US inflation, retail sales in focus next week as commodity markets eye December rate decision

Commodity Markets Outlook

By Kaynat Chainwala, AVP-Commodity Research at Kotak Securities

Markets assess the broader implications of Donald Trump's economic policy, which includes higher tariffs and tax cuts, which would boost domestic growth and lead to an expanded fiscal deficit, and reignite inflation. Broadly, his policies are seen as beneficial to the US economy, leading to a rally in the dollar and US equities. The greenback surged to a four-month high of 105.44 while all three major Wall Street indices—S&P 500, Dow Jones, and Nasdaq—hit record highs following Trump’s re-election as the 47th US president.

Meanwhile, Comex gold prices sharply declined nearly 3 percent, marking their largest single-day drop in five months. Trump’s victory, along with the Republican Party regaining control of the US Senate, boosted risk-on sentiment, which put downward pressure on gold. After dropping to a one-month low of $2,650.30 per ounce, gold attempted a recovery, rising above $2,700 per troy ounce after the widely expected 25 basis point rate cut by the Federal Reserve. However, a stronger dollar and elevated treasury yields led to a pullback, and gold closed the week 2 percent lower at $2,694.80 per troy ounce. Silver also fell by 4 percent, further hurt by weakness in base metals.

MCX Silver (December futures) has given a breakdown of its rising trendline, signaling a bearish outlook. The price is also trading below its 21-period EMA (Exponential Moving Average), further affirming the negative momentum. Support is likely at Rs 90,000 per kg, with major support seen at Rs 88,200 if the decline continues. On the upside, resistance is set at Rs 93,800.

LME base metals closed mixed, while WTI crude oil saw a sharp pullback after China’s National People’s Congress (NPC) announced a 6 trillion yuan ($839 billion) debt swap program aimed at alleviating local government debt over the next three years failed to meet investor expectations. The size of the stimulus package raised concerns about its effectiveness in stimulating growth or mitigating the potential impact of additional US tariffs on Chinese exports. Earlier in the week, WTI crude surged to a three-week high of $72.88 a barrel, driven by supply disruption fears, including expectations of stricter sanctions on Iranian and Venezuelan oil exports, as well as the shutdown of 22 percent of US crude oil production due to Hurricane Rafael in the Gulf Coast.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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As the post-election euphoria fades, markets are now focusing on the potential of a "red sweep" scenario, where Republicans would control both the White House and both houses of Congress. This could give Trump the leverage to push through further tax cuts and implement border control measures more easily. In turn, this may prompt the Federal Reserve to hold off on additional rate cuts if inflationary pressures start to reaccelerate, keeping gold prices under pressure. The metals market may also remain soft as persistent deflationary pressures in China underscore that bolder actions are needed in case of a trade war with the US.

Next week starting from November 11, markets will be closely monitoring US inflation data, retail sales numbers, and comments from several Federal Reserve officials. Fed Chair Jerome Powell recently remarked that he hasn’t ruled out or in a December rate cut, signaling that economic indicators will play a pivotal role in shaping the Fed’s next moves.

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