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Copper Update: The Red Metal Rolls into Q2

Copper Update: The Red Metal Rolls into Q2

Copper eased for a second session on Tuesday on signs that a protest at a Peruvian mine may end and as the U.S. dollar rose. The downturn in copper to start the week comes after five straight days of positive numbers last week, closing Friday at $2.932 for a weekly gain of 0.78%. The red metal opened this morning a tick above $2.91 pound.

“The technical resistance level for the red metal is now at $3.00 as we move into Q2,” states Andrew Hecht of Seeking Alpha. “Expect a continuation of price volatility in the industrial commodities in Q2. The dollar, trade issues with China, and global economic growth will determine the path of least resistance for the commodities in this sector over the second quarter of 2019. I continue to favor a move to the upside when the U.S. and China agree to end their trade dispute.”

Trading on Monday started on a positive note thanks to surprisingly positive factory activity data out of China. The Chinese HSBC Manufacturing PMI was released yesterday and the numbers were higher than expected. According to Investing.com the actual Manufacturing PMI was 50.8. The forecast was 50.1. The previous report was 49.9.

When the PMI is below 50.0, it is interpreted that the manufacturing economy is declining. Anything above 50.0 indicates an expansion of the manufacturing economy.

Protest in Peru

Reuters reports this morning that the Peruvian government offered a deal to indigenous protesters to lift their blockade at the Las Bambas copper mine owned by China’s MMG Ltd, but a decision is pending agreement among the indigenous community.

The protesters have blocked roads to the mine since early February, demanding compensation from MMG for using a stretch of road on their farmland. Las Bambas produces about 2 percent of global copper output.

The Dollar

The dollar index, which measures the greenback against a basket of six major currencies, rose 0.2 percent to over a three-week intraday high. The index climbed 1.7 percent since March 20, when it fell to six-week low.

A rise in the U.S. dollar makes dollar-denominated metal contracts more expensive to import.

The Week Ahead

This week, those of us keeping an eye on copper prices will be tracking further movements in the dollar ahead of Friday’s U.S. government employment report for March, which comes after the Federal Reserve appeared to rule out the likelihood of any rate hikes this year.

Investors will also get an update on U.S. retail sales and manufacturing activity after the U.S. bond market flashed a recession warning when 10-year Treasury yields fell below three-month Treasury bill yields for the first time since 2007 earlier this month.

High-level trade talks between the U.S. and China will also remain in focus as Chinese Vice Premier Liu He comes to Washington to meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

There are also Brexit headlines to monitor among fears that no withdrawal deal will be reached before the April 12 deadline.

Here is a list of significant events likely to affect the markets this week as compiled by Investing.com.

Monday, April 1

China published its Caixin manufacturing PMI (see above).

The U.K. released data on activity in its manufacturing sector.

The eurozone published preliminary inflation data.

The U.S. reported on retail sales and the Institute of Supply Management is to publish its manufacturing index.

Tuesday, April 2

Australia is to publish data on building approvals.

The Reserve Bank of Australia is to announce its benchmark interest rate and publish a rate statement, which outlines economic conditions and the factors affecting the monetary policy decision.

The U.K. is to publish data on construction sector activity.

The U.S. is to report on durable goods orders.

Wednesday, April 3

Australia is to release data on retail sales and trade.

China is to publish its Caixin services PMI.

The U.K. is to release data on service sector activity.

The U.S. is to publish the ASD nonfarm payrolls report and the ISM non-manufacturing index.

Thursday, April 4

Germany is to release data on factory orders.

The European Central Bank is to publish the minutes of its latest monetary policy meeting.

Friday, April 5

Financial markets in China will be closed for a holiday.

In the euro zone, Germany is to report on industrial production.

Canada is to publish its monthly employment report.

The U.S. is to round out the week with the government nonfarm payrolls report for March.

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Jim Williams

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