Today's prime time event hasn't even arrived, that would be the European Court of Justice (ECJ) delivering its final opinion on the legality of the ECB’s previously announced OMT program, in less than an hour, and already the fireworks have begun, most notably out of Asia where after yesterday's epic commodity drubbing many were caught with their pants down and margin calls up, and what followed was a classic liquidation puke, when Copper prices crashed over 8% on the LME, to fresh 5 year lows and below USD 5,500/T in London.
[12]
This plunge prompted Shanghai futures to hit a daily-trading limit, while copper COMEX also dropped to a five and a half year low. According to traders, the sell-off was sparked by stop-loss selling as the World Bank downgraded global growth and amid expectations of increasing supply. Adding gasoline, so to say, to the excess capacity fire, Goldman said risks to copper prices are heavily skewed to downside and a Q1 rise in LME and SHFE inventory is to weigh on prices. Oh, and before you blame the selloff on another OPEC-driven supply glut, here is the real culprit according to Goldman:
- GOLDMAN SAYS RISKS TO COPPER PRICE HEAVILY SKEWED TO DOWNSIDE
- GOLDMAN EXPECTS CONTINUED DEMAND WEAKNESS IN CHINA
Yes: it is, sadly for the apologists, all about China, whose credit creation dynamo has all but run dry. Worse, with copper the primary funding metal of its shadow banking system (read The Bronze Swan Arrives: Is The End Of Copper Financing China's "Lehman Event"? [13]and Bronze Swan Lands: Goldman Explains How The China Commodity Unwind Will Happen) [14] things in China are about to get very interesting.
Here is a blow by blow of the copper crash from RanSquawk:
The sharp move lower in copper was initially attributed to stop-loss selling and a surge in trading volumes.
- The World Bank then cut its 2015 Global growth forecast to 3% from 3.4% sending prices further lower.
- In response, Goldman Sachs said risks to copper prices are heavily skewed to downside and a Q1 rise in LME and SHFE inventory is to weigh on prices.
- In tandem with the copper weakness, commodity-related currencies including NZD, AUD and CAD came under selling pressure, notably against JPY.
- Of note, yesterday BNP Paribas cut 2015 copper forecast to USD 6,175 from USD 6,500 per tonne. Elsewhere, Deutsche Bank head of commodity research said short positions in copper are now at multi-year highs in the face of oil weakness.
- The negative sentiment also comes ahead recent heightened expectations of increasing copper supply. Yesterday, Peru (world's third largest copper producer) finance minister Segura sees very strong copper output on new mines, output to rise through 2018
This also comes after LME Warehouse Stock Movements showed copper stockpiles rise 2.1% to highest since May.
The copper crash has also impacted adversely all commodity currencies, and NZD, CAD but mostly AUD all fell against all major peers. Here is the AUDJPY tumbling to the lowest since October.
[15]
The flight from, well, all commodities was also evident in JPY crosses after the USD/JPY tumbled below 117, the lowest since December 17, dragging the E-mini lower with it.
And now we sit back and see if Draghi's "whatever it takes" OMT has been deemed illegal, or, instead, if the ECJ finds it legal and begins a full blown political war with Germany.
