US retail sales and China's data dump to influence commodity market moves next week

Commodities Outlook for next week

By Kaynat Chainwala, AVP Commodity Research at Kotak Securities

Recent data releases from the US have kept the Federal Reserve on track for potential rate cuts, boosting markets’ mood this week ended October 11.

The US dollar surged above $103 mark as persistent inflation and rising unemployment complicated the Fed's policy decisions. The US Consumer Price Index (CPI) rose 0.2 percent month-over-month and 2.4 percent year-over-year, exceeding expectations of 0.1 percent and 2.3 percent, respectively. Additionally, jobless claims increased by 33,000 to 2,58,000, marking the highest level since early August 2023.

However, a softer-than-expected Producer Price Index (PPI) suggests that inflation may be cooling, contributing to rising expectations for modest rate cuts. The CME FedWatch Tool now indicates nearly a 90 percent chance of a 25 basis point cut in November, which has limited the dollar's upside while US equities rallied to record highs.

The hotter-than-expected CPI, combined with signs of labour market weakness, posed challenges for Fed policymakers and allowed gold to recover from a weekly low of $2,618.80 per ounce. The lower-than-expected PPI solidified rate cut expectations, leading to a sharp rebound in gold prices to $2,679 per ounce. Silver's decline was limited to 2 percent, buoyed by the uptick in gold and metal prices.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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LME base metals closed lower this week following a briefing from China's top economic planner that concluded without new commitments to boost government spending, despite Beijing's confidence in achieving its growth target. Further declines may follow as China's finance minister on Saturday indicated that more fiscal stimulus is forthcoming and that there will be a significant increase in debt issuance, but did not provide details on the potential size of this stimulus.

WTI crude oil prices fluctuated between gains and losses due to ongoing concerns about Israel's retaliatory strikes on Iran, alongside significant increases in US stockpiles and disappointment over the lack of new stimulus announcements from China. Oil prices may remain volatile amid fears of a tit-for-tat conflict, especially with reports of Israel preparing a response to Iran. Additionally, the closure of several product terminals and disruptions in pipeline operations due to a hurricane are expected to affect supplies into next week.

After a strong move of almost 11 percent in MCX Crude oil (November Future) last week, this week experienced volatility depicted by its High Wave candle. Dips in prices may halt near Rs 6,000 per barrel below which the next support lies at Rs 5,600. The forthcoming target stands at Rs 6,600 and eventually Rs 7,000. While the daily ADX (Average Directional Index) stands near 19, a break above 20 could signify strength. The outlook for the week is Sideways to Bullish; anticipated range is Rs 6,000 – 6,600.

Looking ahead, US retail sales will draw market attention as moderating inflation has set expectations for quarter-point rate cuts in upcoming meetings. Meanwhile, key economic indicators from China will provide insights into September's activity. If the data suggests a sluggish economic outlook, it could pose challenges to China's goal of achieving a 5 percent GDP target. European Central Bank's monetary policy is also anticipated, with markets widely expecting a 25 basis point rate cut to support economic growth.

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