While you were sleeping: Copper bites the dust

Thursday 15th January 2015

Equities dropped as copper plunged amid concern that the global economic outlook is worsening and after a larger than expected drop in US retail sales.

On Tuesday, the World Bank slashed its forecast for global growth, downgrading its 2015 estimate to 3 percent and its 2016 prediction to 3.3 percent in its twice yearly Global Economic Prospects. That compared with June forecasts for growth of 3.4 percent this year and 3.5 percent next year.

Copper plunged more than 8 percent in London, hitting its lowest level since July 2009. It last traded 5.2 percent lower at US$5,555.25 a tonne in London.

“People have seen oil prices decline so much and now they’re targeting other commodities,” Ivan Szpakowski, an analyst at Citigroup in Hong Kong, told Bloomberg. Copper is falling faster than most other commodities because “it’s the one that is played by the macro investors and by people who are looking at the broader picture rather than commodity fundamentals.”

As a result, shares of copper producers tumbled as well. Shares of Freeport-McMoRan plunged 13.1 percent in New York, while in London shares of Glencore and those of Anglo American plummeted 9.3 percent and 9 percent respectively.

In afternoon trading in New York, the Dow Jones Industrial Average sank 1.53 percent, the Standard & Poor’s 500 Index dropped 1.22 percent, while the Nasdaq Composite Index shed 0.90 percent.

Slides in shares of Wal-Mart and those of Exxon Mobil, down 2.6 percent and 2.4 percent respectively, propelled the Dow lower.

And there was disappointment too for the US economy. A Commerce Department report showed retail sales dropped a larger than expected 0.9 percent in December, after a 0.4 percent gain in November that was smaller than previously estimated. Economists had forecast a 0.1 percent decline last month.

"People had thought lower oil prices would help consumer spending," Stanley Sun, interest rate strategist at Nomura Securities International in New York, told Reuters.

While the report prompted some economists to downgrade their fourth quarter growth estimates, optimism about the US economy prevailed.

"This isn't the start of a collapse in activity as that doesn't fit with the strength of employment growth and consumer confidence,” Paul Diggle, an economist at Capital Economics in London, told Reuters. “Retail sales will strengthen again before too long.”

And the latest corporate earnings disappointed too. Shares of JPMorgan Chase dropped 5.4 percent after posting a 6.6 percent drop in fourth quarter profit amid bigger than expected legal fees and a decline in fixed income trading revenue.

In Europe, the Stoxx 600 Index ended the session with a 1.5 percent decline from the previous close. Germany’s DAX Index fell 1.3 percent, France’s CAC 40 Index retreated 1.6 percent, while the UK’s FTSE 100 Index lost 2.4 percent.

Leading the losses in the FTSE 100 were shares of Glencore and Anglo American.

BusinessDesk.co.nz

Comments from our readers

No comments yet