US jobs report, FOMC meeting minutes may help commodity traders to assess 2025 interest rate outlook

Commodities Outlook

By Kaynat Chainwala, AVP-Commodity Research at Kotak Securities

Commodity markets kicked off the new year with a mixed performance as traders grappled with lingering economic concerns in China, rising oil prices, and the potential return of Donald Trump to the White House.

Broad risk-off sentiment was evident after the New Year holiday, as US stock markets, which opened higher on the first trading day of 2025, failed to maintain their gains. A pair of deadly attacks in the US dampened hopes of a Santa Rally. Although the Nasdaq and S&P 500 ended a five-day losing streak on Friday, all three major US indices still closed the holiday-shortened week lower.

Meanwhile, the US dollar ended the week (ended January 3) below 109, snapping a four-day rally on Friday, but still marked its fifth consecutive week of gains. The US Dollar index rose above 109.5 for the first time since November 2022, supported by signs of US economic resilience and expectations of dollar-bullish Trump policies. US weekly jobless claims hit 211,000, the lowest level since April, during the last full week of 2024. The ISM Manufacturing PMI also rose more than expected to 49.3 in December, its highest reading since March.

Gold started the year on a strong note, with COMEX futures reaching a two-week high of $2,683 per ounce before closing the week at $2,654, up 0.87%. The rally was driven by safe-haven demand, robust central bank buying, and expectations of looser monetary policy in major economies, despite hawkish signals from the US Federal Reserve. Positive US economic data, combined with inflation risks, contributed to market caution, which trimmed some of gold's gains later in the week. Nevertheless, geopolitical uncertainties and continued central bank purchases are expected to support gold prices in the near term.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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WTI crude surged 5%, closing above $74 per barrel, driven by colder weather forecasts for Europe and the US, optimism about economic stimulus in China, and a drawdown in US oil inventories for the sixth consecutive week.

On the daily chart, MCX Crude Oil January futures last Tuesday, broke and closed above the falling trendline, following which the price has been rising. Presently price is trading above Supertrend (7,3) and 20 EMA supporting bullish bias. Price might find initial hurdle at Rs 6,450 per barrel followed by strong resistance at Rs 6,570. On the flipside, initial support lies at Rs 6,100 followed by Rs 6,000. We expect price to trade in the range of Rs 6,100 to Rs 6,570 with bullish bias.

On the contrary, LME base metals ended the week lower, with copper nearing its lowest levels since August 2024 and aluminum hovering around two-month lows, pressured by a stronger US dollar and slower-than-expected growth in China’s Caixin Manufacturing PMI for December. Despite the dollar’s strength, the downside risks for base metals may be limited, as Chinese President Xi Jinping pledged that policymakers would implement more proactive measures to stimulate growth throughout 2025.

After two holiday-shortened weeks, traders are preparing for an event-packed week ahead, with FOMC meeting minutes, speeches from several Fed officials, services PMI, and the US jobs report all in focus. Labour market data, as a key indicator of US economic health, may help traders assess the interest rate outlook ahead of Donald Trump’s inauguration on January 20. Swap contracts currently price in less than a half-point of easing in 2025, compared to expectations for at least 1% just months ago. Any signs of weakness in the labour market could prompt traders to recalibrate their expectations, adding to market volatility.

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