LONDON (Reuters) – If you believe that “Doctor Copper” is a sensitive gauge of the health of the global economy, then you should be worried. London Metal Exchange (LME) copper fell through the year’s low of $5,725 per tonne on Friday and hit a 26-month low of $5,640 early on Monday.
The trigger for the slump was the latest escalation of the trade stand-off between the United States and China, President Trump announcing the imposition of more tariffs on Chinese goods effective the beginning of next month.
Copper has been used as a proxy for trading the on-off trade talks for some time and funds had amassed a significant short position on the CME copper contract even before Friday’s break-down.
However, what’s troubling Doctor Copper and just about every other LME-traded base metal, with the single exception of nickel, is the accumulating evidence of a global manufacturing downturn.
Quite evidently, an escalation of trade tensions between the world’s two biggest economies is not going to help an already fragile industrial economy. Funds have for many months been expressing their views on the likely success of the trade talks via the CME copper contract.