Commodities at large witnessed volatile trade in last few sessions amid increasing uncertainty about Chinese purchases as well as Federal Reserve's monetary policy
In the last few weeks, Fed officials worked diligently to calm down market fears that inflationary pressure may cause the central bank to tighten monetary policy. A disappointing US non-farm payrolls report earlier this month also calmed market nerves.
The FOMC minutes were also expected to emphasize Fed's wait and watch policy. However, market players were in for a surprise. FOMC minutes showed that some Fed officials are ready to consider discussing tapering of bond purchases in coming meetings if economic activity remains strong. The Fed has not altered its stance and is not looking at monetary tightening in the near term however, even the possibility of a discussion was enough to rattle financial markets.
One of the biggest factors behind the rally in the commodities market has been strong buying from China. With rising commodity prices market players began questioning sustainability of Chinese purchases however discussions intensified as China once again expressed concerns about rising raw material prices and willingness to take measures to curb prices.
Commodities at large fell this week as China said it would strengthen its management of commodity supply and demand to curb "unreasonable" increases in prices, and prevent them being passed on to consumers. While China has been vocal about rising coal, iron ore and steel prices, commodities at large fell on concerns that China may step up efforts to curb prices.
Inflation data from Europe this week added to the argument about rising price pressure. UK inflation more-than-doubled to 1.5 percent in April, up from 0.7 percent in March. Eurozone consumer price index increased year-on-year by 1.6 percent in April, up from 1.3 percent in March.
Reflecting the uncertainty in the market, Brent crude which topped near $70 a barrel for the first time since March corrected till $65 a barrel level while copper has corrected nearly 8 percent from record high level set earlier this month. Gold benefitted from safe haven buying however the momentum weakened just before $1,900 per troy ounce level.
With so many uncertain and variable factors, we may see volatility continuing in commodities. Market players will look at every economic number and Fed comment to gauge what will be Fed's next move. Meanwhile, any comment from China on commodity prices may trigger another sell-off.
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