In August, copper – known as “Doctor Copper” for its forecasting ability – was plunging in unison with aluminum and oil, signaling a pothole in global demand. China’s growth was stumbling, according to non-government-sourced data. Markets panicked until stimulus became evident, after which growth assets recovered. By then, the yuan’s surprise devaluation was beginning to be understood as a move to replace its crawling peg to a surging US dollar with a new goal of seeking stability versus a trade-weighted basket.
Another plunge in oil and softness in the yuan feels like déjà vu. Yet copper and aluminum are strengthening this time. So this episode is not about global demand. Instead, there appears to be a spike in oil supply. The removal of OPEC’s production ceiling has unleashed incremental supply from OPEC and Russia.
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