Commodity markets to focus on speeches from FOMC members, US GDP, Core PCE, China PMI data next week

Commodities to focus on speeches from FOMC officials

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

The past week (ended November 24) witnessed a dynamic interplay of market forces, with a central focus on the potential for a Federal Reserve pivot, resulting in a notable impact on the dollar index and Treasury yields. The release of the November Federal Open Market Committee (FOMC) meeting minutes disclosed a consensus among policymakers, signaling a cautious approach to future rate hikes.

The key determinant for any further tightening would hinge on the progress made in mitigating inflationary pressures. This sentiment precipitated a decline in the dollar index and Treasury yields, setting the stage for a surge in various commodities.

Gold, as a non-yielding asset, experienced a robust second consecutive week in the green. Swaps traders reflected a market sentiment with a 40 percent probability of the Federal Reserve lowering borrowing costs as early as May. The allure of gold, particularly in times of a weakening dollar, remained strong. Meanwhile, silver posted a gain of over 2.50 percent on a weekly basis, validating an Inverse Head and Shoulders bullish pattern. This pattern, if confirmed, has the potential to propel silver prices toward the $25 to $25.70 per troy ounce range. A parallel pattern was identified in COMEX gold, albeit awaiting technical confirmation.

The energy sector saw WTI Crude oil futures initiating the week on a positive note amid speculations that OPEC+ might consider deepening supply cuts to bolster prices. However, optimism was tempered as the cartel decided to delay its meeting by four days to November 30th, citing disagreements over output quotas for African members. This delay added an element of uncertainty to oil markets, contributing to heightened volatility. On the price action front, WTI NYMEX Crude oil is anticipated to maintain a range-bound movement, fluctuating between $78 and $72 per barrel.

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Ravindra Rao

Head - Commodity Research|Kotak Securities

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LME base metals found support against the backdrop of a weakened dollar and optimism regarding potential fresh stimulus measures from China. The focus in China was on addressing the struggles in the property market, with policymakers reportedly exerting pressure on banks to address a substantial $446 billion funding shortfall. Furthermore, a draft list of 50 developers eligible for financial support was in the works to stabilize the industry and address the backlog of unfinished apartments.

Notably, LME Copper emerged as the standout performer in the metals pack, surpassing the $8400 per tonne mark. This was attributed to an increasing Yangshan premium and lower Treatment and Refining Charges (TC/RC), signalling a tighter concentrates market than initially anticipated.

Looking ahead to the upcoming week, market participants are expected to approach with caution as they await speeches from FOMC members. The intricacies of mixed economic data from the US, coupled with the nuanced FOMC meeting minutes, contribute to the complexity of predicting the Federal Reserve's outlook.

The University of Michigan's data revealed that US consumers anticipate an annual inflation rate of 4.5 percent over the next year, slightly higher than earlier expectations. Additionally, various economic indicators, including orders for durable goods and jobless claims, present a mixed picture.

The upcoming week holds the promise of crucial data releases, including US GDP, Core PCE, and China's PMI figures, which may further amplify market volatility. As market participants navigate this landscape, the interplay of global economic factors will continue to shape the trajectory of commodities and financial markets.

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