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The Dow Did What?

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The Dow Did What?

Stock markets around the globe took a collective punch to the gut the last two trading days.

On Friday, the Dow fell a scary 666 points. Super Bowl weekend was not enough to stop the bleeding, as the market dropped a staggering 1,175 points Monday. The largest one-day drop in, well, forever.

The selloff occurred as resurgent U.S. inflation raised the possibility central banks would tighten policy more aggressively than predicted. Despite the dip in the Dow, the price of copper has actually remained fairly steady at the moment. Well, steady for the red metal. The chart below shows copper is actually only down a penny per pound since this time last week.

London Metal Exchange copper closed Monday up 1.8 percent at $7,169 a ton, fairly comfortably above the $7,000 plateau, and its highest level since mid-January. Early trading this morning showed some selloff, but not enough to break the bank – yet!

“In the world of commodities, many tend to take the stairs up during rallies, but when corrections occur, they often take the express elevator to the downside,” states frequent tED contributor Andrew Hecht of Seeking Alpha. “If stocks continue lower, and interest rates continue to increase, we could see a severe impact on commodities prices. Many industrial commodities like crude oil, copper, and other metals, minerals, and construction staples have experienced dramatic price appreciation over past months. Given their moves, they could be most susceptible to corrective price action in sympathy with stocks over coming weeks if the current correction turned out to continue.”

Other News Impacting Copper

China is expected to report solid growth in January trade this week (see list below), moderating inflation and renewed bank lending. But the timing of the long Lunar New Year holiday, which starts on February 15, will make it difficult to determine clear trends for at least another month.

The U.S. economy created 200,000 new jobs last month, the Labor Department reported Friday and average hourly earnings rose 2.9% from a year earlier, the most since 2009.

The uptick in wage growth boosted the outlook for inflation and underlined the case for the Fed to raise interest rates at a faster pace this year.

According to Reuters, the U.S. central bank left rates unchanged last week but said it anticipated inflation would likely rise in 2018, underlining expectations that borrowing costs will continue to increase. The Fed currently projects three rate hikes for this year.

In the week ahead, investors will be looking to political wrangling in Washington over the country’s finances ahead of Friday’s spending deadline and the debt ceiling issue.

In what is set to be a relatively light week on the economic calendar, central bank meeting in the UK, Australia and New Zealand will also be in focus.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Tuesday, February 6

Australia is to release data on trade and retail sales. Meanwhile, 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.

Both Canada and the U.S. are to produce trade data; Canada is also to report on the Ivey manufacturing index.

Wednesday, February 7

New Zealand is to publish its jobs report for the fourth quarter.

The UK is to release industry data on house price inflation.

Canada is to produce a report on building permits.

New York Fed President William Dudley is to speak at an event in New York.

Thursday, February 8

The Reserve Bank of New Zealand is to announce its benchmark interest rate and publish its rate statement. The announcement is to be followed by a press conference.

Australia is to release a report on business confidence.

China is to publish data on trade.

The Bank of England is to announce its latest monetary policy decision and publish its quarterly inflation report.

Canada is to report on new house price inflation.

The U.S. is to publish the weekly report on initial jobless claims.

Friday, February 9

China is to release inflation data.

The UK is to release data on trade and manufacturing production.

Canada is to round up the week with its latest employment report.

Further Reading

Four takeaways from Monday’s selloff

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Jim Williams

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