Copper swings ahead of U.S. data, Fed stimulus, China credit tightening

Copper swung between gains and losses on Monday before the release of data that might show industrial production in the U.S. rose in October at the same pace from a month earlier. Recent downbeat U.S. data and concerns over credit tightening in China weighed on prices. Broad expectations that the Federal Reserve will refrain from tapering its monetary stimulus after FOMCs upcoming two-day meeting underpinned the market.

On the Comex division of the New York Mercantile Exchange, copper futures for settlement in December rose by 0.41% to $3.282 per pound by 10:04 GMT. Prices surged to a session high of $3.285, the strongest level since October 23, while days low stood at $3.258. The industrial metal was almost unchanged for a second day on Friday and settled the week 0.6% lower.

Copper fluctuated on Monday ahead of a report that may show that industrial production in the U.S. picked up in September. According to the median estimate of 78 analysts surveyed by Bloomberg, output rose by 0.4% last month, the same as in August. Manufacturing, which makes up 75% of total production, likely advanced by 0.3%, down from 0.7% in August. A separate report might show that pending home sales rose by 0.5% in September following a 1.6% decline a month earlier.

Investors remained wary on speculations over monetary tightening in China after money-market interest rates rose to the highest in three months last Wednesday. The People’s Bank of China refrained from injecting cash on concern that ample credit could fuel inflation after the National Bureau of Statistics reported that home prices in four major cities rose to the highest since January 2011, while consumer inflation gained at the fastest pace since February.

Prices were also pressured last week after a preliminary report showed that manufacturing activity in the U.S. fell to a 12-month low and slowed down for the first time since September 2009. The decline was based on weak new orders growth, the slowest in six months, despite a rise in employment.

Chae Un Soo, a metals trader at Korea Exchange Bank Futures Co. in Seoul, said for Bloomberg: “Concern about the U.S. economy and China’s credit tightening put downward pressure on metals.”

The market however continued to draw support on broad expectations the Federal Reserve will leave its quantitative easing program intact until 2014. The Federal Open Market Committee will hold a two-day meeting starting tomorrow where policy makers will assess the damage the 16-day government shutdown caused to the fourth quarter economic growth. Broad expectations call for a delay in tapering until some point in 2014 after employment data last week showed that job growth slowed in September and applications for initial unemployment benefits fell less than expected. According to a Bloomberg survey of 40 analysts conducted on October 17-18, the Fed will begin decelerating its monetary stimulus in March.

A weak dollar supported the industrial metal. The U.S. dollar index, which measures the greenback’s performance against a basket of six major trading partners, traded at 79.24 at 10:05 GMT, down 0.03% on the day. Prices plunged to 79.07 on Friday, the lowest since September 2012. Weakening of the dollar makes dollar-denominated raw materials cheaper for foreign currency holders and boosts their appeal as an alternative investment.