US data weighs on copper

Copper started the day on a positive note, but drifted lower after disappointing economic data emerged from the US.

Copper had received a boost overnight, after the Chinese HSBC manufacturing purchasing manufacturing (PMI) report came in above analysts’ estimates. The October reading of 50.9 compares with a September figure of 50.2. Traders initially bought copper, encouraged by the fact that the manufacturing sector in China is at a seven-month high. But the release of weaker-than-expected updates from the US then prompted dealers to take their profit early.

The number of people claiming unemployment benefit in the US dropped by 12,000, which is a sign that the country’s economy is improving. However, the number fell short of the estimated 19,000 drop. In addition, the US flash manufacturing report came in at 51.1 in October, while analysts were expecting a level of 52.8. This prompted traders to sell copper, as it indicates a drop in demand.

Away from economic data, the cost of borrowing on the Chinese interbank market is at its highest level since June. Yesterday the largest bank in China posted a threefold increase in bad debts. If the cost of borrowing for Chinese banks continues to increase, we could see a sell-off in copper.

High-grade copper chart

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