The iPath Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJCB) is off more than 15% year-to-date. Given copper’s status as an important economic indicator, it would be reasonable to assume JJCB’s struggles are affecting other risk assets, such as equities. Some market observers disagree, arguing that copper’s reliability as an economic indicator is wilting.
JJCB provides exposure to copper futures by tracking the Bloomberg Copper Subindex Total Return Index. As is often the case with commodities, supply and demand factors are plaguing copper this year. While demand is not necessarily bad, abundant supply is seen plaguing the industrial metal.
“Copper has amassed a record of predicting recessions on par with the economics profession — which is to say that it has failed miserably in the forecasting department. It’s next to useless in anticipating future economic developments,” reports Bloomberg.
While copper prices are sagging this year, the widely followed MSCI ACWI Index is up nearly 3% year-to-date.
Copper Conundrum
Some observers pointed out that the escalating trade-war rhetoric may have contributed to protectionist trade policy fears. Traders may have been worried that the slower activity and impediments to free trade would lead to a weaker global economy, which would diminish demand for raw materials like copper. Furthermore, fears of an economic slowdown in China, the world’s largest commodity consumer, and recent data out of Europe and Japan have exacerbated concerns.
“The global economy may well be headed for a serious downturn. But copper prices are no more indicative of that outcome than sunspots or any of the other forms of modern-day capitalist divination. In fact, the argument that copper prices anticipate future economic activity rests on an exceedingly selective reading of historical data,” according to Bloomberg.