Bulletin
Investor Alert

New York Markets Close in:

The Tell Archives | Email alerts

Oct. 22, 2020, 12:33 p.m. EDT

Copper’s ‘unignorable’ strength is saying bullish things about the economy — but there’s a catch

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Copper Dec 2020 (HGZ20)
  • X
    Copper Continuous Contract (HG00)
  • X
    Barrick Gold Corp. (GOLD)

or Cancel Already have a watchlist? Log In

By William Watts

“Dr. Copper” is offering an upbeat prognosis for the global economy but the message sent by the industrial metal price’s jump to more-than-two-year highs hasn’t yet been confirmed by a pair of closely watched assets, a top Wall Street technical analyst noted Thursday.

Comex December copper /zigman2/quotes/210059538/delayed HGZ20 +2.86% /zigman2/quotes/210054311/delayed HG00 +2.75% on Wednesday posted the highest close for a most actively traded contract since June 2018, extending a gain fueled in part by surging imports from China and aided by a weaker U.S. dollar. Copper gave back some gains on Thursday, falling 1.5% to $3.15 a pound, but remains up 2.7% for the week and nearly 4% so far in October.

Copper earned its sobriquet due to its use in a range of manufacturing activities and electrical equipment, contributing to its reputation as a leading indicator of global economic activity.

Copper’s gains versus gold /zigman2/quotes/201432642/composite GOLD -0.22% and recent outperformance by industrial metals versus their precious metal counterparts lend themselves to a bullish economic interpretation, wrote Jeff deGraaf, founder of Renaissance Macro Research, in a Thursday note. DeGraaf termed copper’s strength “unignorable.”

Gold is up 0.4% in October. Stocks have rallied, taking back some ground lost in a September pullback, with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.13% up 1.5% in the month to date, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.24% has gained 2.1%. Stocks tied more closely to the economic cycle, meanwhile, have outperformed traditionally defensive stocks recently,

Typically, copper outperforming gold and cyclicals outpacing defensives underscores the potential for building inflationary pressures, putting upward pressure on Treasury yields.

And deGraaf said that what “stands out” to him “is the messaging these industrial metals and cyclicals vs. defensive are conveying about forward yields. (see chart below)”

The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -4.54% was up more than 3 basis points Thursday at 0.843%, after trading at its highest since June. The yield has risen from just above 0.5% in August.

“We know historically that copper and cyclical’s relative strength are usually a harbinger to higher 10-year yields, so we want to be cognizant of their history, particularly with yields bumping against resistance levels,” deGraaf said.

Confirmation is lacking, however, when it comes to the lackluster performance of bank stocks (see chart below) and flatlining 2-year Treasury yields /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -6.91% , which remain mired around 0.15%, deGraaf said.

“We continue to believe that yield optionality makes sense as a hedge to the status quo,” he wrote.

/zigman2/quotes/210059538/delayed
US : U.S.: Nymex
$ 3.40
+0.09 +2.86%
Volume: 17,999
Nov. 27, 2020 1:43p
loading...
/zigman2/quotes/210054311/delayed
US : U.S.: Nymex
$ 3.42
+0.09 +2.75%
Volume: 90,541
Nov. 27, 2020 1:44p
loading...
/zigman2/quotes/201432642/composite
US : U.S.: NYSE
$ 22.69
-0.05 -0.22%
Volume: 16.83M
Nov. 27, 2020 1:00p
P/E Ratio
13.33
Dividend Yield
1.37%
Market Cap
$40.72 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
29,910.37
+37.90 +0.13%
Volume: 178.10M
Nov. 27, 2020 2:07p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,638.35
+8.70 +0.24%
Volume: 1.22B
Nov. 27, 2020 2:07p
loading...
/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
0.85
-0.04 -4.54%
Volume: 0.00
Nov. 27, 2020 2:02p
loading...
/zigman2/quotes/211347045/realtime
add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
0.16
-0.01 -6.91%
Volume: 0.00
Nov. 27, 2020 1:55p
loading...

This Story has 0 Comments
Be the first to comment
More News In
Markets

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.