Investors remained wary of the prospect of aggressive rate hikes and fears of a looming recession in the US, along with a disappointing growth target set by China.
China's Premier Li Keqiang announced a goal of 5 percent GDP growth in his final report to the Communist Party-controlled parliament at the annual National People’s Congress last Sunday. This was lower than what the markets expected. Nor did China announce any large stimulus for sectors like real estate and infrastructure.
The Dollar index hit a three-month high of 105.883 after US Federal Reserve Chairman Jerome Powell stated — on the first day of his testimony before the US senate — that the ultimate level of interest rates is likely to be higher than previously anticipated due to stronger-than-expected economic data. He softened on the second day though, saying that policymakers will wait for fresh jobs and inflation data before deciding how much to raise interest rates later this month.
Still, it boosted bets of a half-point hike rather than a quarter-point move at the Fed’s next policy meeting on March 22. Data from the US continued to be robust as private payrolls increased by 2,42,000 in February, well above 1,19,000 in January, while Jolts Job openings decreased less than expected, by 4,10,000, to 10.8 million on the last business day of January.
However, the number of Americans filing claims for unemployment benefits in the US increased by 21,000 to 211,000 in the week ended March 4, the biggest increase since the first week of October 2022, thereby unwinding some bets of bigger rate hikes and leading to a pullback in the Dollar index to below 105.1. A sharp downside was capped as US jobless claims remain low by historical standards, indicating a still-tight labour market.
COMEX Gold hovered near the lowest levels seen in 2023 due to a stronger Dollar. Also, US 10-year treasury yields rose above 4 percent, which weighed on the bullion. However, higher-than-expected US jobless claims and risk-off global markets amid fears of contagion in the US banking sector pushed investors towards safe haven assets and helped gold rebound above $1,840 per troy ounce.
COMEX Silver plunged below $20 per troy ounce for the first time since November 2022, hit by weakness in both gold and industrial metals. SPDR’s gold holdings slipped to 903 tonnes while iShares’s silver holdings saw a minor 5 tonne outflow, indicating weak investment demand.
Crude Oil prices are headed for a 5 percent decline this week, reversing most gains made last week as US recession woes and weaker Chinese import figures weighed on demand, while a surprise 1.7-million-barrel drawdown in US oil was largely ignored by investors.
Fears of a looming recession in the US weighed on risky assets as US two-year treasury yields breached 5 percent for the first time since 2007, while 10-year treasury yields hover near 4 percent, leading to a 1 percent inversion for the first time since 1981.
China's crude oil imports during January-February totalled 84.06 million tonnes, or about 10.40 million barrels per day (bpd), 1.3 percent lower than 10.53 million bpd in the same period last year.
LME base metals extended declines due to Fed rate hike jitters, uncertainty over Chinese demand outlook, and faded optimism over major stimulus measures from China. Trade data was also underwhelming, as China’s imports of unwrought copper and products were 879,000 tonnes in January and February, down 9.3 percent from 969,289 tonnes in the same period a year earlier, as higher global prices curbed buying appetite. Besides, concerns over supplies from Peru are likely to ease as shipments of commodities are likely to normalise within days. Aluminium slipped below $2,300/tonne as market focus shifted to demand prospects with the completion of production cuts in China’s Yunnan province.
US non-farm payrolls data may set the trend for early next week, while investors will remain cautious ahead of crucial economic data from China. Besides, US CPI and retail sales will be closely watched for the impact of rate hikes on price pressures and consumer appetite. The European Central Bank (ECB) is widely expected to announce a 50 basis points (bps) rate hike at the next week’s meeting amid stubborn inflation woes.
Overall, commodities are in for yet another volatile week considering the release of crucial data points lined up for next week. If Chinese retail sales and industrial production manage to show green shoots of recovery, it may revive demand optimism and cushion commodities.
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