RISING CHINESE STOCKS PULL COPPER HIGHER -- ALONG WITH COPPER PRODUCERS -- FREEPORT MCMORAN IS DAY'S SPX LEADER
CHINESE STOCKS AND COPPER HAVE BEEN RISING TOGETHER...This morning's message showed the Shanghai Stock Index surging to the highest level in two years; and mentioned that was also good for copper prices. This message elaborates a bit more on the relationship between the two. The red bars in Chart 1 show the Shanghai Stock Index (plotted through last Thursday) rising above its January peak to reach the highest level in more than a year. The solid area plots the price of copper which has risen along with Chinese stocks since their March bottom. The chart shows a strong visual correlation betweenthe two markets. There's also a strong statistical correlation. The line in the lower box shows a 60-day Correlation Coeffienct of .92 between the two over the last twenty months. That means that the two markets have trended in the same direction 92% of the time. The reason for that strong relationship is that China is the world's biggest buyer of copper. When the Chinese economy is strong (reflected by strong Chinese stocks), it usually imports more copper to use for construction. The relationship becomes even stronger when the Chinese currency is also rising; which it's been doing for the last two months. That makes copper imports more affordable.
THAT ALSO HELPS COPPER PRODUCERS... Producers of copper have been rising with the commodity. The daily bars in Chart 2 show the Dow Jones US Nonferrous Metals Index surging nearly 10% today to the highest level since February. That makes it one of the day's standout performers in the market. The line in the upper box is a ratio of that index of copper producers to the S&P 500 and has been rising since March along with the price of copper. Copper producers are also the strongest part of the Materials Sector SPDR (XLB) which has started rising of late. And explains why Freeport McMoran (FCX) is the biggest percentage gainer in the S&P 500 today.
FREEPORT MCMORAN LEADS THE SPX HIGHER... Chart 3 shows Freeport-McMoran (FCX) jumping nearly 10% to reach the highest level since February. It's also the biggest percentage gainer in the S&P 500 today. Its relative strength line in the upper chart has been rising since March along with with theprice of copper; and Chinese stocks. Current holders of that stock have stronger Chinese stocks to thank for most of their recent profits. Rising copper prices may also be viewed as a vote of confidence in the global economy.
