Copper and base metals drop in week ended October 30
In the week ended October 30, 2015, copper and all base metals dropped significantly. The hawkish FOMC (Federal Open Market Committee) meeting statement released on October 28 and the copper demand worries from China resulted in a weak performance for base metals.
Interest rates remain unchanged
The Fed left the interest rates unchanged and removed this sentence from its last statement: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” This indicates that the Fed is less worried about the impact of global economies on the United States and increased the probability of an interest rate hike at the December FOMC meeting.
What happens to copper if the Fed raises interest rates in December?
The FOMC December meeting is scheduled for December 15–16, 2015, to reconsider the interest rate hike. In the September meeting, the FOMC decided against an interest rate hike because of uncertainty over China’s economic health. In the last meeting held in October, the hawkish statement made the market expect an interest rate hike in December. A hike in interest rates will strengthen the US dollar and thus result in a fall in copper prices.
The timing of the interest rate hike decision has been the main topic of discussion in 2015, and the market is expecting a hike in December. The outcome of the FOMC meeting will impact all major base metal mining companies such as BHP Billiton (BHP), Glencore (GLEN), Freeport-McMoRan (FCX), and Rio Tinto (RIO). It will also affect base metal ETFs such as the PowerShares DB Base Metals ETF (DBB).
In the week ended October 30, all major base metal mining companies and ETFs closed in the red because of the weak performance of copper and base metals.