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Less Than Stellar News Out of China, No News from the Fed

By Jim Williams

It looks like last week’s efforts to boost China’s economy didn’t have the impact investors hoped it would to end of the month with a bang. Instead, October ended with a slight thud as China’s official manufacturing purchasing managers’ index (PMI) for the month remained unchanged at 49.8. That is the weakest level since August of 2012

Another report released, the Caixin manufacturing PMI for October managed to inch up to 48.3, up from September’s six-and-a-half year low but still below the industry expected 50.0.  A reading below 50 in either report signals industry contraction.

“Although the PMIs are still below the 50 mark…both figures nonetheless suggest that the manufacturing sector is stabilizing,” according to a report released by Commerzbank.

In other news out of China that could have a long-term impact on copper prices, the Xinhua News Agency reports that China’s President Xi Jinping has declared that the nation’s annual growth should be no less than 6.5% over the next five years to realize its economic goals by 2020. That is well below the current line in the sand of 7.0%. This news comes after China’s government recently approved a five-year economic plan where the country pledged to promote the yuan to the IMF’s reserve-currency basket, narrow the income gap and deepen household registration reforms.

With all of the reports coming out of China copper prices were treading water to start the week but then dipped to four-week lows.

Reuters reports that the stronger Chinese appetite for copper in recent weeks is unlikely to last.

One thing that is lasting…the Fed’s Interest Rate

The Federal Reserve left the interest rate unchanged after last week’s meeting. They now have one more meeting this year, in December, to decide if they are going to actually pull the trigger or keep things status quo.

Experts expect the central bank to raise rates either at that December meeting, or in early 2016. Analysts at Barclays predict an increase will have a pass-through effect on copper from the dollar channel. They released a report saying the dollar effect “will be limited, with fundamental supply and demand factors, like the health of the global economy and the strength of Chinese demand, likely to play the much bigger roles.”

We will keep an eye on both the Chinese economy and the Fed’s decision – or, lack of one – and their impacts on the price of copper.

 

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