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Copper Update: Digging to China

Copper Update: Digging to China

by Jim Williams

Copper Update and Digging to China… Well, the Data About China
Copper prices fell from the previous session’s three-month high on Tuesday, after data released showed Chinese manufacturing activity swung into contraction territory this month, leading to concerns over the health of China’s economy.

On the Comex division of the New York Mercantile Exchange, copper for May delivery traded near the $2.80 a pound level during European morning hours. Prices rallied to $2.914 on Monday, the most since December 15.

Data released earlier showed that the preliminary reading of China’s HSBC manufacturing index dropped to an 11-month low of 49.2 in March, as new orders plunged. Analysts expected 50.6, down slightly from February’s reading of 50.7.

Digging to China’s Data
When you were little did your parents ever make the statement, “You keep digging and you will end up in China?” Well today, we want to share an article with you that digs into the data that gives us the best explanation we’ve found to date on the world’s second largest economy. While it doesn’t focus solely on copper, the data discussed does play a huge impact on the red metal as China is the number one consumer of Copper.

Seeking Alpha author Velentin Schmid did some extensive research on surveys pertaining to China’s official data. The line from the article that peaked our interests was, “When looking at China, many people forget that official data is very unreliable, sometimes even made up, so any kind of analysis rests on very shaky foundations.”

Schmid used China Beige Book International’s (CBB), a leading research company’s, first quarter of 2015 report to confirm that China is slowing down. “The economy underwent an overall growth slowdown, beset chiefly by slower capital expenditure as well as comparatively weak Chinese New Year sales,” stated the report. You can read the compete article here.

Digging Deeper
San Francisco Fed President John Williams, speaking this week in Sydney, changed the phrase from “serious discussion” he used earlier this month while in Honolulu. “I think that by mid-year it will be the time to have a discussion about starting to raise rates,” said Williams. Fed Chair Janet Yellen and her colleagues last week opened the door to an interest-rate increase as soon as June, but indicated in their forecasts they’ll go slow once they start. 

Also, oil prices dropped again this morning following an overnight report which showed Saudi production close to an all-time high and the above mentioned data that showed China’s factory sector falling to an 11-month low. Saudi Arabia is now pumping around 10M barrels of crude oil per day, about 350,000 bpd above the figure the Kingdom gave to OPEC for its February output. Crude futures have since then recovered and are now trading up 1.4% at $48.13/bbl.

The Dollar Dips
The U.S. dollar index was down 0.1% to 97.10 early on Tuesday.

The dollar remained under pressure from uncertainty over the path of U.S. monetary policy after the Federal Reserve downgraded its forecasts for growth and inflation and lowered its interest rate projections last week.

In contributor Jesse Colombo latest currency analysis he digs into the chance that the dollar could surge if certain conditions are met, which he predicts would punish copper and other commodities. Here is his analysis.

Up Next
The U.S. is set to release reports on consumer inflation and new home sales. We will keep an eye on those numbers.

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