The Dow Jones-UBS Copper Subindex Total ReturnService Mark is a sub-index of the Dow Jones-UBS Commodity Index Total ReturnService Mark and reflects the returns that are potentially available through an unleveraged investment in the futures contracts on physical commodities comprising the index plus the rate of interest that could be earned on cash collateral invested in specified Treasury Bills. The index includes the contract in the Dow Jones-UBS Commodity Index Total ReturnService Mark that relates to a single commodity, copper (currently the Copper High Grade futures contract traded on the COMEX).
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A sharp reversal in commodities over the last hour has brought the entire sector into the red. Gold (GLD -0.6%) - looking like it was set to challenge $1,500/oz. an hour ago - is back to $1,452/oz. Silver (SLV -2.3%). WTI crude (USO -1.2%) falls to $92.46. Copper (JJC -1.9%) dives back to $3.18/lb.
Goldman Sachs cuts its forecast for copper prices this year, citing rising global stocks and mounting worries regarding China's growth outlook, but says the selloff in Freeport McMoRan (FCX -0.4%) looks overdone. The firm maintains its Buy rating for FCX but lowers its 2013 and 2014 EPS estimates to $3.35 from $4.53 and to $3 from $3.20, respectively.
Goldman gets bullish on copper albeit at a lower price point. After a 13% YTD decline the selloff is "overdone," according to the investment bank which cut its three-, six-, and 12-month estimates to $7,500, $8,000, and $7,000 per metric ton respectively. Although some demand concerns are warranted given the cooling of China's economy, "underlying cyclical growth is likely stronger than the headline figures suggest." (Previously: a bear market in copper)
Dr. Copper's diagnosis for the world economy: It isn't well. Copper ended the week wallowing in bear market territory after top copper consumer China reported slower-than-expected economic growth. At this point, weak demand and robust supplies could continue to put pressure on copper prices, or heavy short selling may dry up and spur a strong rebound.
Freeport McMoRan (FCX) is downgraded to Sell from Neutral with a $25 price target, down from $35, at Citigroup, which cuts estimates for 2014 copper pricing by 13% and warns FCX is likely to have "minimal" free cash flow over the next two years. Mining shares are broadly lower premarket following China's slowing GDP growth and commodity selloff; FCX -4.1%.
China's GDP miss and disappointing industrial production data are sending global equity markets lower, as well as copper and oil, which is also suffering from the IEA slightly cutting its demand outlook last week. Japan -1.6%, Hong Kong -1.4%, China -1.1%, India +0.6%. EU Stoxx 50 -0.2%, London -1%, Paris -0.8%, Frankfurt -0.8%, Milan -0.2%, Madrid -0.4%. Oil -2.4%, copper -1.5%.
A slide in commodity prices turns into a rout: GLD -3.2%, SLV -4.2%, USO -3%, Copper (JJC) -2.2%. At $1,506/oz., gold is threatening a $1,400 handle for the first time in nearly 2 years. After an early bounce, stocks move to session lows, the S&P 500 -0.7%. The long bond gains three-quarters of a full point, its yield down to a 2013 low of 2.93%. Update at 11:05: Now off 4.3%, gold slips below $1,500.
Hedge funds are the most bearish ever on copper as global inventories expand to a nine-year high; speculators raised net short positions in U.S. copper futures and options by 53% to nearly 26K contracts in last week. “We’re sitting on unprecedented stockpiles," BMO's Jack Albin says. “Demand has been pretty tepid... In the global economy, we’re seeing improving growth, but it’s still at a slow rate."
Copper prices hit a new 2013 low today, tumbling 2.6% as "the Cyprus news highlights what many investors would like to forget: that the region’s debt problems are ongoing... and that a solution continues to be elusive." This adds to continued China worries, as "more and more copper is piling up in warehouses." Unlike in the stock market, the slightest bit of bad news is enough to weigh on copper.
The stock market rally is missing what historically has been a key element: a house call from Dr. Copper. Falling copper prices mean "a booming economy isn't around the corner," Michael Pento says, suggesting the rally may be ahead of itself. Goldman thinks a China-related price drop is excessive, but China bears such as Jim Chanos see "ghost cities" and worry about inflated demand about to collapse.
BlackRock moves ahead of JPMorgan, winning approval to launch a physically-backed copper ETF (the iShares Copper Trust) even as JPMorgan's offering remains in regulatory limbo. Copper consumers worry the products will remove a large chunk of the metal from available supply, but one analyst says they would have to be hugely popular to make a dent.
Non-agricultural commodities sell off sharply across the board. GLD -1.4%, SLV -2.3%, USO -2%, JJC -1.1%. Lumber futures -2.5%. Chatter circulates of a troubled hedge fund being forced to exit. Broad commodity ETF: DBC -0.9%.
Copper investors are spooked after China authorities took steps to ease inflationary pressures, tightening liquidity by reversing policy on repos and draining $4.8B from the system. The move has affected shares of Freeport McMoRan (FCX -2.3%) and Southern Copper (SCCO -2.3%); China equities (FXI -2.1%) also are under pressure.
Two large consumers of copper - one is Encore Wire (WIRE) - launch a legal challenge to the SEC's approval of a JPMorgan physically-backed copper ETF, saying the fund will inflate prices and distort supplies. The suit comes just as regulators are set to give (or deny) the go-ahead to a similar ETF planned by BlackRock.
Expect an appeal of the SEC decision to allow JPMorgan to launch a physical copper ETF. The SEC move was "not based on substantial evidence and is therefore arbitrary and capricious," say a group of copper users who together account for about half of U.S. demand. Curious to the consumers is the SEC decision to meet with JPM execs, but not them in the days ahead of the decision.