FX:Copper Prices Bottom Feeding As Global Growth Remains Weak
Two different perspectives give last week provided important insights into the state of the global economy. Although growth remains weak, it is not quite ready to fall off the cliff. Unfortunately, the short-term prospect does not bode well for some commodity markets.
Over the last few weeks, analysts have talked about the impact lower growth will have on oil, precious metals and equity markets but there has not been a lot of focus on a key growth commodity...copper.
Copper is used in a variety of industries and is a key indicator for economic growth. A high demand for copper is usually a strong indication that the economy is extremely strong.
The threat of another global recession is putting a lot of pressure on future prices. Despite a modest push on Friday and some follow through buying on Monday, prices are still hovering near their lowest point in almost six months.
Looking at Monday’s session, Friday’s momentum helped push prices above Wednesday’s resistance area of 3.37 as prices closed the session at 3.377. Although the market is off to a good start this week, looking at short-term, price could struggle to make stronger gains. There appears to be initial resistance at 3.4000. The good news is that prices appear to be building a modest floor with strong support around 3.3000.
Because of recent economic activity, prices are expected to carve out a trading channel with support around 3.300 and stronger resistance at 3.455.
Last week the Federal Reserve Committee joined the chorus of other central banks around the world saying that the economy is “decelerating.” Although they see high risks of a downturn, they have been reluctant to renew any quantitative easing measures. The good news is that it the latest data demonstrates that new liquidity measure might not be necessary.
On Friday, U.S. nonfarm payrolls beat analysts’ forecasts, and created a sense of investor optimism. The street was expecting payrolls to grow by 100,000 but just a head of release some analysts said they would not be surprised to see only an increase of 70,00. The fact that employment grew by 160,000 was a good surprise.
Although the employment data was an extremely important indicator, it is not enough to pull the country out of its slower growth.
The biggest factor will be the juggernaught that is China. We have pointed out a few times that China has been the main driver behind global growth. In the last few months China’s economic activity has cooled significantly and the government has had to cut interest rates twice to help spur economic growth.
The government has said that they expect to see activity pick up in the second half of the year. If this scenario comes true, copper prices will be one of the first to rebound on renewed economic growth. However if the China is not able to encourage new growth, prices could fall sharply and quickly.
