Copper swings ahead of FOMC meeting, U.S. data

Copper swung between gains and losses on Tuesday ahead of the two-day FOMC meeting which is expected to conclude with no change in Feds monetary policy, supporting demand outlook for raw materials. Gains were however limited by yesterdays weak U.S. manufacturing and housing data and expectations for downbeat retail sales and consumer confidence to be reported on Tuesday.

On the Comex division of the New York Mercantile Exchange, copper futures for settlement in December traded at $3.279 per pound at 9:42 GMT, up 0.32% on the day. Prices held in range between days high and low of $3.284 and $3.246 per pound respectively. The industrial metal retreated slightly on Monday but extended its weekly advance to over 0.3% on Tuesday.

Copper drew support ahead of FOMCs two-day meeting amid broad expectations policy makers will leave Feds monetary stimulus intact until next year after a string of recent downbeat data indicated the U.S. economy lost momentum before the 16-day government shutdown in October. According to a Bloomberg survey of 40 analysts conducted on October 17-18, the Fed will begin decelerating its monetary stimulus in March.

Data showed last week the U.S. economy added 148 000 jobs in September, sharply underperforming a median forecast of 93 economists surveyed by Bloomberg for a 180 000 surge. August’s reading received an upward revision to 193 000 payrolls from initially estimated at 169 000, signalling that the U.S. labor market lost momentum prior to the 16-day government shutdown.

The industrial metal also drew support after inventories tracked by the London Mercantile Exchange fell by 0.6% to 478 200 tons, the lowest since March.

Coppers gains were however limited after disappointing manufacturing and housing U.S. data yesterday spurred concern over demand prospects. The National Association of Realtors reported that the number of contracts to buy previously owned homes fell by 5.6%, the most in almost 3-1/2 years, and confounded analysts’ projection for a 0.1% increase after falling by 1.6% in August.

The National Association of Realtors reported last week that U.S. existing home sales fell by 1.9% to an annual rate of 5.29 million units, while prices rose at the slowest pace in five months. This was another sign that the high mortgage rates have begun to slow down the housing market recovery. August’s reading received a downward revision to 5.39 million homes resold from initially estimated at 5.48 million. Economists surveyed by Reuters expected a 2.9% fall to 5.3 million units sold.

A separate report by the Federal Reserve showed yesterday that overall the industrial production’s expansion in September exceeded analysts’s projections after utilities rebounded 4.4% last month following five consecutive monthly declines. Mining output gained 0.2% but trailed August’s 0.6% advance.

However, manufacturing output managed to barely rise last month after the production of computer and electronic goods fell, indicating that business spending in the end of the third quarter eased. Output at factories inched up by 0.1% and August’s reading received a downward revision to 0.5%. Analysts surveyed by Bloomberg expected a 0.3% advance in September.

Also fanning negative sentiment, the Census Bureau may report today that U.S. retail sales remained flat in September after rising by 0.2% in August. Meanwhile, analysts also expect that numbers by the Department of Labor may show that producer inflation also slowed down in September both on annual and monthly basis. Month-on-month, the Producer Price Index is expected to have gained 0.2%, down from 0.3% in August. Year-on-year, producer inflation probably rose by 0.6% in September, compared to 1.4% in the preceding period. Core PPI is forecast to have inched up from August.

Meanwhile, the Conference Board is expected to report that consumer confidence fell to 75.0 in October from 79.7 a month earlier, the lowest since May.

Also adding to that sentiment, the final October reading of the Thomson Reuters/University of Michigan Consumer Sentiment Index fell to a 10-month low of 73.2 on Friday after the 16-day partial government shutdown in October turned Americans more pessimistic about the economy. Analysts expected a retreat to 75.0 from the preliminary estimate of 75.2.

Hiroyuki Kikukawa, the general manager of research at Nihon Unicom Inc. in Tokyo, said for Bloomberg: “The market was focusing on U.S. economic data due later today, and closely watching the Fed’s policy meeting today and tomorrow. The downside is limited because of declining LME stockpiles and expectations that the Fed will keep stimulus.”