Monetary Policy Decisions to Dominate Commodity Market Sentiments

Commodity markets witnessed a boost, partly attributable to Chinese regulators intensifying efforts to stimulate domestic consumption. However, persistent inflationary pressures in the United States tempered gains in other sectors.

The US dollar surged to a six-month high, hitting 105.43, fueled by enduring inflation concerns within the United States. This has fostered expectations of ongoing monetary tightening by the Federal Reserve.

In major developments, August saw the US Consumer Price Index (CPI) rise by 0.6 per cent, marking the most substantial monthly increase since May 2022. Meanwhile, core inflation moderated for the fifth consecutive month, reaching 4.3 per cent, aligning with market forecasts. Retail sales in August also surpassed expectations, rising by 0.6 per cent, underscoring consumer resilience in the face of elevated prices. This sets the stage for potential interest rate hikes in November or December, following an anticipated pause this month.[EasyDNNnews:PaidContentStart]

Further strengthening the US dollar, the euro extended its nine-week decline. This drop followed hints from the European Central Bank (ECB) of a potential temporary halt to future rate hikes after a 25 basis point increase that brought rates to a historic 4 per cent. On the other hand, the ECB's statement indicated that maintaining these key interest rates at their current levels for an adequate period would contribute significantly to a timely return of inflation to target levels.

COMEX Gold rebounded after dipping as low as USD 1,921.70 per troy ounce, with concerns arising over another Federal Reserve interest rate hike. Nevertheless, market expectations for a pause at the FOMC policy meeting in September, remain largely unchanged. In contrast, silver benefited from a rally in base metal prices and increased inflows into iShares holdings.

In terms of price movements, the silver spot in dollar terms displayed a bullish engulfing pattern, while MCX silver showed a morning star candlestick formation near the 200 SMA support on the daily chart. These indicators suggest the potential for a silver price recovery in the upcoming week.

WTI Crude oil prices surged above USD 90 per barrel for the first time since November 2022. Major oil agencies such as the IEA, OPEC, and EIA projected a modest to significant deficit in the oil market during the second half of the year. As anticipated, the bullish momentum drove NYMEX WTI prices past the USD 90 mark on a weekly closing basis. The ongoing trend appears to remain positive, contingent upon the crucial USD 88 per barrel level holding on a closing basis.

LME base metals experienced fluctuations during the past fortnight due to a sharp rebound in the dollar and renewed concerns in property markets. However, the People's Bank of China's decision to cut the reserve requirement ratio (RRR) for all banks, except those already implementing a 5 per cent reserve ratio, by 25 basis points from September 15, coupled with surprisingly positive economic data from China, provided some support to the metals sector.

Looking ahead to the coming week, the spotlight will be on the FOMC statement and economic projections. Recent US data releases have rekindled expectations of a soft economic landing despite higher interest rates. Additionally, the Bank of England (BOE) is expected to raise rates amid elevated inflation, while the Bank of Japan's (BoJ) policy will be closely scrutinized following Governor Kazuo Ueda's hints regarding the possible cessation of negative interest rates. 

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