Commodity investors to focus on services PMI data, US jobless claims, Chinese inflation next week

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By Kaynat Chainwala, AVP Commodity Research at Kotak Securities

The weaker US labour report heightened recession fears and triggered significant volatility in global markets during the last session.

The US dollar plunged to its lowest levels since March on bets of sooner and bigger rate cuts. Major US equity benchmarks slipped sharply from their record highs and commodities were not spared either, as investors reacted to recent jobs and PMI data that suggested a potential abrupt downturn in the economy. Asian markets, particularly Nikkei, witnessed the second largest single-day drop last week and closed the week 5 percent lower, hurt by a sell-off on Wall Street and a stronger yen.

US employers added only 1,14,000 jobs in July, falling short of the expected 1,75,000 increase, indicating a slowdown in hiring. The unemployment rate rose to 4.3 percent, higher than the anticipated 4.1 percent, marking the highest level in nearly three years. Average hourly earnings, an indicator of wage inflation, increased by 0.2 percent for the month and 3.6 percent year-over-year, both below forecasts of 0.3 percent and 3.7 percent. Before the jobs report, contraction in US manufacturing PMI for the fourth consecutive month in July, coupled with an increase in jobless claims, had already sparked recession fears.

COMEX Gold (December) hit a record high of $2,522.5 per troy ounce as fears of a US economic slump following the jobs report pushed the dollar to a four-month low of 103.12 and US 10-year Treasury yields to 3.786 percent, the lowest since December 2023. Gold futures surged above $2,500 per ounce in the first session of August, driven by safe-haven buying after Iran reportedly ordered a retaliatory strike against Israel in response to the assassination of Hamas leader Ismail Haniyeh in Tehran.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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Although gold prices closed the week below $2,500 per troy ounce, the yellow metal is likely to remain supported as the weak jobs report reaffirmed expectations that the Federal Reserve will begin cutting interest rates soon. COMEX Silver also gained momentum, closing the week 2 percent higher due to gains in gold and limited downside in base metals amid growing optimism that Beijing will implement stimulus measures to address its economic challenges. However, silver may face a pullback risk as industrial metals are unlikely to see sustained upside until Chinese authorities take additional steps to revive sluggish growth, as pledged in the recent Politburo meeting.

On the four hourly chart, MCX Silver (September) has given a downward breakout of its ‘Double Top’ chart pattern affirming bearish influence. Also, price has sustained below its 50 period ‘SMA’ currently hovering around Rs 85,103 per kg (dynamic resistance). Next support for the counter is placed at Rs 80,200, below which major support is placed at Rs 78,500.

On the other hand, WTI Crude oil prices tumbled to a two-month low of $73.16 per barrel, closing the week with a ~4 percent downside as signs of weakening factory activity in the top two consumers, the US and China, coupled with recession fears, dented demand prospects. Meanwhile, OPEC+ has maintained tentative plans to begin reviving halted production next quarter, with approximately 540,000 barrels per day expected to be added in the fourth quarter. Geopolitical risk premiums following strikes in Iran and Lebanon, along with a fifth consecutive US inventory draw, initially helped prices rise to $78.88 per barrel earlier in the week.

The faster-than-expected cooling labour market is now troubling investors, who fear that the Fed may have waited too long, with elevated borrowing costs potentially already harming economic growth. This situation has dampened hopes for a soft landing and may continue to weigh on market sentiment. At the same time, it has increased bets on a 50 bps rate cut at the September meeting.

After a week filled with significant data and central bank policy, we now approach a quieter week, with a focus on services PMI from major global economies, US jobless claims, and Chinese inflation figures. Any notable increase in US jobless claims after reaching a one-year high last week may confirm a sharp slowdown and elicit a stronger reaction from market participants.

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