Commodity market participants to closely monitor US inflation, FOMC minutes, speeches by Fed officials for cues next week

Commodity market participants to focus on US inflation, FOMC minutes next week

Elevated bond yields and the enduring strength of the US dollar continue to exert downward pressure on commodities. The yield on 10-year treasury notes has recently soared to a 16-year high of 4.88 percent, showcasing the resilience of the US economy in the face of higher borrowing costs and sparking speculation that the Federal Reserve may need to keep interest rates elevated for an extended duration. This environment has contributed to the ongoing decline in commodity prices.

On the economic data front, the US ISM Manufacturing PMI for September showed positive trends, while ISM Services growth remained robust. The labour report painted a robust picture, with job growth hitting an 8-month high of 336,000 in September, surpassing market expectations. Wage growth remained steady, falling below forecasts, and the unemployment rate held steady at 3.8 percent. These factors underscore the US economy's resilience to rate hikes and reinforce the Federal Reserve's commitment to maintaining higher interest rates for an extended period.

Gold prices have experienced a second consecutive weekly decline as 10-year bond yields surged past 4.8 percent. Gold is currently trading near its lowest levels in seven months, influenced by the hawkish stance of the Federal Reserve. Silver also witnessed a decline, reaching its lowest point since March 2023. Market attention is expected to shift towards next week's US Consumer Price Index (CPI) data.

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In terms of price action, COMEX Gold found support near the November 2022 lows at $1825 per troy ounce. As long as this support level holds, there is potential for short covering to push prices up to $1880 per troy ounce. However, a closing price below $1820 per troy ounce could pose a significant threat to breach the psychological level of $1800 per troy ounce.

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Ravindra Rao

Head - Commodity Research|Kotak Securities

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WTI Crude oil futures experienced their most significant weekly loss since March, declining by 8.77 percent over the past five trading sessions. This comes after reaching a 15-month high of $95 per barrel on September 28, with demand concerns causing unease among investors. The stronger dollar and the surge in bond yields have also contributed to the cautious sentiment. Oil prices may attempt to stabilize around the $80 per barrel level, as supply tightness lingers.

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Weakness in base metals persisted, with some signs of recovery observed on the last trading day of the week. Uncertainty regarding US interest rates and an uneven economic recovery in China have continued to weigh on market sentiments. LME Copper fell below $7900 per tonne for the first time since May, influenced by lower-than-expected US weekly jobless claims. Additionally, rising stocks at LME warehouses, which have surpassed 169,000 tonnes, the highest level since May 2022 and more than tripled since mid-July, are putting pressure on copper amid dim demand prospects.

The upcoming week will be closely watched for the US inflation print for September. It is expected that the Consumer Price Index (CPI) for the previous month will show a 0.3 percent increase, marking a decrease from the 0.6 percent rise recorded in August. Similarly, the core index is projected to exhibit a comparable 0.3 percent increase. Furthermore, there is an anticipation of a slight deceleration in the headline annual inflation rate, with expectations pointing to it moderating to 3.6 percent.

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Investors will closely monitor the release of the Federal Open Market Committee (FOMC) minutes and speeches by various Federal Reserve officials to gain deeper insights into the central bank's monetary policy.

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