Commodities to keep a vigil on US final GDP, Fed inflation gauge, consumption data next week

Reiteration of hawkish stance by major central banks, most notably Federal Reserve, spurred fears that tighter monetary policy could push the global economy into a recession that weighed on global market sentiments this week. Fed, European Central Bank (ECB) and Bank of England (BoE), all raised interest rates by 50 bps as widely expected, and pressed on the need for more tightening to tame inflation. Federal Reserve Chair Jerome Powell signaled higher interest rates for longer in his post policy comment, leading to sell off across risky assets in the latter part of the week. ECB chief also sounded hawkish adding to the losses across financial markets.

Better-than-expected Services PMI, factory orders and softer inflation figures from the US ahead of FOMC decision buoyed global risk appetite and pushed dollar to six month lows below 103.5. However, Fed Chair backing the case for more rate hikes next year even as the economy slips towards a possible recession helped the greenback rebound above 104.5. Not only this, Retail and food services sales fell more than expected by 0.6 percent in November after rising 1.3 percent in the prior month, indicating inflation weighing on consumer appetite and signaling towards a slowing economy.

COMEX Gold and Silver slipped more than 1 percent and 2 percent respectively as Fed chair clearly signaled that they are not close to ending rate hikes while policy makers projected higher-than-expected borrowing costs at 5.1 percent at end next year, before being cut to 4.1 percent in 2024. Widely watched dot plot showed 17 of the 19 “dots” (FOMC members) would take rates above 5 percent in 2023.

Crude oil surged more than 6 percent, attempting a rebound following more than 10 percent decline in the previous week, as TC Energy was forced to shut down its Keystone system following a drop in pipeline pressure. Uncertainty regarding the reopening of the pipeline coupled with a softer dollar ahead of FOMC statement pushed WTI and Brent crude to weekly highs of $77.77 a barrel and $83.18 a barrel respectively. Prices pulled back from higher levels after Fed’s hawkish stance and partial restart of Keystone pipeline.

LME base metals traded lower as latest indicators from China signaled towards worsening economic activity and raised fears of lower than expected growth in the fourth quarter after 3 percent expansion in the first nine months of 2022. Retail sales’ contraction widened to 5.9 percent in November, while Industrial output growth slowed to 2.2 percent from 5 percent in October, and fixed-asset investment growth weakened to 5.3 percent in the first 11 months of the year. Disruptions at some mines in Peru could not provide any cushion against the macroeconomic stress.

Next week, markets will closely watch US Final GDP and Fed's preferred inflation gauge Core PCE for more hints on economic situation as they will officially be the last crucial indicators’ release of 2022 before Christmas holidays that starts from 25th December.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.