Copper falls on Fed stimulus outlook, China manufacturing data in focus

Copper fell for a second day on Tuesday as market players assessed the prospect of Fed reducing its monetary stimulus in the near future with the upcoming release of FOMCs July meeting minutes. Upcoming China manufacturing data fell in focus.

On the Comex division of the New York Mercantile Exchange, copper futures for delivery in September fell to $3.312 per pound at 8:44 GMT, marking a 0.62% daily decline. Futures held in range between days high and low of $3.342 and $3.303 per pound respectively. The industrial metal snapped a nine-day winning streak on Monday, settling the day 0.77% lower and extending current weeks decline to 1.5% after it added 8% in the preceding three weeks.

Market players remained cautious ahead of the upcoming minutes of FOMC’s July meeting which should bring some clarity on Fed’s intentions regarding its monetary easing program. Dollar-denominated commodities have largely been tracking shifting expectations for an earlier-than-expected deceleration of the central bank’s bond purchases, which have been pushing up commodities prices. An exit from Quantitative Easing would deliver a heavy blow to the raw materials market as it will strengthen the dollar, thus making commodities more expensive for foreign currency holders and limiting their appeal as an alternative investment.

According to a Bloomberg survey of economists, 65% of the participants expected that the Federal Reserve will start trimming its $85 billion per month bond purchases after FOMCs September meeting.

Meanwhile, investors also eyed upcoming China manufacturing data on Thursday to further gauge the industrial metals demand prospects. Signs for an increase or decline in the Asian countrys industrial activity cause strong fluctuations in copper pricing as the metal is widely used in Chinas vast manufacturing sector. The nation accounts for around 40% of global consumption.

The Chinese HSBC Manufacturing PMI, prepared by HSBC Holdings Plc and Markit Economics, is expected to surge to 48.3 in August from a 47.7 reading in July. Flash figures are released approximately six business days prior to the end of the month. The final reading, as well as the government statistics, will be released on September 1. Monthly Report on Chinas Non-manufacturing Purchasing Managers Index is due at September 3.

Kazuhiko Saito, an analyst at commodities broker Fujitomi Co. in Tokyo, said for Bloomberg: “Sentiment for copper remained subdued on concern over the Fed’s stimulus view. Investors remain on the sidelines before manufacturing data in China this week.”

Copper retreated on Monday on speculation that a trading error last Friday by Everbright Securities will further erode confidence in China’s stock market. The error caused a 53% surge in volumes traded and a fluctuation of more than 6% in the Shanghai Composite Index. It surged from a loss of 1% to a gain of 5.6% within two minutes in the morning session, followed by a reverse to a 0.6% decline in the end of the day.