When Dr.Copper is surging, there is no better indication of the world’s economic growth success. However, when Dr.Copper is not surging, it is largely ignored and shrugged off as transitory, inventory- or technical-driven weakness that ‘bucks’ the obvious trend of global growth.
Except that’s total bullshit and the fact that the last 4 weeks have seen the biggest collapse in copper prices since 2011 suggests all is definitely not well in the global synchronous growth narrative.
Furthermore, as Bloomberg notes, just when emerging markets were showing some green shoots, the latest trade attack on Chinese imports by the White House has all the signs of a rally-killer.
Copper’s largest drop since February and Brent prices bolted firmly above the $75 make the outlook for MSCI EM look more like an extension of last month’s buyers’ drought.
Using Dr. Copper as a proxy for global growth should give some big scares to those hoping that more developed EMs like Mexico and South Korea could make it through a trade slowdown relatively unscathed.
Its read-across for other metals darken the horizon for raw materials exporters like Chile and South Africa. Add to that rising fuel prices are making it more expensive to run the trucks and generators and vulnerabilities like those facing Turkey are magnified. And to think, the market hasn’t even seen China’s response yet.
The last time this kind of drop occurred in Copper and a global growth scare hit, The Fed unleashed Operation Twist and shortly after that QE3.
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Author: Tyler Durden