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Tariffs, Russian Summit and China’s Economy – Business as Usual for Copper

Tariffs, Russian Summit and China’s Economy – Business as Usual for Copper

Trump and Putin. Tariffs. Trade war. The headlines are everywhere, and they will play a significant role in the economy and more specifically for copper prices. But, the main constant that remains for the red metal is what is happening in China.

Copper prices bounced back in early Asian trading this morning after coming under pressure in the previous session on concerns over slowing economic growth in top industrial metals consumer China.

In numbers released Monday, China’s economy expanded at a slower pace in the second quarter – 0.1% lower than the prior quarter – as Beijing’s efforts to contain debt hurt activity, while June factory output growth weakened to a two-year low in a worrying sign for investment and exporters as a trade war with the United States intensifies.

Copper opened this morning near $2.75 a pound on the COMEX. The price of the red metal has declined from highs of $3.3345 on June 7 to lows of $2.7170 per pound last week. That is a decline of 61.75 cents or 18.5% in a little over a month. Most of the freefall is being blamed on the trade talks between the U.S. and China.

“Many of the moves to the downside in the raw materials asset class have not been the result of their supply and demand fundamentals; instead, they have been on the back of fear and uncertainty over trade as the current disputes most directly impact commodities prices,” says frequent tED contributor Andrew Hecht.

“If I am correct, we could see some extraordinary rallies in the stock market as even slightly more beneficial trade agreements for the U.S. will be another form of fiscal stimulus. Therefore, an economic boom that results from a resolution of the current trade issues is likely to move raw material prices higher,” concludes Hecht.

Mine Over Matter

Despite the recent downward spiral of copper prices, the metal has weathered the storm better than most commodities. The key factor keeping copper chugging along – concerns over potential supply disruptions because of ongoing labor negotiations at the world’s largest copper mine in Escondida.

“Copper has been holding up relatively well, as the possibility of supply disruption in Chile was back in the headlines,” ANZ Research said in a note released this morning.

Months of labor negotiations between union workers and BHP’s management at Chile’s Escondida copper mine have failed to reach an agreement which means an all-out strike could happen in the near future.

BHP’s latest offer was rejected as it excludes two of the miners’ main demands: a 5% salary increase and a one-time bonus equivalent to a 4% dividends distributed to shareholders.

A strike at Escondida could possibly be enough to push prices upward again – as supply and demand usually outweigh all other factors.

Looking Ahead

Metals traders will be watching Federal Reserve Chairman Jerome Powell’s testimony on the economy and monetary policy to a Senate committee today and Wednesday.

Powell is expected to face questions on a wide range of economic issues, including the potential effect of the Trump administration’s trade policy on the economy.

Investors will also get updates on U.S. retail sales, housing data and industrial production this week.

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

Monday, July 16

Financial markets in Japan were closed for a holiday.

China released data on second-quarter growth, fixed asset investment and industrial production.

Canada reported on foreign securities purchases.

The U.S. published retail sales figures and a report on manufacturing activity in the New York region.

Tuesday, July 17

New Zealand is to release data on consumer price inflation.

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

Bank of England Governor Mark Carney is to speak and the UK is to publish its latest employment report.

Canada is to report on manufacturing sales.

The U.S. is to publish data on industrial production.

Later in the day, Fed Chairman Jerome Powell is to testify on the monetary policy report before the Senate Banking Committee, in Washington.

Wednesday, July 18

The UK is to publish its latest inflation report.

The euro zone is to release revised inflation figures.

The U.S. is to publish a report on building permits and housing starts. Meanwhile, Fed Chairman Jerome Powell is to testify on the monetary policy report for a second day Washington.

Thursday, July 19

Australia is to publish its latest employment report.

The UK is to release data on retail sales.

The U.S. is to publish reports on jobless claims and manufacturing activity in the Philadelphia region.

Friday, July 20

The UK is to report on public sector borrowing.

Finance ministers from the G20 group of nations are to hold the first day of a summit meeting in Buenos Aires.

Canada is to round up the week with data on retail sales and inflation.

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Jim Williams

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