Wall Street wanes as tech rebound fades; copper dulls

NEW YORK - Wall Street pulled back on Tuesday as a technology stock rebound lost steam and enthusiasm from a tax-cut proposal waned, while copper prices fell steeply to their lowest point in 2 months.

The US Treasury yield curve flattened, with the difference between the yields on 5- and 30-year debt hitting its lowest in a decade.

A flatter yield curve is often an sign of worries about the economy, while market watchers also pointed to the drop in copper, which is an indicator of global demand, as another potential broader concern.

Wall Street's main indexes closed lower. Investors have been switching their bets among sectors in recent days capitalize on a US tax-cut package moving swiftly through Congress.

“We are still trying to sort out the winners and losers under tax legislation,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

Meanwhile, Tuz said, investors may be selling their stock winners from this year's record-setting rally "to lock some of that in or diversify some of it away into things that had not done as well."

The Dow Jones Industrial Average fell 109.41 points, or 0.45 percent, to 24,180.64, the S&P 500 lost 9.87 points, or 0.37 percent, to 2,629.57 and the Nasdaq Composite dropped 13.15 points, or 0.19 percent, to 6,762.21.

The S&P technology sector, which has lost momentum in recent days, rose 0.2 percent and was the only major group to end in positive territory. But the sector finished well below its session highs.

Investors have been selling technology shares recently, bidding up prices for banks, telecoms and transports in a rotation into groups expected to particularly benefit from passage of U.S. bill designed to slash corporate taxes.

The Republican-controlled U.S. House of Representatives voted on Monday to go to conference on tax legislation with the Senate, moving Congress another step closer to a final bill.

In Europe, the pan-European FTSEurofirst 300 index lost 0.12 percent, after posting its biggest gain in more than a month on Monday.

Europe's STOXX 600 technology index rose 0.6 percent.

MSCI's gauge of stocks across the globe shed 0.31 percent.

Copper lost 4.31 percent to $6,531.50 a ton as inventories rose, its biggest single-session decline in more than 2 years. Other metals, such as nickel and zinc, also fell.

Copper prices were also pressured by recent strength in the dollar, with many commodities denominated in the US currency.

“Today is copper traders questioning whether or not global growth is as strong as they were thinking," said William Delwiche, investment strategist at Baird in Milwaukee. "They are looking at the inability of bond yields to make a sustained move higher and causing them to question the strength in the economy.”

The dollar rose for a second straight session as the currency continued to benefit from optimism surrounding US tax reform.

The dollar index rose 0.12 percent, with the euro down 0.33 percent to $1.1825.

Benchmark 10-year notes last rose 7/32 in price to yield 2.3545 percent, from 2.379 percent late on Monday.

Oil rose, supported by strong demand, expectations of a drop in US crude inventories and an OPEC-led deal to extend oil output cuts.

US crude rose 0.38 percent to $57.69 per barrel and Brent was last at $62.94, up 0.78 percent on the day.

Spot gold dropped 0.7 percent to $1,266.63 an ounce.

source: news.abs-cbn.com

Is copper's plunge a bad omen for world economy?

NEW YORK - The price of copper, the metal often regarded as a benchmark of global industrial demand, has taken an 8-percent dive this week to its lowest levels in 5 1/2 years - and in doing so ignited an argument about whether an already punch-drunk world economy is about to suffer another sharp blow.

On one side of the debate are some investors who believe the plunge in the price of the metal known as "Dr. Copper" is reflecting new and ominous signs about the health of China's economy. On the other are traders and economists who see it as simply a schism of little relevance to the fate of global growth.

For money managers handling billions of dollars of clients' cash, the sell-off that has pushed copper into bear territory is a turning point, reinforcing fears of a prolonged downward spiral - concerns already fueled by the collapse in the price of crude oil. The Chinese economy's strength has been one of the few engines driving the global economy since the financial crisis.

"They don't call it "Dr. Copper" for nothing," said Jeffrey Gundlach, co-founder of DoubleLine Capital, which oversees $64 billion in assets under management. "The drop in copper simultaneous with the collapse in crude oil can only be interpreted as an indication of slowing global growth."

To Daniel Alpert, founding managing partner of investment banking firm Westwood Capital LLC, the plunge in the price of oil, and now copper, is a clearer sign of inadequate global demand rather than a sudden leap in supply. "The imbalances have been there through and after the Great Recession, but have been masked to some extent by central bank mega-easing. The mask has been removed and the markets are reacting accordingly,” he said.

Not so fast, say many copper traders and analysts, who have been closely tracking copper's long, slow grind lower over the past two years as Beijing has reined in credit and taken measures to prevent its housing market from going from a boom to a bust.

While copper's fortunes have largely tracked those of China for the past decade, this week's meltdown appears more rooted in a conflation of bearish factors: a flight by Chinese hedge funds from commodities; fears about oil-related contagion; and a seasonal dip in demand ahead of the Chinese Lunar New Year.

The plunge was "driven by investor panic rather than the sudden deterioration in fundamentals and, as such, it could be swiftly reversed," said Capital Economics chief global economist Julian Jessop.

To be sure, the pace and size of the sell-off shocked traders as prices dived more than $500 per tonne in early Asian trading a day ago. While a downgrade in the World Bank's global economic growth forecasts contributed to the bearish mood, traders said the selling had been overdone.

LEADING OR LAGGING?

Widely used across the industrial economy for everything from electrical wiring to plumbing, copper's reputation as a bellwether for the world economy is well-earned, but in more recent years it has become most heavily swayed by China alone.

Feeding the country's construction industry, China accounts for about 40 percent of the world's consumption. Prices surged from $3,000 per tonne a decade ago to a peak of $10,000 in 2011.

On Wednesday they fell over 5 percent to close at $5,353 a tonne, slicing through key support levels and unleashing a wave of computer-generated sale orders. The sell-off spooked financial markets, with U.S. stocks falling as much as 2 percent and shares in copper miners like Glencore.L and Freeport-McMoRan Inc suffering declines of 9-11 percent.

To be sure, some of the weakness in copper stems from slowing growth in the Chinese economy. Last week, Beijing introduced new rebates on export taxes for some copper products, measures aimed at easing domestic oversupply that has developed as demand slowed and capacity expanded.

Yet while demand growth in China is slowing, it's coming from record highs. The Chinese economy is still expected to grow at a 7-percent clip this year - much slower than the double-digit growth rates of a few years ago as it transitions away from an investment-led and export-driven growth model to a more balanced economy with the domestic consumer playing a bigger role.

Traders saw little sign that the exit of Chinese speculative cash was a harbinger of a deeper exodus or of a seismic shift in demand or supply, though they did say it reflected the increasing influence of Chinese funds.

"Chinese funds displayed their power. They can smash the market," said INTL FCStone analyst Ed Meir in New York.

Last March, hefty selling by secretive funds in the country triggered a three-day drop in prices, rattling traders, but the episode did not have a long-lasting impact on the market.

The first quarter is often weak as fabricators buy less copper ahead of the week-long Chinese New Year holiday, which this year is in late February.

"The sky hasn't fallen in," said Leon Westgate, base metals strategist at Standard Bank.

"The key will be whether prices hold around here. That will be a better indicator than today's knee-jerk reaction," he said.

source: www.abs-cbnnews.com