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Copper - The Barometer For China; FCX Is A Bet The Trade Trumps The Virus


The price declines to a slightly higher low.

* Coronavirus and the Chinese economy.

* Lots of volatility in warehouse stocks.

* FCX is hanging in there.

Three reasons to trade the red metal with a bias to the long side.

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All eyes remain on China these days. The economy of the world's most populous nation with the second-leading GDP began to run into problems five years ago. In late 2015 and early 2016, the slowdown in Chinese economic growth weighed in markets across all asset classes. Since China is the top copper consumer in the world, the price of the red metal declined to a multiyear low of $1.9355 per pound in January 2016.

The world had become accustomed to double-digit economic growth in China, but as the economy grew, it became impossible to sustain that level of economic expansion. In 2016, Chinese President Xi rolled out the "new normal," a program that lowered expectations and shifted sentiment from the days of double-digit GDP increases to sustained growth around the 6% level.

In 2018 and 2019, the escalating trade war between the US and China caused another period of risk-off action in markets. At the same time, protests in Hong Kong added fuel to the fire that weighed on the Chinese economy. In early 2020, the situation in Hong Kong calmed, and the US and Chinese signed a "phase one" trade deal that de-escalated the trade war, causing optimism over economic growth to rise. The price of copper moved from below $2.50 per pound in early September to just under the $2.90 level on the nearby COMEX futures contract. Meanwhile, the outbreak of Coronavirus poses a new threat to the Chinese economy these days.

Freeport-McMoRan (FCX) is one of the leading producers of copper in the world. FCX shares move higher and lower with the price of the red metal.

The price declines to a slightly higher low
In August 2019, US President Donald Trump became frustrated with the pace of trade negotiations with China and Chinese backtracking during the process. The President sent a message by slapping new tariffs on China, escalating the trade war to a boiling point. China retaliated, and the rhetoric flew back and forth between Washington and Beijing. Fears that protectionism would cause a global recession gripped markets across all asset classes. Since China is the demand side of the fundamental equation in the copper market, the price of the red metal fell to a low of $2.4675 per pound in early September, the lowest price since December 2016.

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