We saw a sharp sell-off in US equity markets yesterday, and the Dow Jones Industrial Average (DIA) closed down 2.4%. Last week, US markets were weak, and they had their worst week of the year. Meanwhile, as the US-China trade war has seen a new round of escalations with the United States and China raising tariffs on each other’s goods, metal and mining stocks have especially come under pressure.
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The SPDR S&P Metals and Mining ETF (XME) lost 3.8% yesterday. Freeport-McMoRan (FCX), the leading US copper miner, lost 5.8% yesterday. It’s now down 13.0% for the month. Southern Copper (SCCO) is down 8.8%.
A couple of factors are bothering investors in the metals and mining space. Firstly, the escalation in the US-China trade war has led to risk-off sentiment in the markets. Commodities tend to react sharply to any news relating to China. As the escalation in the trade war could jeopardize China’s fragile economic recovery, investors have turned bearish on the metals and mining sector. Copper prices especially tend to be sensitive to global macroeconomic developments.
China’s vehicle sales data
Yesterday, China’s automotive sales data also spooked investors. The country’s auto sales fell 14.6% year-over-year in April. Sales have fallen year-over-year for ten consecutive months now. The automotive industry is among the leading metal consumers, so falling vehicle sales are negative for metal demand. The automotive sector has been a particular weak spot, and most leading economies are seeing fewer vehicle sales. Copper’s positive supply-side dynamics have been outweighed by the trade war and China’s slowdown concerns.