- Copper is often seen as a guide to global economic activity, owing to its widespread use
- Industrial metal is poised to move above $9,000 a tonne
- CRB Commodities index could also be nearing a break-out
- Raw materials prices may suggest central banks are preparing to cut interest rates too early and risk a resurgence of inflation
“Market-watchers often refer to copper as ‘Doctor Copper’ because the metal’s malleability, ductility and conductivity means it is used across so many industries and can therefore be seen as a guide to global economic health,” says AJ Bell investment director Russ Mould. “Copper’s march toward $9,000 a tonne therefore catches the eye, especially as it comes at a time of ongoing concern over demand from China, the world’s second-largest economy.
“Such strength suggests the global economy may be in ruder health than many believe, or at least that it is back on track after the chaos caused by the pandemic, lockdowns, clogged shipping lanes and fractured supply chains over the past four years.
Source: LSEG Datastream data
“This in turn suggests that Western central banks may be playing with fire if they cut interest rates too early. If raw material prices surge once more that could feed into producer price and finally consumer price inflation, in an uncanny echo of the waves of inflation suffered by the USA and UK in the 1970s (when oil price shocks had a major part to play, thanks to the geopolitical after-effects of the 1973 Yom Kippur war and the fall of the Shah of Iran in 1979).
Source: LSEG Datastream data, FRED – St. Louis Federal Reserve database, Office for National Statistics
“Investors and commodity traders seem aware of the possibilities because it is not just the copper price that is showing strong momentum. The CRB Commodities index, a benchmark based upon the price of nineteen raw materials spread across energy, agriculture and industrial and precious metals, is on the verge of setting a new five-year high.
Source: LSEG Datastream data
“This does not sit entirely easily with equity markets’ preferred narrative of cooler inflation, a soft economic landing and interest rate cuts from central banks. And, if commodity prices maintain their current trajectory, nor does it fit with how mining shares continue to massively underperform wider share markets – the FTSE All-Share Industrial Metals and Mining index is up by just 8% over the past five years, whereas the FTSE All-World is up by half. Miners have markedly underperformed but a period of inflation could bring ‘hard’ assets back onto investors’ radar, just as happened in the 1970s.”
Source: LSEG Datastream data
