Manufacturing and Base Metal Bounceback
With the PMI for August at 56, up from 54.2, this is indicating the fastest rise in U.S. manufacturing since late 2018.
This upward momentum, in part, is due to the major jump in new orders to 67.6—reaching its highest point since 2004.
And this is due to inventories that are rapidly depleting.
These two factors continue to support the U.S. manufacturing bounce-back from its historic lows earlier this year.
However, U.S. manufacturing employment demonstrated ongoing contraction as firms continue to exercise caution in the face of an uncertain future with COVID-19.
As employment lags, this could pose risks to this recovery in U.S. manufacturing.
China is also continuing to lead the global manufacturing recovery as they too had reported strong manufacturing data yesterday. The Caixin/Markit China Manufacturing PMI came in at 53.1 for August, as compared to 52.8 for July and a forecast of 52.6.
In light of this incredible pickup in manufacturing in China, 3-month copper forward prices are increasing to their highest levels since June 2018. Other industrial metals such as nickel, lead, and zinc are experiencing momentum upward as well.
For copper specifically, growth in China is one of the most influential factors in price as the Chinese economy accounts for approximately half of the metal’s consumption. According to Citigroup, in July, China had imported 555,000 metric tons of copper, a record amount.
A weakening dollar is also supporting this surge in copper–and other commodities in general–as the DXY hits its 2-year record lows.
With commodities ripping as well as the S&P 500, NASDAQ, and the Dow Jones experiencing their highest gains last month since April, markets are alive and kicking going into September. However, as the U.S. rolls into the fall months and employment is still broadly a drag on the economy, COVID-19 and its continued impact may pose a strong headwind to investors going forward.
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