Copper declines on QE outlook

Copper fell on Wednesday as more unexpectedly upbeat U.S. data on Tuesday reinforced the view of some of Feds officials that the central banks monetary easing program might be tapered in September.

On the New York Mercantile Exchange, copper futures for September delivery traded at $3.167 a pound at 8:52 GMT, down 0.18% on the day. Prices ranged between days high and low of $3.180 and $3.146 a pound respectively. The industrial metal gained 0.14% but erased its earlier weekly gains, marking a 0.06% weekly decline so far after

Copper prices were pressured after another batch of positive U.S. economic data fueled speculation Fed might decelerate its bond purchasing program. The Commerce Department reported on Tuesday that the U.S. trade deficit narrowed in June to $34.220 billion, the least since October 2009. It exceeded analysts’ forecast for a drop to $43.5 billion from May’s downward revised reading of $44.1 billion. Statistics showed that U.S. exports rose by 2.2% to $191.2 billion, while imports decreased by 2.5% to $225.4 billion.

On Monday, The ISM reported that the U.S. services sector rose with a lot faster pace in July than in June, hitting a five-month high. The ISM Non-Manufacturing Composite index surged to 56.0, well above analysts’ expectations for a jump to 53.1 from June’s 52.2 figure. Sixteen out of eighteen sectors that are tracked for the preparation of the index have marked an expansion in July, compared to fourteen in June. This boosted the U.S. economy’s recovery prospects, spurring speculation Quantitative Easing may after all be tapered in September, as many analysts project.

Tetsu Emori, the chief fund manager at Astmax Asset Management Inc. in Tokyo, said for Bloomberg: “It’s not easy for investors to buy copper amid mounting concern over the Fed’s stimulus. Still, the physical market in Asia looks to be a bit tight.”

Fed Bank of Chicago President Charles Evans, who was one of Quantitative Easing’s supporters, said yesterday that there has been a “good improvement” in the labor market and indicated the central bank’s monetary easing program might be decelerated in September. FOMC’s next meeting is scheduled for September 17-18 when policy makers will review their assessment on the economic recovery pace.

This comes after Federal Reserve Bank of Dallas President Richard Fisher, one of Quantitative Easing’s critics, commented this week the central bank is getting closer to tapering the monetary easing program. He said in a speech in Portland, Oregon: “Financial markets may have become too accustomed to what some have depicted as a Fed ‘put. Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets” and can lead to “serious misallocation of capital.”