Commodity market participants to closely monitor China's economic situation, US GDP growth

WTI Crude oil experienced its first weekly decline in four weeks.

By Ravindra V Rao, CMT, VP-Head Commodity Research at Kotak Securities

Market sentiments faced a setback as the Federal Reserve reaffirmed its commitment to a "higher for longer" interest rate policy in its September policy meeting.

Various central banks made different monetary policy decisions during the week, but a common theme was the possibility of more extended periods of elevated interest rates. The Federal Open Market Committee (FOMC) statement and quarterly projections were perceived as hawkish, with 12 out of 19 officials favouring another rate hike in 2023, despite maintaining the target range of 5.25 percent to 5.5 percent. The Bank of England also opted to keep its Official Bank Rate unchanged at 5.25 percent, with a tight decision as 5 out of 9 policymakers voted to hold rates steady.

The Bank of Japan also maintained short-term interest rates at -0.1 percent and capped the 10-year Japanese government bond yield at around zero. BOJ Governor Kazuo Ueda explained that the central bank needed more time to confirm a positive cycle of wage hikes leading to increased consumption, despite inflation surpassing the bank's 2 percent target for 17 months.

COMEX Gold experienced a decline, reaching a one-week low of $1933.1 per troy ounce, as growing expectations of prolonged elevated US interest rates pushed the US 10-year treasury yield to its highest level in 16 years, at 4.5 percent. However, concerns about a potential US government shutdown added uncertainty to the market. Silver, on the other hand, extended its gains, trading near $24 per troy ounce, boosted by increased holdings in iShares.

On the price action front, COMEX gold traded within the range of the 60-day SMA ($1950 per troy ounce) and the 200-day SMA ($1933 per troy ounce). A break on either side, upon daily closing, may provide direction to prices.

WTI Crude oil experienced its first weekly decline in four weeks, primarily due to the prospects of more rate hikes in the US, which weighed on risk appetite. However, Russia's temporary ban on gasoline and diesel exports raised concerns about further tightening in the global oil supply, helping prices rebound from lower levels.

LME base metals faced pressure recently as the US dollar surged to a fresh six-month high of 105.73. Copper was particularly affected by rising LME stocks, while Zinc and Aluminium saw weekly gains of 0.50-1 percent partly due to signs of stabilisation in China's property market, indicated by rising home transaction volumes in major cities like Shenzhen, Beijing, and Guangzhou. From a technical perspective, copper penetrated a bearish flag pattern, suggesting the possibility of further price declines in the coming week.

The US dollar is trading close to the highs seen in March 2023, around 105.80, which could act as resistance. However, any further signs of strength in the US economy and a prolonged increase in US Core PCE inflation, which rose by 4.2 percent year-on-year in July, may keep the dollar supported at higher levels.

Furthermore, limited risk appetite may prevail in the markets as Congress needs to pass and the president needs to sign a short-term funding bill before the start of the new fiscal year on October 1.

Market participants will also closely monitor China's economic situation, with former governor of the People's Bank of China, Yi Gang, suggesting that the central bank could take further measures to support the property sector. Fresh signs of stress in the sector have emerged, with Moody's putting two of China's strongest property developers on review for a potential downgrade.

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