Cautious Trading Approach Emerges in Commodity Market
Ninad RamdasiCategories: DSIJ_Magazine_Web, DSIJMagazine_App, Editorial, Market Moves, Market Watch
Following the surge of optimism last week due to the prospects of a rate hike pause by the US Federal Reserve, the global commodity market adopted a slightly cautious approach amid mixed data and earnings results from the US.
The dollar made a recovery from its 15-month lows in the past fortnight. The unexpected decline in US jobless claims signalled a strong labour market and increased expectations of rate hikes. However, housing data in June disappointed, with housing starts, building permits, and existing home sales all missing estimates.
The greenback found additional support from cooler-thanexpected UK inflation and dovish remarks from the Bank of Japan (BOJ) Governor and European Central Bank (ECB) official. ECB Governing Council member Klaas Knot suggested that monetary tightening beyond the upcoming meeting is uncertain, hinting at a possible end to interest-rate hikes. BOJ Governor Kazuo Ueda mentioned that achieving the inflation target remains distant, implying continued support for ultra-loose monetary policies.
As a result of the dollar's rebound, most commodities experienced a pullback from their higher levels in the last fortnight. COMEX Gold rose to a six-week high of USD 1989.8 per troy ounce due to dollar weakness, declining US treasury yields, and geopolitical tensions between Russia and Ukraine. Similarly, Silver witnessed an uptick to USD 25.48 per troy ounce, supported by the expectation of an earlier peak fed funds rate. On the price action front, silver appears more attractive than gold, indicated by the gold-silver ratio, which reached lows near 79.40 in May 2023.
LME base metals experienced a sharp retreat from their earlier highs last week due to disappointing Chinese economic recovery and concerning signs in China's real estate market. However, the weekly decline was somewhat limited, thanks to China's commitment to boost consumption and treat private companies on par with state-owned enterprises to bolster corporate confidence. Additionally, reports of easing homebuying restrictions provided some relief.
Meanwhile, crude oil prices are on track for a fourth consecutive weekly gain as signs of supply tightness outweigh concerns about demand. A decline in Russia's seaborne crude
flows to a six-month low in the four weeks leading up to July 16, along with a decrease in stockpiles at the storage hub in Cushing, Oklahoma – the most since October 2021 – and Saudi Arabia's production cut, all contributed to WTI prices holding above USD 76 a barrel. Technically, NYMEX Crude is hovering near a falling trend line resistance at approximately USD 77.50 per barrel. A sustained closing above this level would provide bullish momentum and potentially push the price higher towards the next resistance at USD 79.50 per barrel.
In the coming days, market participants will closely observe the Federal Reserve's anticipated 25 bps rate hike announcement. However, they may also cautiously scrutinize US Advanced GDP and Core PCE data to better understand the monetary policy outlook and set expectations for the September meeting. Additionally, flash manufacturing PMI from the EU, UK, and the US will offer early insights into July's factory activity.
Of utmost importance, markets are eagerly anticipating additional stimulus measures from China's politburo meeting scheduled for the end of July. Recent data releases have sparked concerns about China potentially missing its 2023 growth target of 5 per cent, which is already the lowest in decades.