Copper: Here’s Exactly Why It’s So Hot
Nonfarm payrolls
in May rose 78,000, far less than the 185K expected. It is the smallest gain
since August 2003 and fueled speculation that the Fed may be close to ending its
rate hikes. There were no revisions for April.
Unemployment was 5.1%, slightly lower than consensus. Earnings rose 0.2%. The
dollar fell, treasuries are higher. The 10-year note is at the lowest level
since March 2004. The ISM Index for May came in at 58.5, less than
expected.
Copper made a 16-year high as global inventories fell to the lowest
levels since May 1988 and demand continues to outpace production. Copper prices
have risen 25% this year–7.3% this week alone and up 10 straight days.
Construction is the biggest user of copper (40%), with the
Copper Development Association estimating the average U.S. home contains 400
pounds. Copper is also moving on the expectation that interest rate increases in
the U.S. may be over. Chile is the world’s #1 producer at 25%.
Crude rose to over $54/barrel. As fear of gas supplies
fades, the new fear seems to be heating oil–specifically the adecuacy of
supplies to meet Q4 demand. Inventories are at about the same levels as last
year at this time.
Italian Welfare Minister Roberto Maroni said the country should consider
dropping the euro. He said
the euro
“has proved inadequate in the face of the economic
slowdown, the loss of competitiveness and the job crisis,” and blamed ECB
President Trichet. The euro has fallen recently after both France
and the Netherlands voted against the European constitution.