PMIs show the decline in activity, the outlook for industrial metals doesn’t look good.”

We will keep an eye on next month’s reports to see which way the pendulum will swing.

The Hits Keep Coming – China’s Hit List

On Friday, China threatened to unveil an unprecedented hit list of “unreliable” foreign businesses, groups and individuals that harm the interests of Chinese companies. On Saturday it imposed additional levies on the majority of U.S. imports on a $60 billion target list.

“These actions could be viewed as putting China back on a level playing field,” ING analysts said in a note. “The U.S. should now know that suppressing China will result in bounce-back retaliation from China. Whether this will encourage the U.S. to go back to the negotiation table is hard to gauge.”

Eyes on the Fed

Fed Chair Jerome Powell was scheduled to deliver the opening remarks to the “Conference on Monetary Policy Strategy, Tools and Communication Practices” this morning. The speech comes after St. Louis Fed President James Bullard said on Monday that unresolved trade disputes and below-target inflation “suggest that the central bank needs to tread carefully in order to help sustain the economic expansion” and indicated that a rate cut could be warranted.

We will keep an eye on today’s remarks and see if it has any impact on copper over the next few days.

Further Reading

Those interested in copper should know the difference between imminent and immediate. Matt Badiali, Editor, Real Wealth Strategist, explains the difference in his article, A Contrarian View: Why Wall Street Is Wrong About Copper.

Here is another short read on the status of copper – Battered Copper Prices Might Offer Investment Opportunities.

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Jim Williams

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