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Copper Update: Happy New Year!

Happy New Year! 

by Jim Williams

The price of copper continued its roller coaster ride during the first full week of trading after China’s break to celebrate the Chinese New Year.

On Monday, the Comex division of the New York Mercantile Exchange hit a seven-week high as copper for May delivery jumped 1.5 cents, or 0.55%, to trade at $2.706 a pound. 

Tuesday had investors of the red metal screaming like they were blasting down the roller coaster as prices fell 1.5%, to $2.6565 a pound. That was the biggest one-day drop since January 27.

Monday’s increase was a result of China’s central bank unexpectedly cutting interest rates for the second time in less than four months. The People’s Bank of China cut its benchmark interest rate by a quarter percentage point to 5.35% over the weekend in an effort to boost growth and stave off deflation in the world’s second largest economy. The move indicates that Beijing is becoming more aggressive in supporting the economy as its momentum slows and deflation risks rise. 

A couple of manufacturing reports helped paint a cloudy picture of the health of China’s manufacturing sector. The HSBC final manufacturing index for February rose to 50.7, above the flash reading of 50.1. In contrast, the official China’s manufacturing purchasing managers’ index (PMI) published on Sunday came in at 49.9 in February, just above expectations for a reading of 49.7 and up slightly from a two-year low of 49.8 in January. 

The drop on Tuesday appears to be a precursor of what’s to come as some investors locked in gains ahead of a key meeting of China’s policy makers, China’s National People’s Congress, which opens Thursday and typically lasts 10 to 11 days. Policy makers are expected to announce economic growth targets for the year, expected at 7%, down from last year’s 7.4%. Investors will also be looking for updates on the government’s plans for state-owned enterprise reform and anticorruption efforts.

“Everyone is still waiting on Thursday’s meeting in China and what they’re going to do,” said Ira Epstein, a broker with the Linn Group in Chicago. Epstein advised his clients to move to the sidelines to avoid what is likely to be a volatile time in the market.

We are also keeping an eye on a series of monetary policy announcements from the central banks of Europe, the U.K. and Canada, expected later this week are also likely to affect the market. We will keep you posted as the news becomes available.

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