Softer dollar amid signals of less aggressive Fed countered worsening Covid situation and fresh lockdowns in China, leading to a mixed trend in commodities.
Mixed commentary by Fed officials clouded inflation and rate outlook and helped the dollar recover earlier in the week to near 108 levels from three-month lows of 105.34 touched in the prior week, only to revert back to below 106 after release of FOMC minutes.
In the minutes of November 1-2 FOMC meeting, a substantial majority of participants judged that a slowing in the pace of increase in the target range for the federal funds rate would soon be appropriate, as monetary policy approached a stance that was sufficiently restrictive to achieve the Committee's goals.
US Flash Composite PMI contracted for the fifth consecutive month in November as tighter financial conditions, rising cost of living and weaker demand slowed business activity. This hints towards a looming recession but aligns with Fed’s goal to bring down price pressures.
COMEX Gold and Silver prices ended higher during the week as pullback in US 10-year treasury yields and fears of recession supported the counter. Besides, SPDR Gold holdings and iShares Silver holdings saw modest inflows this week, hinting towards some improvement in investment demand. Still, prices remain well below recent highs of $1791.8 per troy ounce and $22.38 per troy ounce touched last week as initial gains in dollar and largely weaker trend in base metals limited upside in Gold and Silver respectively.
Earlier in the week Crude oil saw wild swings as WTI and Brent prices slipped to $75.08 a barrel and $82.3 a barrel respectively, lowest since January. The fall came on back of media report that Saudi is considering an output increase of 0.5 million barrels per day for upcoming OPEC meeting on December 4. However, Saudi denied the reports helping Crude cover all the losses.
But the recovery was short lived as European Union discussed a higher-than-expected Russia oil price cap at $65-70 a barrel, leading to bets that Russian supplies may continue even if the plan is executed. This eased any immediate concerns of global supply tightness, setting prices for a third consecutive weekly loss. Besides, decline in oil stocks could not cushion prices as both products, gasoline and distillates, reported inventory additions.
Base metals wavered this week as worsening Covid situation and fresh curbs hurt demand outlook while hints of more stimulus measures from China coupled with latest measures to support property sector attempted to calm market nerves. China’s State Council indicated that monetary tools “such as a RRR cut” will be used “in a timely and appropriate manner” to maintain reasonably ample liquidity and called on “greater support” for bond financing for private firms. Responding to the same, three state-owned banks and three other lenders together pledged at least $162 billion in fresh credit to cash-strapped property developers.
Now, investors look forward to US Prelim GDP for the September quarter, Labour report and Fed Chair Powell speech as it may boost prospects for slower rate hikes. Mostly weaker economic data and FOMC meeting minutes have already skewed market expectations to 50 bps increase for the December meeting.
Overall, Commodities may fluctuate as hopes of less hawkish Fed and possibility of RRR (reserve requirement ratio) cut from China may support risk appetite while rising COVID cases amid cold weather in China is adding to fears of a bumpy economic recovery.
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