Checking in with Copper

More Positive Signals?

• I have often talked about Copper as a metal that is regarded as a leading indicator of the future health of the global economy.
• Monday witnessed a spike in the price of copper that seemed rather surprising.

• According to the Wall Street Journal:

Possible explanations for Monday’s move ranged from an earthquake in Chile, the world’s No. 1 copper producer, to harried trading ahead of a contract expiration to anticipation of Chinese manufacturing data that was due later Monday. Copper is used extensively in manufacturing and construction, making it sensitive to economic data. 

• Regardless of the reason, buyers were scrambling to get into copper (or cover short positions) and the technical picture appears to be changing  from a downward trend that has existed since 2011 to what is either a correction of significance or a new trend altogether.
• I first noticed this turnaround in my blog of February 26: "Positive Signals".
• Since hitting a multi-year low at just above 2.40 in January (prices not seen since 2009), copper has rebounded to trade near 2.80 (after spiking above 2.90 on Monday) as I write this. 
• That would be a 16% move from the lows.
• While it is certainly too soon to say that this is in fact a new up-trend developing, it may well suggest that  there may be a more positive story beginning to take shape for the global economy .
• It will probably be worthwhile to continue to monitor Copper's progress.

And on the Inflation / Deflation Front:

• The Bureau of Labour Statistics announced yesterday that the US Consumer Price Index (CPI) for February grew at a rate of .2% (the first positive number in 4 months), a change of 0% over the last year. 
• The Fed would like to see this number at 2%.
• The core (without the more volatile food and energy components) CPI data showed a 1 year change of 1.7%. 
• We do all have to eat and use energy, however!!
• Nonetheless, it was slightly higher than expected which market participants will view as a signal for a sooner than later increase in the Fed Funds rate.
• However, this is just one month's data, we will need to see the next few months to determine a pattern.

 The views expressed are those of the author, Scott Tomenson, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.