Commodities market to focus on US labour report to get hint on the pace of future rate cuts

Commodities Trend

By Kaynat Chainwala, AVP Commodity Research at Kotak Securities

Encouraging US economic data, coupled with much awaited stimulus measures from China, has boosted global risk appetite. The dollar closed the week lower at 100.4, as US data reinforced expectations of further interest rate cuts by the Federal Reserve. However, the greenback experienced volatile swings throughout the week. The Consumer Confidence Index saw its biggest decline in three years, indicating growing pessimism among consumers about the economy. On the other hand, better-than-expected GDP growth and jobless claims eased concerns about a slowing economy, reducing pressure for aggressive rate cuts and helping the dollar recover to 101.

Fed’s preferred inflation measure, the PCE, rose by 0.1 percent month-on-month and 2.2 percent year-over-year in August. A modest increase in personal income and spending suggested a cooling economy, potentially paving the way for future rate cuts. This led to a pullback in the dollar while US equities extended gains for a third consecutive week.

COMEX gold surged to a record high of $2,708.70 per ounce as a significant drop in US consumer confidence heightened expectations for more aggressive rate cuts by the Fed. Escalating geopolitical tensions also boosted gold’s appeal as a safe-haven asset. However, gold retreated from its peak and closed at $2,680 per ounce, as softer inflation numbers reinforced expectations of rate cuts but also sparked debate over the magnitude of those cuts. Silver prices gained traction, surging to $32.60 per ounce but ultimately trimming weekly gains to 1.3 percent, in line with the pullback in both gold and industrial metals.

MCX GOLD December futures on the daily charts formed Bearish Engulfing candlestick pattern on Friday indicating bearish bias. Although the short-term trend continues bullish, we may see a pullback next week, with the price testing Rs 75,000 per 10 gram support, followed by Rs 74,850. Price may acquire bullish momentum after breaching and staying above Rs 75,530, potentially rallying to test Rs 77,000.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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LME base metals rallied to multi-month highs, buoyed by initiatives from Chinese Governor Pan Gongsheng aimed at boosting growth and stabilising the struggling property market. LME copper surged above $10,000 per tonne for the first time since June, while zinc breached $3,100 and aluminum climbed above $2,650, as PBoC cut its Reserve Requirement Ratio by 50 bps and vowed to strengthen long awaited fiscal measures to revive growth.

On the other hand, WTI crude oil experienced significant losses, tumbling to $66.95 per barrel. Expectations of increased supply from Saudi and Libya overshadowed the improving demand outlook from China and concerns over Hurricane Helene. Libya is set to restore production following an agreement among rival political factions to appoint a new central bank governor, while Saudi reportedly plans to increase output alongside OPEC+ members in December. While the prospect of rising supply may weigh on prices, the deteriorating situation in the Middle East, particularly following Israel's killing of a Hezbollah leader, could provide some support for a recovery from lower levels.

All eyes will be on the US jobs report now as inflation is getting closer to the Fed's 2 percent target. A weaker labour report might strengthen the Fed's case for following up on its recent half-percentage-point rate cut with additional easing. However, expectations of a soft landing may be dashed by yet another weak labor report following two months of employment growth that were less robust than anticipated. Since Chinese markets will be closed from October 1 to 7 in observance of National Day, metal prices are expected to be influenced largely by US data this week, following a rally spurred by a stimulus blitz.

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