Copper prices fell 5% yesterday, as growth concerns caused widespread losses and reversal in stock market’s early gains. However, in early morning trading, during the Asian trading hours, copper is once again getting slammed. After starting the day at roughly $2.60/ounce, copper fell to just above the $2.40/ounce level, a massive move. However, copper has been able to recover some of its losses as of this writing, but it is still down -$.1340 or -5.07% to $2.51. What is even more unsettling is that copper is at levels not seen since 2009 and it certainly makes traders wonder how strong global growth really is at this point.
Yesterday, the World Bank cut 2015 global growth forecast, primarily due to weakness in Japan, uncertainty and weakness in Europe, China growth slowdown, and other emerging market financial health worries. In addition to the World Bank’s cutting of global growth, copper is facing a supply glut, as China continues to acquire less and less materials than it previously has in the past.
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Copper seen as a barometer for the global economy
Being that copper’s use is so widespread from industrial, manufacturing, construction, etc it is seen as a barometer for the global economy. Copper’s weakness certainly highlights the weakness we are seeing across the world. For instance, China has been consistently importing materials such as copper, coal, oil, etc hand over fist. Now that the country is starting to slow and having a hard time keeping up with their massive spending programs to keep the economy stimulated and growing quickly; these commodities (copper in particular) are getting hit hard as producers are continuing to have product available, creating a supply glut.
Across many different assets, we are seeing a widespread rush to safety. The US stock market’s triple digit gain yesterday was erased after global growth concerns surfaced, and now in early trading we are seeing US indices down over -1%. Bonds are rallying, 10 year note is priced at $130.50, up over .5%. The Japanese Yen, a safety currency, is posting major gains of over 100 pips against the US Dollar, Euro, British Pound, Canadian Dollar, Australian Dollar, Swiss Franc, and New Zealand Dollar. Lastly, commodities across the board are being hit hard.
As you can see, it certainly appears that the market is reaching the breaking point, as all asset classes are beginning to feel the pain and the flight to safety. Despite the pundits’ call for solid world growth and another year of big stock market gains, fundamental data suggests otherwise. Unfortunately, it is too early to say what 2015 will bring for the world economy, but with the World Bank slashing estimates, it certainly does not bode well.