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We’re Talking Copper

We’re Talking Copper

Copper fell slightly in overnight trading in London thanks mostly to fading optimism over a possible trade deal between the U.S. and China. Not a great start to the week following last week’s 1.7% drop, zapping some of the momentum seen after the G20 summit. Trade negotiations were supposed to start this week, but there are signs from either side those talks are not going to happen any time soon.

The recent drop has pushed copper down 11% on the year. That means copper has fallen nearly 20% since last June when the trade war intensified. The red metal has seen negative results in eight of the last 10 weeks. Copper opened this morning around $2.70 a pound. Click on the chart below for up-to-the-minute pricing.

It’s All About the Talks

The decision to resume trade talks boosted stocks as expected, but any momentum sparked by the summit in Japan has since fizzled since both sides have been eerily quiet since.

“The trade dispute continues to weigh on the price of copper,” states Andrew Hecht of Seeking Alpha. “The market also likely had second thoughts about the Fed’s message that they will cut rates over the coming months, which caused a bounce in the dollar index on the first week of Q3. However, we are now in the heart of the summer season, and I do not expect much action in the currency markets.”

“The resolution, or otherwise, of the trade talks between the United States and China are of meaningful importance to base metals markets,” Guy Wolf, head of market analytics at Marex Spectron, told Reuters. “Underlying physical markets are significantly more robust than the headlines would suggest they have any right to be. That is not to suggest things are booming, nor are they looking as tight as they perhaps were earlier in the year.”

That ebb and flow of the copper market can be seen by taking a look at the inventory in LME warehouses. Copper stocks topped 300,000 last week, but dropped to 298,300 when trading started Monday.

Talks of a Different Nature

Federal Reserve Chairman Jerome Powell is scheduled to talk – a lot – this week. Up first for Chairman Powell are the opening remarks via satellite for the “Stress Testing: A Discussion and Review” conference hosted by the Federal Reserve Bank of Boston. He is expected to talk about the effectiveness of bank stress tests as the Fed considers changes to its critical post-financial crisis tool. Powell’s three-day whirlwind of speeches will then take him to his semiannual monetary policy testimony to Congress tomorrow and Thursday.

The global economy is waiting to hear what he has to say about an expected interest rate cut at the end of this month. Reports out this week say China’s central bank could possibly cut benchmark rates for the first time in four years if the Fed follows through with the widely expected cut as Chinese policymakers step up support for their slowing economy.

Many analysts think the cut may be off the table after last week’s better-than-expected jobs report here in the states.

Here is an in-depth look at the week ahead for Chairman Powell.

We will keep an eye on all of the talks and report any impact they may have on the price of copper.

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Jim Williams

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