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The Sky Is Falling. Again. March 22nd, 2019 by John Gross

There is no other logical explanation for the miraculous appearance of 74,650 metric tonnes of copper into LME warehouses in 48 hours.

There is no shortage of negative headlines to weigh on sentiment, and markets.

  • The 3 month and 10 year yield inverts, signaling to some that a recession is on the horizon
  • Thousands take to the streets of London demanding another referendum on Brexit
  • Germany’s manufacturing sector ‘tumbled into contraction’
  • Japan, the world’s 3rd largest economy braces for financial disruption, as the nation will take a rare 10 day holiday in April when Emperor Akihito passes the throne to his son
  • Italy becomes the first G7 nation to endorse China’s ‘Belt and Road Initiative”

First, there is no clear or consistent relationship between various yield relationships and recessions.

As for the other events – They may get worse before they get better, but ‘This Too Shall Pass’.

What is concerning, is that copper on Comex fell back below its nearby support line, as the weekly bar chart illustrates, and is sitting right on the ten week moving average.

Also, the Base Metals Barometer, an index of prices for the entire nonferrous complex was unable to get through resistance, suggesting caution.

Conversely, inventories continue being depleted, with lead, tin, nickel, and zinc at multi year lows.

On a more macro basis, our friends at the International Copper Study Group report that global production of refined copper rose 352,000 mt or 1.5% during 2018 to 23.876 mmt, while consumption climbed 474,000 mt, or 2.0% to 24.263 mmt, resulting in a 387,000 mt deficit, following a 265,000 mt deficit in 2017.

At some point, the market will take notice of the shortfall.

Regards,
John


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