Is the recession coming ?: A bad omen from “Dr. Coppera “

Status: 07/15/2022 09:48

His nickname is not accidental: “Dr. “Copper”, or copper, is considered to be one of the best leading indicators of the economy. As a result, the world economy is headed straight into recession.

Author: Angela Göpfert,

If you want to know how the world economy is really doing, you should take a look at the commodity markets: the price of copper is considered a very sensitive barometer on the state of the world economy. “Copper is a pioneer, a leading indicator,” explains market expert Robert Rethfeld of Wellenreiter-Invest in an interview.

No wonder, as the shiny red industrial metal is used in the electrical industry, mechanical engineering, construction and vehicle construction, among others. If demand falls here, the price of copper falls directly, even before the weakening economy is reflected in falling growth rates.

Disturbing diagnosis of “Dr. Copper”

In the English-speaking world, the term “Dr. Copper “. However, Dr. Copper’s diagnosis of the global economy does not sound comforting. As the price of copper has been in a downward trend since its record high in March; since the beginning of June the downward dynamics has significantly intensified again.

In the middle of the week, the base metal price dropped to $ 7,202.50 per ton. Copper has not been trading that low for a year and a half. Since its peak in March, the minus is around 30%. Experts see this as a symptom that the world economy is not doing well.

Industrial metals in a downward trend

“The price of copper is a signal that inflation may have peaked,” explains market expert Rethfeld. “If copper continues to fall, the momentum for recession will increase.” Especially since not only copper is under pressure, but also other industrial metals. “Metals remain in a downtrend.”

For market expert Robert Rethfeld of Wellenreiter-Invest, the price of copper is a reliable leading economic indicator.

Photo: Wave Rider Invest

Commerzbank raw materials expert Carsten Fritsch is also convinced: “Overall, there are still concerns about a global recession in the metals markets.” A significant increase in the number of kroner in Shanghai would raise concerns that there will be re-lockdowns, which is likely to affect the demand for industrial goods.

Goldman Sachs is lowering its target copper price

Even experts at Goldman Sachs now have to admit that things have changed with industrial metals in general and copper in particular. Raw material analysts from the US investment bank, who until recently predicted bottlenecks in the copper market, and thus price increases, had to sharply withdraw this week.

The former copper bulls drastically lowered their target price for the copper price. After the last $ 8,650 / tonne, they now expect copper prices to be $ 6,700 / ton in the next three months.

According to experts led by Nicholas Snowdon, global energy shortages, which tend to escalate in winter, threaten global growth. As the energy crisis in Europe deepens, both consumer spending and industrial activity are likely to collapse significantly.

Gas bottlenecks in Europe as a risk factor

Bank of America colleagues, who were also previously optimistic, drastically lowered their copper forecasts last week. In the worst case scenario, with common bottlenecks in Europe, they currently expect copper prices to be USD 4,500 per ton. Compared to the current level, this would be another decrease of almost 40%.

But it’s not just the price of copper that is pointing to recession at the moment. Support for this view also comes from the bond markets, unlike the market expert Rethfeld stresses: “The yield curve has become much more inverted again since the release of the latest US inflation data.”

Recession signals also from the bond market

Experts talk about an inverted yield curve when the yield on two-year US government bonds exceeds the yield on ten-year bonds. In the past, the bond market has proven to be a reliable early indicator of an economic slowdown: according to a study by the Federal Reserve Bank of San Francisco, every economic downturn in the US since 1955, with one exception, has been preceded by an inverted yield curve.

“There is a strong signal of recession in the bond markets,” Rethfeld emphasizes. The development of copper and bonds is very consistent and goes in the same direction. ‘

Low copper levels would be positive for the economy and equities

Moreover, from a technical point of view, the red metal still has a downside potential. Technical analysts at HSBC Trinkaus & Burkhardt say the price of copper has not held up on the old uptrend since 2001.

Persistent lows in copper prices would not only be a positive signal for the global economy. – Then we would also see the end of the bear market in equities – emphasizes the market expert Rethfeld, referring to the financial crisis: At that time, the price of copper was already the lowest in December 2008, and the stock markets followed it for three months. later in March 2009.

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