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Copper is missing out on this year’s commodities rally, a sign that investors remain cautious about the health of the global economy despite the stock market’s recent recovery.
Prices of the metal used to build everything from airplanes to smartphones have fallen 6.2% in 2018 after hitting a nearly four-year high late last year. Returns on copper are trailing the S&P GSCI Index of 24 commodities by 17%, the second largest lag for a comparable period in the last 20 years, according to WSJ Market Data Group.
As The Wall Street Journal’s Morning MoneyBeat newsletter noted on Friday, copper’s underperformance is especially notable because oil has added 18% this year and hit its highest level since 2014. Oil and copper are two of the most actively-traded commodities, and some investors trade the two together in a single basket.
Analysts fear that protectionist trade policies will lead to slower activity and ultimately a weaker global economy. That could reduce consumption of materials like copper. Additionally, a possible economic slowdown in China, the world’s largest commodity consumer, is weighing on prices. Production, meanwhile, has remained steady.
Even though tariffs have boosted domestic steel and aluminum prices, some investors are still worried the trade policies will contribute to lower commodity prices and ultimately hurt producers. Recent Chinese data showed fixed-asset investment outside rural households, a gauge of construction activity, rose 7.0% in the January-April period from a year earlier, slower than economists’ median estimate for a 7.4% gain.
“If this is the beginning of a trend and Chinese data starts to underwhelm, you have to ask, ‘Are we about to see things slow down everywhere a little bit more than we had expected?’” said Tyler Richey, co-editor of investment research publication the Sevens Report.
Some commodity bulls think copper is just taking a breather after a furious rally to end 2017, noting that continued gains in oil should lift other materials as well.
Still, many analysts see copper’s lackluster 2018 as another sign that growth momentum has shifted away from a synchronized global expansion and back to the U.S., a trend that has recently pushed up Treasury yields and the dollar and contributed to worries about tighter financial conditions.
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