Commodities witnessed a volatile week as market players assessed demand supply impact of the deepening energy crisis while cautiously waiting for US non-farm payrolls report and reopening of Chinese markets.
Gold has been listless near $1750 per troy ounce as the Fed's monetary tightening expectations has kept pressure on price while increasing challenges for the global economy has kept a floor to prices. Industrial metals witnessed mixed trade reflecting equity markets amid lack of cues from Chinese markets which were closed for National Day holiday. Crude oil witnessed volatile trade but traded largely higher near recent highs.
Concerns about the energy crisis rose as natural gas and coal prices rose sharply in Europe and Asia fuelling worries about tighter supply during winter season. Higher gas and coal prices also increased alternative demand for crude oil pushing it to fresh highs.
While the energy crisis continues to linger over market sentiment, market concerns eased somewhat amid efforts to improve supply. Russia indicated that it may boost gas exports to Europe. China has also allowed some producers to boost coal output to manage shortage. The US has also indicated that it could consider releasing crude stocks from emergency reserves to keep a check on prices.
Chinese markets reopened on October 8 after a week-long holiday and equities managed to end higher on the back of better than expected Caixin services PMI data. However, concerns persist about health of the property market as market players assess possibility of a default by the debt laden Evergrande Group.
Market players are also nervous about the Fed’s monetary tightening. The US dollar index has jumped to 1-year high while US 10-year bond yield has tested the highest level since June. This reflects increased expectations that the Fed may start monetary tightening soon.
The Fed has tilted towards monetary tightening and most Fed officials have maintained that criteria to start monetary tightening have been largely met. However, any decision may be dependent on the health of the US economy. Any sign of weakness or challenge for the US economy may be enough for the Fed to buy some more time. The key test is the US non-farm payrolls report for the month of September.
August's report disappointed as jobs growth slowed sharply however September is expected to show improvement. Any upbeat report may show strength in the US labour market and may strengthen a case for the Fed to start bond tapering soon. The US non-farm payrolls report may set the tone for the market in coming days as it will affect US dollar as well as general risk sentiment.
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