Risk Sentiments Drive Commodity Prices

With the release of China's most crucial economic statistics along with US PPI and housing market data, volatility in commodity prices may continue 

"The dollar and US bond yields appear to be having less of an impact recently after supporting the markets over the previous several weeks, and Asian demand does not show any indications of strengthening."[EasyDNNnews:PaidContentStart]

The US CPI met market expectations this week, confirming the Fed's rate hikes are having the desired effect. As a result, the dollar index plunged this week, experiencing its worst decline since June 2022. Following a 7.1 per cent increase in November, the US CPI dropped to 6.5 per cent Yoy in December, the lowest increase since October 2021. This slowdown was principally caused by a strong decline in gasoline prices, which offset a rent increase. [EasyDNNnews:PaidContentStart]

Additionally, without directly addressing the outlook for monetary policy, Fed chair Jerome Powell stated that maintaining price stability when inflation is high can necessitate politically unpopular policies. 

Although gold prices have achieved new multi-month highs, it is still unclear who is in control of these movements. The gold market is still being ignored by retail investors though. 

The dollar and US bond yields appear to be having less of an impact recently after supporting the markets over the previous several weeks, and Asian demand does not show any indications of strengthening. We affirm that prices are on a slightly shaky foundation and that we would not follow this rally. It's getting harder to understand the gold market. Without much cause, prices recently rose to fresh multi-month highs, trading at about USD 1,930 per ounce.

Oil prices have been drifting lower over the past fortnight due to the east Asian Lunar New Year vacation. But they have managed to hold onto most of last week's gains due to the possibility of an economic recovery in China, the world's largest oil consumer, this year. Brent oil prices were down 46 cents, or 0.5 per cent, at USD 87.17 a barrel, while US West Texas Intermediate (WTI) crude futures were down 40 cents, or 0.5 per cent, at USD 81.24 per barrel. The U.S. benchmark only saw a 1.8 per cent gain last week, compared to a 2.8 per cent increase in Brent. 

LME Base metals largely traded higher, with Copper, Aluminum, and Zinc all reaching their highest levels since June, as a result of a strong outlook for Chinese demand and repeated calls for new stimulus measures for the cash-strapped real estate sector. As the People's Bank of China and China Banking and Insurance Regulatory Commission jointly urged the country's banks to improve 'operational and financing cash flows' to the property sector and strengthen financial support for the real economy, copper increased by almost 7 per cent, zinc by 9 per cent, and aluminium by 11 per cent. 

The frequently used CME Fedwatch tool now predicts that the FOMC will raise interest rates by 25 basis points with a likelihood of over 90 per cent and 70 per cent for the meetings in February and March, respectively. The Bank of Japan is also expected to reassess its ultra-loose monetary policy at the forthcoming meeting, which might lead to more declines for the dollar. 

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