US CPI, retail sales numbers to determine fate of commodity market recovery

Commodities

By Kaynat Chainwala, AVP Commodity Research at Kotak Securities

After a panic-fuelled start to the week ended August 9, marked by a sell-off in global markets amid serious concerns about the health of the United States economy, market sentiment improved as stability returned in subsequent sessions.

Recent US jobs and PMI data suggested a potential abrupt downturn, fuelling expectations for sharp monetary policy easing by the Federal Reserve. This scenario pushed the dollar to a seven-month low of 102.16, while US 10-year Treasury yields fell below 3.7 percent for the first time since June 2023. Additionally, the rapid unwinding of carry trades following the Bank of Japan's (BoJ) unexpected interest rate hike on July 31 weighed down risk assets globally. However, the dollar rebounded sharply to 103.44, and stocks rallied as a sense of calm returned after the BoJ Deputy Governor reassured markets by downplaying the likelihood of rate hikes during periods of instability. US jobless claims declined 17,000 to 2,33,000, providing further respite, easing fears of a severe economic slowdown.

COMEX Gold, which had tumbled to $2403 per ounce earlier in the week amid broader market turmoil, staged a sharp rebound to $2476 per ounce, driven by the market rally, despite China’s central bank refraining from gold purchases for the third consecutive month. Gold was also supported by escalating geopolitical tensions in the Middle East and speculation of nearly 100 basis points of rate cuts by the Fed by year-end. Silver gained momentum as well, closing above $27.5 per ounce, aided by the uptick in gold and a mild recovery in most base metals.

On the daily chart, MCX Silver (September) has formed a ‘Bullish Engulfing’ candlestick pattern confirming bullish influence. Also, RSI (Relative Strength Index 14) has breached its oversold zone hovering around 33.96, indicating a probable bounce back in the counter. Next resistance for the counter is placed at Rs 83,500 per kg, above which major resistance is placed at Rs 85,000.

Related stories

Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

• 
  Fed policy signals may guide commodities amid lack of US data
• 
  Commodities eye US inflation numbers, Chinese key data for further direction
• 
  Commodities brace for volatile week as US-China trade tensions and extended shutdown cloud outlook

Copper, however, was an exception, slipping more than 2 percent and plunging to a four-month low of $8714 per tonne earlier in the week as US jobs report raised fears that the Fed may have waited too long to act, with elevated borrowing costs potentially harming economic growth. The copper price drop was sustained as LME stocks surged sharply to 296,400 tonnes, the highest level since September 2019 and a 2.9 percent drop in copper imports in July to 438,000 tonnes.

WTI Crude rallied nearly 5 percent in a sharp rebound from a seven-month low of $71.67 per barrel earlier this week due to global risk aversion. Prices surged to $77.09 per barrel later, driven by reduced fears of a US recession and production disruptions in Libya, where ongoing protests led to the shutdown of the country's largest oil field, Sharara. Oil prices may remain supported as markets watch developments in the Middle East, with the US, Qatar, and Egypt calling for a new round of ceasefire talks to end the conflict in Gaza. Investors are also on edge regarding the possibility of a retaliatory strike from Iran on Israel.

Now, markets are focused on the upcoming US CPI and retail sales numbers for insights into consumer resilience and further evidence of a soft landing, following the largest decline in jobless claims in nearly a year. Better-than-expected data may keep global markets on a recovery path, while renewed slowdown concerns could once again send markets into a tailspin. Expectations of a smaller decline in China’s home prices and stable key data releases may help support the consumption outlook after better-than-expected import and CPI figures.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.