Powell’s Jackson Hole speech in focus as commodity markets await monetary policy clarity

Commodities Outlook

By Kaynat Chainwala, AVP – Commodity Research at Kotak Securities

Markets’ mood turned cheerful as renewed optimism about a soft landing for the US economy led to a rebound across asset classes.

The week is going to be eventful as markets brace for Fed Chair Jerome Powell’s keynote speech at the Jackson Hole Symposium and FOMC meeting minutes for clarity regarding the size and frequency of rate cuts. Additionally, remarks from European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey could shape expectations for monetary policy and shift in economic trends.

The dollar fell to 102.27, nearing its lowest levels since January and marking its third consecutive week of declines. Earlier in the week ended August 16, resilient US economic data had pushed the dollar to 103.31, as traders recalibrated their expectations regarding a large Federal Reserve rate cut in September. US 10-year Treasury yields dipped below 4 percent, while equities rebounded sharply, with the S&P 500 rising 3.9 percent and the Nasdaq 100 surging more than 5 percent, marking the largest gains for both indexes since November.

COMEX gold (December) closed the week near an all-time high of $2,548.30 per ounce, driven by weaker US housing data that renewed speculation for faster and bigger rate cuts. Earlier in the week, gold had fallen below $2,470 per ounce as mixed US data, including easing CPI and stronger retail sales, failed to provide clear direction on the Fed’s monetary policy. Strong retail sales and lower unemployment claims suggested a less dovish Fed stance, leading investors to adjust their expectations from an aggressive 50 basis point rate cut in September to a more modest 25 basis points. Silver also rallied around 6 percent, closing the week above $29 per ounce, in line with gains in gold and base metals.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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On the daily chart, MCX Gold (Oct) has breached above its ‘Previous Swing High’ (Rs 70,965 per 10 gram) affirming bullish influence. In addition, MACD indicator has provided a fresh positive crossover. Next resistance for the counter is placed at Rs 72,100 above which major resistance is placed at Rs 72,700.

LME base metals gained momentum last week as the uneven recovery in China underscored the need for more fiscal stimulus to boost domestic consumption. Coupled with this, price recovery was further supported by easing recession concerns after better-than-expected US retail sales and jobless claims data. Copper led the gains in the pack and surged ~4 percent, closing a three-week high of $9,177.5 per tonne, on supply disruption concerns fueled by a strike at BHP Group’s Escondida mine in Chile, the world’s largest copper mine, which accounts for about 5 percent of global production.

WTI crude oil prices initially surged over 4 percent to $80.20 per barrel following Israel's heightened military alert and the US's decision to deploy a guided missile submarine to the Middle East. However, prices quickly retreated to around $78.20 per barrel as attention shifted to OPEC and IEA's downward revision of its demand growth forecasts on softer expectations for China. However, oil prices plunged to $75.5 per barrel amid reports of US President Biden's diplomatic efforts to delay Iranian and Hezbollah retaliation against Israel. Oil may continue to retreat next week as well if Iran complies with Qatar's request to refrain from attacks on Israel during ongoing Gaza ceasefire talks.

On the data front, flash PMIs from major global economies may provide earliest hints on business activity in August. Besides, Chinese loan prime rates are likely to remain unchanged in line with steady MLF and 7-day reverse repo rates.

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