STRONG ECONONIC NEWS IN CHINA BOOSTS BASE METALS -- MINING ETFS ARE HAVING A STRONG DAY -- SO ARE IRON ORE MINERS BHP BILLITON AND RIO TINTO -- CHINA MAY IMPORT MORE AGRICULTURAL COMMODITIES TO OFFSET SHORTAGES -- HIGHER FOOD PRICES MAY BE IN THE PIPELINE
CHINESE ECONOMY EXCEEDS EXPECTATIONS... China's economy grew by 6.9% during the second quarter which exceeded market expectations. That's one of the explanations behind today's jump in industrial metals like copper, iron ore, and zinc. Mining stocks that produce those commodities are also having a strong day. Chart 1 shows the PowerShares Base Metals Fund (DBB) climbing today to the highest level in more than three months. The DBB includes prices of aluminum, copper, and zinc. Chart 1 also shows that the spring correction in the DBB found support at its 200-day average (red arrow). It's now well above both moving average lines, and the 50-day average is higher than its 200-day. All of which are bullish. The monthly bars in Chart 2 show that the early 2016 bottom in the DBB bounced off major support from a previous low made at the start of 2009. The DBB has risen 30% since then which qualifies as a bull market (defined as a gain of 20%). In addition, the DBB has risen above a falling trending starting back in 2011. And it may be on the verge of reaching the highest level since 2014. �dd industrial metals to the list of commodities that appear to have bottomed and look to be heading higher. So do miners of those commodities.
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Chart 1
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Chart 2
S&P METALS AND MINING SPDR TURNS UP -- SO DOES COPX... The daily bars in Chart 3 show the S&P Metals and Mining SPDR (XME) climbing today to the highest level in four months. Its relative strength line (top of chart) has started climbing again as well. The only negative on the daily chart is the 50-day moving average being below its 200-day line. That, however, may be corrected in short order if prices continue to climb. One problem with the XME is that is heavily weighted in steel stocks (50%). For those wishing more exposure to copper, Chart 4 shows the Global X Copper Miners ETF (COPX), which is also in rally mode. The COPX includes Freeport McMoran (FCX) and Southern Copper (SCCO) both of which are having a strong day. The monthly bars in Chart 5 show the price of copper (the red metal) rising above a five-year resistance line last year to end its prior bear market. It wouldn't take much to boost it to a two-year high. [Chart 5 is plotted through Friday. Copper is trading higher today]. So is iron ore.
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Chart 3
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Chart 4
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Chart 5
BHP BILLITON AND RIO TINTO LOOK STRONG... Iron ore miners are also benefiting from a stronger Chinese economy since that country is a big buyer of that commodity. The weekly bars in Chart 6 show BHP Billiton (BHP) trading higher today and not far from reaching the highest level in two years. The monthly bars in Chart 7 show Rio Tinto (RIO) in the process of rising above a major resistance line drawn over its 2011/2014 highs (and near a three year high). That would make for a pretty impressive breakout. Stronger industrial metals carry good and bad news. The good news is that higher prices signal a stronger global economy. The bad news is that rising prices are inflationary which could also result in higher interest rates and more aggressive central bankers. China isn't just boosting base metals. China buying may also start boosting agricultural commodities.
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Chart 6
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Chart 7
CHINA MAY NEED TO IMPORT AGRICULTURAL COMMODITIES ... I wrote last week about upturns in grain prices owing to bad global weather conditions. I also showed an upturn in livestock prices. All of which suggest higher food prices. So I read with great interest a Friday Wall Street Article entitled "Agricultural Overhauls to Lift China Imports". The article explains that changes in the way Chinese farmers are compensated has led to shortages in that country in corn, cotton, soybeans, and sugar. That could lead to more Chinese imports of feed grains and livestock, as well as other agricultural commodities. And higher prices. Speaking of higher prices, a WSJ article today headlined: "Bacon Craze Pushes Up Prices" explained that prices for pork bellies have risen to record highs. [That's the part of a hog that bacon comes from]. Maybe that's why hog prices traded in Chicago recently hit a 2 1/2 year high. I showed corn and wheat prices climbing last week. Chart 8 shows the November soybeans futures contract also jumping. It sure looks like some food inflation is in the pipeline. Better do some food shopping while there's still time. I wonder if anyone on the Fed does any shopping. And if he or she likes bacon.
