Intensity of Russia-Ukraine conflict and US data to shape commodity market moves ahead

Commodity Markets

By Kaynat Chainwala, AVP Commodity Research at Kotak Securities

After a choppy start to the week (ended November 22), most markets closed higher as traders navigated geopolitical risks, Trump's cabinet picks, and expectations for further rate cuts by the Federal Reserve.

Signs of a resilient economy, highlighted by a stronger-than-expected Services PMI, helped key US indices close the week with nearly a 2 percent gain. The US Dollar index also breached the 108 mark for the first time in two years. US economic activity picked up in November, with the flash Composite PMI rising to 55.3, the highest level since April 2022. In contrast, the Eurozone's Composite PMI slipped into contraction, falling to 48.1 from 50 in October. The growing trade threats and economic contraction signaled by the PMI data caused the euro to drop to 1.033, its lowest level since November 2022.

Meanwhile, Federal Reserve officials expressed differing views, leaving markets divided on the likelihood of a rate cut or pause at the December meeting. The greenback also benefited from reduced expectations for rate cuts, with CME’s FedWatch Tool now showing a 52.7 percent chance of a 25-basis-point cut in December, down from 80 percent in early November.

Despite the dollar rally, COMEX Gold made an impressive rebound after its worst weekly drop since 2021, surging to $2,718 per ounce. The rally was driven by safe-haven bids amid rising tensions, particularly after Russia launched an intercontinental ballistic missile at Dnipro in response to Ukraine’s use of Western-supplied long-range weapons against Russian military targets. While gold rallied nearly 6 percent, silver's weekly gain was limited to 3 percent due to mixed trends in base metals.

On the daily chart, MCX Gold December futures rose strongly after breaking over the Hammer candlestick pattern (bullish) that emerged on November 14, 2024, at the 50 percent Fibonacci retracement level (from all-time high). Price posted the highest weekly rise (4.96 percent) in eighteen months. Price is trading above 20 EMA and Supertrend (7,3) indicating bullish bias. We estimate the price to maintain its upward trend, although it may face an early resistance at Rs 78,700 per 10 gram, followed by Rs 79,775 (all-time high). On the other hand, initial support is at Rs 76,000 per 10 gram, followed by Rs 75,400 per 10 gram.

LME base metals struggled to find direction, as the risk of US tariffs on Chinese imports, along with weaker PMI numbers from the UK and EU, hurt demand outlook. On the other hand, WTI Crude surged more than 6 percent to a two-week high of $71.5 per barrel as the intensifying Russia-Ukraine conflict heightened concerns over potential disruptions in global oil supply. Given that Russia is one of the world’s top oil producers, pumping nearly 9 million barrels per day, the looming risk of an attack on its oil infrastructure may keep traders on edge and oil prices supported.

Looking ahead, a series of data releases before the US Thanksgiving break could limit risk appetite. Key reports, such as US consumer confidence, GDP, jobless claims, and Core PCE, along with the FOMC meeting minutes, will be closely watched for guidance on the Fed’s next move. A rise in US inflation could pose a challenge for the Fed, while disappointing data might cause the dollar to retreat from its two-year highs.

Most importantly, developments in the Russia-Ukraine conflict will be critical for market sentiment, as Putin has warned of attacks on the military facilities of countries that have allowed Ukraine to use their weapons to strike targets inside Russia. Since Ukraine has primarily used US and UK-supplied missiles for these strikes, it serves as a stark reminder of the high stakes in this war.

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