Impacting Copper – G20 Meeting, More Cuts in China and US Manufacturing Survey

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By Jim Williams

 

Like most rides at amusement parks, the roller coaster ride that is the price of copper started out of the gate slowly this week, thanks mostly to a wait and see approach after the G20 meeting in Shanghai over the weekend.

The Group of Twenty, also known as G20, consists of financial leaders from the following 20 major economies:
Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union (EU).

G20 was created in 1999 with the goal of studying, reviewing and promoting high-level discussion of policy issues pertaining to the promotion of international financial stability.

After this weekend’s meeting, the G20 issued a statement on the global economy saying, “The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth. Monetary policies will continue to support economic activity and ensure price stability, consistent with central banks’ mandates, but monetary policy alone cannot lead to balanced growth.

“We are taking actions to foster confidence and preserve and strengthen the recovery. We will use all policy tools – monetary, fiscal and structural – individually and collectively to achieve these goals.”

Copper investors must have missed the memo, as prices dropped in early trading Monday. The price for the red metal recovered later in the day after an announcement by the People’s Bank of China that fell in line with what the members of G20 said. The Bank said it will cut the amount of cash that banks must hold as reserves, freeing up an estimated $100 billion for new lending. The following chart shows the drastic uptick after the announcement.

Despite the surge, the gains remained limited on Monday. The price increase continued on Tuesday as investors expected more moves by China to boost its economy.

The price of copper opened this morning at $2.14 a pound.

Another factor impacting copper was a survey of U.S. manufacturing by the Institute for Supply Management. The results showed manufacturing in the states shrank in February, but at a slower pace than in January. The index rose to 49.5 from 48.2 in January, compared to a consensus of 48.5.

“The number was better than expected, if it breaks above 50 soon it could mean people revisit the idea of U.S. rate rises,” a trader said, adding that a monthly U.S. jobs report on Friday could shed light on potential moves by the U.S. Federal Reserve.

Expectations of a U.S. rate freeze could depress the U.S. currency, which when it falls makes dollar-denominated commodities cheaper for holders of other currencies.

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