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Will the Proverbial Shoe Drop for Copper?

Will the Proverbial Shoe Drop for Copper?

Copper prices dropped almost 1% Monday thanks to weak data from China strengthening poor demand and growth prospects. The ongoing U.S.-China trade dispute continues to force investors to play the wait-and-see game across all markets, including the red metal.

“Copper is waiting for the next shoe to drop on trade,” states Andrew Hecht of Seeking Alpha. “A ‘phase one’ agreement is likely to cause buying to return to the copper market on COMEX and the LME. On COMEX, the next level to watch on the upside is at $2.80. Above there, $3 is the critical technical resistance level.

“A break towards $2.80 could take the red metal to a new high for this year and a move above the $3 level on the nearby COMEX futures contract and over $6,500 per ton on the three-month LME copper forwards,” concludes Hecht.

Copper opened this morning at $2.66 a pound and $5,878 a ton. Prices hit 15-month highs of $6,011 last week on hopes for an end to the trade war.

Copper futures have moved from a low at $2.4820 on September 3, to a high at $2.7185 per pound on November 7 on news that the U.S. may cancel some of the tariffs on China to reach a “phase one” trade deal lifted the price of the red metal last week.

“At the moment, it’s to do with the trade war and how that develops,” Commerzbank analyst Daniel Briesemann told Reuters. “The market is waiting for Chinese industrial production and investment data due later this week.”

Chinese industrial output and investment data for October are due Thursday.

China’s Data Impact on Copper

In data released yesterday, China’s producer price index, seen as a guide to corporate profitability, fell 1.6% in October from a year earlier, marking the steepest decline since July 2016.

It was also announced that new bank loans in China fell more than expected to the lowest in 22 months in October. Loans are used as a barometer of activity among smaller and private companies that generate a sizeable share of Chinese growth and jobs.

President Trump Speech

Global markets are holding their collective breath today waiting to see if the other shoe, mentioned above, may drop. That is because President Trump is scheduled to speak at the Economic Club of New York today.

“You can expect the president to highlight how his policies of lower taxes, deregulation, and fair and reciprocal trade have supported the longest economic recovery in U.S. history with record low unemployment, rising wages, and soaring consumer confidence,” White House spokesman Judd Deere told reporters, without giving further details.

We will keep tabs on the speech and the upcoming data out of China and report back here which way the price of copper will go when, and if, the other shoe drops.

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Jim Williams

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