Significant decline in rate hike bets for June, coupled with progress in the US debt ceiling deal, kept investors’ risk appetite high this week.
The dollar index slipped to 103.38 weighed down by comments from Fed officials in favour of a pause in rate hikes. Also, the US Institute for Supply Management (ISM) manufacturing PMI fell from 47.1 in April to 46.9 last month, contracting for a seventh straight month in May, as new orders continued to plummet amid higher interest rates. This shifted bets that the Fed might raise rates by 25 basis points at its June meeting lower to just 24 percent, compared with a 51 percent chance a week ago, as per the CME FedWatch tool.
COMEX Gold is headed for a 1.7 percent weekly gain, best since early April, amid sharp fall in the greenback and the US benchmark treasury yields. The move came as investor’s gauged recent US economic data, mixed comments from Fed officials and debt ceiling deal. Although a deal was widely expected, there are concerns weather the deal will raise the odds of a recession by limiting government spending to support US growth. This is providing some cushion to gold prices.
Silver, too, gained momentum in line with gain in both gold and most industrial metals. On the price front spot gold took good support near $1934 per troy ounce (swing support and resistance turned support). Price has bounced back and is getting ready for the resumption of primary up trend with a bullish engulf candle. However, this week’ s closing is important and next week’s move might confirm the set up.
Crude oil prices saw a 2 percent weekly drop as investors turn cautious ahead of OPEC+ meeting in Vienna this weekend, where the group is likely to keep output levels unchanged. Progress regarding US debt deal and demand prospects amid the onset of peak summer driving season limited decline in oil prices.
On the technical front NYMEX Crude has formed a Bullish Engulfing pattern after Thursday’s strong up move. The pattern high is near $71.07 a barrel. A daily close above the same might confirm the pattern and the bulls might once again target $74 a barrel (60 DMA resistance). Pattern low is near $67.03 a barrel, a close below the same might negate the pattern.
Most base metals held on to gains owing to softer dollar and surprise expansion in China’s Caixin manufacturing PMI. Private gauge of China’s factory activity showed an unexpected acceleration in May, though it also renewed concerns of uneven recovery since official numbers showed a contraction. On price chart MCX Copper is getting ready for a bounce back rally. Trend line break, price above the 60 period MA plus momentum oscillator in bullish zone are supporting the bull case.
US NFP print is also keenly awaited as an unexpectedly strong labour market may lead to repricing of rate hike expectations. However, chances of a June rate hike remain low as several Fed policymakers hinted at a pause in June but also warned it may not be the end of the tightening cycle, leaving room for a July tightening. Base metals may get some support from reports of additional measures from China to support the property market while oil market participants will take cues from OPEC+ meeting due June 4.
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