US inflation numbers to test commodity market nerves after upbeat jobs data

Uptrend in Commodity markets

By Kaynat Chainwala, AVP Commodity Research at Kotak Securities

Strong jobs report from the US reignited inflation concerns and soured the markets’ mood in the last trading session of the week i.e. January 10.

Dollar jumped to a fresh 25-month high of 109.97 while US 10-year treasury yields surged to 4.79 percent, highest since November 2023 as blowout December jobs report affirmed resilience in labour market last year despite high borrowing costs and lingering inflation. This prompted traders to push back expectations for another rate cut to later in the year. Coupled with this, hawkish commentary from Fed officials tempered expectations of aggressive rate cuts. The prospect of higher interest rates for longer weighed heavily on stock markets, leading to a selloff across major Wall Street indexes.

Gold surged over 2 percent in last week ended January 10, reaching a one month high of $2,735 per troy ounce, supported by safe-haven demand amid geopolitical risks and inflation concerns. Despite a stronger US dollar and rising Treasury yields, prices were buoyed by safe-haven demand amid uncertainty over Trump’s policies and inflation fears.

WTI crude oil closed the week 3 percent higher at $76.57 per barrel, after reaching a three-month high of $77.86 per barrel following the announcement of some of the harshest to date sanctions by the US on Russian oil industry. During the week, colder weather in the US and Europe increased demand for heating oil, while expectations of stronger Chinese oil consumption during the Lunar New Year further supported prices. Despite midweek volatility, driven by a lower-than-expected draw in oil stocks and a large jump in US fuel inventories, Saudi Arabia’s premium pricing for February deliveries helped keep crude prices elevated. Oil prices are likely to remain supported in the near term as markets worry that tighter US sanctions on Russia may impact its crude exports to Asia.

MCX Crude Oil January Futures on the daily chart broke through the weekly consolidation and rose significantly on Friday. Price is trading above 20 EMA and Supertrend(7,3) supporting bullish bias. Price may continue its positive trend next week, but may encounter early resistance at Rs 6,800 per barrel, followed by Rs 7,000. On the flipside, nearest support lies at Rs 6,240 followed by Rs 6,120. We expect price to trade in the range of Rs 6,240 to Rs 6,800 with bullish bias.

LME base metals ended the week higher, with copper and aluminum leading the recovery, driven by renewed optimism over China’s commitment to implementing strong fiscal and monetary stimulus to support economic growth. Copper prices reached a three-week high, as rising premiums and declining stocks in China signaled improving demand. However, gains were partially offset by a strong US dollar and uncertainties surrounding US tariff policies under the new administration. markets are hopeful that sustained Chinese demand, along with China’s pledges for enhanced stimulus, will provide support.

Looking ahead, commodity markets are now focused on upcoming US inflation and retail sales data for further guidance on monetary policy. Inflation figures, in particular, could test market nerves. If price pressures remain sticky, it could push Treasury yields even higher, as jobs numbers have already pushed expectations of first rate cut of 2025 until June. Also, key Chinese data will be in focus for hints on economic health, with disappointing numbers may be adding to urgency for fresh and bolder stimulus measures. Vice Finance Minister Liao Min recently vowed that China has ample fiscal policy room and tools to deal with new domestic and external problems. Besides, traders are already on edge ahead of US President-elect Donald Trump inauguration on January 20 amid increasing likelihood of potential trade wars.