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Expected Economic Boost Trumps Politics – For Now

By Jim Williams

While most eyes are on Cleveland this week for the Republican National Convention and looking ahead to Philly for next week’s DNC, copper investors are focused on Europe and China. The spotlight will likely shine on politics in the U.S. between now and November’s election, but for now, possible economic stimulus in two of the largest copper consuming countries is key.

Copper finished up 1 percent at the bell yesterday and opened for trading this morning at $2.2595 a pound on the Comex division of the New York Mercantile Exchange. Copper prices have bounced around between $2.00 and $2.32 a pound after hitting a seven-year low in January.

There are a number of key stats being released today that will play a role in the short-term price of copper – current data from the EU; including consumer confidence, UK employment numbers, U.S. crude oil inventories and leading indicators out of China – although, we will have to wait until August 1 to see China’s PMI data.

Other key stats impacting copper:

  • U.S. housing starts rose more than expected in June as construction activity increased, sending the dollar to a four-month top
    • A stronger dollar dampens purchasing power of commodity buyers paying with other currencies
  • China’s copper output was steady on the year in June, though it rose 7.6 percent to 4.03 million tons in the first half of 2016 from a year ago

Copper has been the worst-performing commodity so far this year, Barclays said in a research note, adding that there were few reasons to expect any change, with modest surpluses expected out to 2020. “This is largely due to strong supply growth in 2016-17 as the last of the big growth projects reach fruition combined with anemic demand,” it said.

The investment giant went on to predict China’s economy will struggle to generate more growth this year, making copper prices volatile in coming months, saying unless China’s fundamentals turn more supportive, “the rollercoaster has yet to stop, and the ride will remain bumpy”.

“There is not much change in the fundamental situation, it is summer season and demand is seasonally low,” Beijing-based CRU analyst Chunlan Li states.

“So far, it’s all just expectations,” said George Gero, a managing director at RBC Capital Markets.

All that being said, we will keep an eye on the copper market so you can keep watching the political conventions this week and next.

 

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