Demand for commodities
Chinese data last week pointed to slow growth in China’s manufacturing and service sectors. Responses to the figures were clear in the Chinese stock markets. There are now concerns in some countries, both developed and developing, that have trade relations with China. Due to uncertainty about the demand for commodities during China’s slow growth, along with the rising strength of the US dollar, dollar-denominated commodities were hurt.
Alcoa down 2.4%
All the mining stocks, including Alcoa (AA), Newmont Mining (NEM), Freeport-McMoRan (FCX), Nucor (NUE), and Allegheny Technologies (ATI), tumbled on January 8. These stocks yielded -2.4%, -4.5%, -3.6%, -2.4%, and -0.4%, respectively, on the day. The trailing one-year return for Alcoa (AA) was -49.3% and its trailing five-day return was -18.2%. AA traded at $8.07 below its moving average. Its 100-day, 50-day, and 20-day moving averages are $9, $9, and $9, respectively.
Alcoa (AA) is a major producer of aluminium while Freeport-McMoRan (FCX) is a giant copper producer. China is a major importer of copper and the largest consumer of industrial metals. As growth in China slows, the demand for these commodities reduces, and both revenues and profit margins for Alcoa and other stocks are directly affected. Alcoa (AA) announced that it plans to shut down its smelter operations in Indiana and reduce its refining capacity in Texas, alarmed by the sluggish demand for aluminium. As a result, AA slid 2.4% on January 8.
Let’s look at the SPDR S&P 500 ETF’s (SPY) financial services sector’s performance on the day in the next part of this series.