Wednesday, March 12, 2014

Is Copper Still A Good "Tell"?

Markets are mixed again in early trading.  Most indexes are lower, but the Nasdaq is slightly higher and bucking the overall weakness.

Again there is not much in the way of market moving data in terms of economic news.  There were a couple of retail earnings reports this morning showing the same weakness we have seen lately.  So markets took their cue from overseas action which has been mostly to the downside overnight.

One thing that has come into focus has been the weakness in copper prices.  Copper is often seen as a barometer for the global economy, but in recent years its price fluctuations have been distorted by heavy buying from the Chinese.  So the fact that copper prices have fallen to lows not seen since mid-2010 has some questioning if this is part of the China slowdown thesis.

Emerging markets are not trading well this year.  And China has dropped some hints that growth is slowing, even as some govt officials try to hold on to the 7.5% growth thesis.  So this theme bears watching, and includes the triumvirate of how copper, China, and emerging markets trade going forward.

Asian markets were lower overnight, led by a -2.6% drop in Japan.  The Japanese yen strengthened overnight after some hawkish comments from the Bank of Japan.  Also, S. Korea's unemployment jumped to 3.9% from 3.2%.

Europe is also mostly lower today.  Eurozone industrial production fell -0.2%.

Oil prices have fallen back below the $100 level to $98.47 currently.  And gold prices are higher near $1365.

The 10-year yield had gotten above its 50-day yesterday but has fallen back below that resistance to 2.74% so far.  And the volatility index was above 15 earlier but has also eased back to 14.50.

Trading comment: Lots of folks continue to come on CNBC calling for a big pullback in the market.  Yet the stair-step action continues.  We are still operating under the same theses that we have written about recently.  Adding to leading stocks on pullbacks, staying away from broken stocks and laggards, and trying to keep our fixed income purchases short in duration as we anticipate a pickup in economic growth in 2H14 and a concurrent rise in bond yields.


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