I mentioned about two weeks ago, 'Doctor Copper' was looking quite sickly. Things have deteroirated since.
These were both issues yesterday (copper & China's stock market), but in an environment where speculatrors have the attention span of a 3 year old on Ritalin, the 'better than expected' GDP figures, and weekly data claims have taken over the attention of the markets this morning. I believe we've now gapped UP every day this week. Hope is eternal. But for those whose attention spans surpass that of toddlers, we have some major issues - the WSJ discusses the issue in copper which usually tracks ahead of the action of the stock market itself.
- The fall in copper is seen as particularly significant because the metal is used in everything from Apple Inc.'s iPads to indoor plumbing and electrical wires, making it a good leading indicator for the global economy, and the stock market. Some investors are such believers in its ability to forecast economic conditions that they refer to it as Dr. Copper.
- Some also see it as bad news for investors hoping stocks will soon find a foothold, rather than begin a new leg down. You're seeing copper's declines outpace equities', which is telling me that equities are too buoyant at this point in the recovery, said Adam Klopfenstein, a strategist with MF Global.
- Copper has been a good predictor of stock performance before, notably, in the peak of the financial crisis. The metal slumped well ahead of other markets heading into 2009, and the correlation between copper and stocks now looks eerily similar to back then, according to Katie Stockton, chief market technician at MKM Partners.
- Traders seeking to explain copper's sudden slump point to obvious influences such as signs China's economy is slowing—potentially sapping a huge source of demand for products that use copper. As well, a general contraction globally would hurt copper in particular.
- But other factors are likely at play. For a start, copper has been on a powerful bull run since finding its nadir in 2008. Prices had tripled through February of this year, and they hovered near those highs until the recent rout. As copper began to decline, hedge funds and other speculators bailed out. Data from the Commodity Futures Trading Commission show that, in late August, speculative investors had more bets copper would fall than rise for the first time since September 2009.
- Many are also looking at China, which accounted for 40% of world refined copper consumption last year. Copper imports in China this year were down 26% from year-ago levels, China's General Administration of Customs said last week.
- That follows HSBC's preliminary gauge of Chinese manufacturing, which showed shrinking industrial activity for a third consecutive month in September. Additionally, copper prices in China are falling toward the world benchmark set in London. The difference between the two is the smallest since May, indicating China's appetite is waning.
p.s. nice find from reader Josh who points out Goldman's 'not so excellent' call on copper a few months back [Jun 15, 2011: Goldman Calls for a Substantial Rally in Copper Prices in 2nd Half 2011, as Chinese Stockpiles have Potentially Fallen 50%]