Copper is oh-so-close to adding to inflation fears. The metal is on the verge of breaking out of this year's trading range, and colleague Mark Burton reports that technically-driven copper strategies are giving buy signals.
Here's the rub about metals-driven inflation. Normally, where copper goes, the broader Bloomberg Industrial Metals sub-index goes, given their 40-period correlation is typically 0.75 or higher. However, since mid-April the relationship has fallen apart, to the point where correlation is at a 22-year low. The only time it ever turned negative was for a few days in September 1994.
Regarding the nickname "Dr Copper" ... investors say the metal has a Ph.D in economics because it can provide the turning point of the global economy. I'm not entirely sure about all of this, but I see a strong correlation between it and the emerging markets (EM Stocks). Looking at the graphs of the Emerging Markets Index Fund EEM and the Copper Futures chart for the past 13 years, it is clear that both are generally identical.
I think it's easy to say that what copper did, EM shares follow. Here's a closer look at Copper. Breakthrough of this annual consolidation will increase purchases and the price is expected to jump. Based on the weight of evidence, current Copper levels should be observed briefly. If the price keeps and fails to break, we expect lowering. It breaks - new peaks. As can be seen from the graph, EM stocks are in a period of mild correction, but Dr. Copper can breathe new life into this market. If Copper falls below these levels, it's definitely a whipping theory, so I think it's important to keep track of what will happen at the beginning of the third quarter.
Source: Bloomberg Pro Terminal
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