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Strike Averted; Trade Talks, the Fed and the Dollar Up Next

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Strike Averted; Trade Talks, the Fed and the Dollar Up Next

BHP and its workers at the Escondida mine in Chile came to terms late last week. The agreement eliminates fears of a strike similar to one last year that lasted 44 days and cost BHP nearly $1 billion. The initial shock wave of the agreement sent copper prices plummeting to close last week down 4.14%.

The tide has turned to start this week as London copper climbed for a second day, crossing the $6,000-a-ton mark. The positive start to the week is being fueled by a weaker dollar and the market waiting to see if anything comes from the reported U.S.-China trade talks scheduled for later this week.

As the DailyFX chart shows below, copper opened this morning a hair under $2.70 a pound. The price of copper has traded as low as $2.5520 per pound in 2018, and that bottom came last week.

Copper prices on the London Metal Exchange have fallen 18 percent from a four-year high back in early June fueled by concerns of a trade war, where both sides have imposed billions of dollars in tariffs on each other’s goods, and expectations they will hit demand for industrial metals – specifically copper.

The trade talks are expected to resume this week in Washington. It will be the first round of trade talks since June and could be a step towards easing trade tensions between the world’s two largest economies.

“It is likely that the path of least resistance for the price of copper will most closely correlate with the Chinese stock market over the coming days and weeks,” states Andrew Hecht of Seeking Alpha. “With Escondida out of the way, copper will be the bellwether commodity for the trade dispute between the U.S. and China. For any of us that trade copper, keeping one eye on Chinese equities and the other on the dollar will likely provide the most robust clues about what’s next for the red metal that is one of the critical raw materials when it comes to building infrastructure around the world. Copper is also a barometer for the global economy and last week it came very close to the danger zone.”

The Fed

On Wednesday investors will get the chance to analyze the minutes of the Federal Reserve’s August meeting when it left interest rates unchanged and indicated that it remains on track for additional rate hikes this year.

Investors will also be on the lookout for any tweaks to the Fed’s outlook on inflation, the economy and trade war fears.

On Friday, Jerome Powell is to make his first appearance as Fed chairman at the annual economic symposium in Jackson Hole. The world will be watching for clues to the monetary policy direction of some of the world’s most important central banks.

The Dollar

The dollar lost more footing after President Trump’s latest statement against the Federal Reserve. He told Reuters he is “not thrilled” with Fed decisions this year to raise interest rates. The dollar index, a measure of the US currency against a basket of peers, is down 0.4 per cent at 95.533, the weakest since August 9.

President Trump also accused China of “manipulating” its currency. “And I think the euro is being manipulated also,” he added.

Under the Radar

Another success story for productivity came out of Chile last week, with workers at the Caserones copper mine voting to accept a new contract. While not as huge as Escondida, the Caserones mine produced 122,800 tons of copper in 2017.

Looking Ahead

Looking ahead at the rest of the week, Investing.com has compiled a list of significant events likely to affect the markets.

Tuesday, August 21

The Reserve Bank of Australia is to publish the minutes of its latest policy setting meeting.

The UK is to report on public sector borrowing figures.

Wednesday, August 22

New Zealand is to report on retail sales.

Canada will publish retail sales figures.

The U.S. is to produce data on existing home sales.

The Fed is to publish the minutes of its August meeting.

Thursday, August 23

The euro zone is to release data on manufacturing and service sector activity.

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

Central bankers and economists are to gather in Jackson Hole, Wyoming for the first day of a three day event.

Friday, August 24

The U.S. is to release data on durable goods orders.

Fed Chairman Jerome Powell is to speak at the Jackson Hole Symposium.

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Jim Williams

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