Yahoo Finance What Risks Does Freeport-McMoRan Face in the Short Term?
What's in Store for Freeport: A Technical and Fundamental Overview
Short-term risks
In this part of the series, we’ll explore the near-term risks for Freeport-McMoRan (FCX). One of the key factors driving the rally in commodity stocks between February and April was a string of positive news from China. However, the recent economic data points from China have disappointed markets. China’s April trade data, real estate data, and fixed investment data all missed consensus estimates. In the past two months, China’s economic data generally beat analysts’ expectations.
If concerns over China intensify in the coming months, it could impact the price action of all miners including BHP Billiton (BHP) and Rio Tinto (RIO).
Brexit concerns
The possibility of Brexit, or Britain’s exit from the European Union, is a near-term risk for the global financial system. Mining companies tend to be more sensitive to such macro developments as compared to the broader markets.
Fed rate hike
With the recent US economic data coming in better than expected, the rate hike talks have revived. Last year, the Fed’s rate hike spooked the global markets. Higher US interest rates could lead to a stronger dollar. Commodity prices tend to have an inverse correlation with the US dollar (UUP). When the dollar gains, commodities tend to fall, and vice versa. The reasoning behind this relationship is straightforward. Since most commodities are priced in the US dollar, a strong dollar makes commodities relatively costlier in other currencies.
Copper is no different from other commodities (DJCI) that have a negative correlation to the US dollar, as you can see in the graph above. A stronger US dollar acts as copper’s nemesis.
Meanwhile, along with these macro challenges, Freeport faces some company-specific risks, which we’ll discuss in the next part of this series.
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