Volatility Prevails as Markets Gauge Critical Indicators

Oil prices oscillated due to the looming supply concerns and fears of interest rate hikes. However, despite this volatility, the prices managed to register both, weekly and monthly gains, supported by a significant drawdown in US inventories and an unexpectedly positive US GDP report.[EasyDNNnews:PaidContentStart]

Rising bets of additional rate hikes by the Federal Reserve along with hawkish remarks by major central bankers kept investors prudent in the past fortnight, which also marks the conclusion of the second quarter and the first half of 2023.

The markets breathed a collective sigh of relief as US bank stocks traded higher following the successful completion of the Federal Reserve's Stress Test. All 23 US banks that underwent the annual stress test were able to uphold the required minimum capital levels, even in the face of projected losses totalling USD 541 billion for the group. Moreover, these banks demonstrated their ability to continue offering credit to the economy in a hypothetical recession, as confirmed by the Federal Reserve Board.

During the first week of July 2023, oil prices experienced a dip as investors proceeded with caution in response to fresh economic data from the United States and China, while being supported by anticipated crude supply cuts from Saudi Arabia and Russia. On July 10, Brent crude futures declined by 22 cents, or 0.3 per cent, reaching USD 78.25 per barrel. Similarly, U.S. West Texas Intermediate crude dropped by 29 cents, or 0.4 per cent, settling at USD 73.57 per barrel.

Saudi Arabia announced an extension of its 1 million barrels per day (bpd) output cut into August, while Russia opted to reduce crude exports by 500,000 bpd. Instead of decreasing output, Russia will allocate the crude for increased domestic fuel production to meet local demand. In the United States, data revealed ongoing robust wage growth and a slight decline in the unemployment rate, which is likely to maintain the Federal Reserve's trajectory of raising interest rates.

Meanwhile, gold prices remained relatively stable in July as investors cautiously assessed U.S. inflation data to gauge the potential impact of interest rate hikes and the possibility of further policy tightening. On July 10, spot gold exhibited minimal changes, remaining at USD 1,922.99 per ounce, while U.S. gold futures experienced a 0.2 per cent decrease, reaching USD 1,928.10 per ounce.

Gold prices remained relatively stable in July as investors cautiously assessed U.S. inflation data to gauge the potential impact of interest rate hikes and the possibility of further policy tightening.

Gold prices have seen a decline of over 7 per cent since their peak in early May, as investor expectations of the Federal Reserve concluding its rate-hiking cycle have diminished. The prices of gold are highly responsive to higher interest rates, as they diminish the allure of bullion, which does not generate interest. Additionally, a stronger US dollar reduces the attractiveness of gold for foreign investors.

In the past fortnight, LME base metals have continued their downward trend, reaching new monthly lows, as central banks prioritize inflation control over economic growth, thereby posing a threat to demand prospects. Additionally, a doubledigit decline in industrial profits and the persistent contraction in factory activity serve as indicators of weak demand and ongoing deflation in China's factory-gate prices.

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