Commodity Market Remains Under Pressure

Downturn in equity markets and the prospect of higher interest rates, along with rising inflation, coupled with China’s struggle to contain the pandemic and the ongoing Russia-Ukraine tussle have kept commodities under pressure.

It was another disappointing fortnight for the commodity market as it was mostly replaced by a general flight to safety with the US dollar continuing its unchallenged surge. Just a week after the US Federal Reserve shook global equity markets by raising interest rate by 0.5 percent and indicating further rate hikes, the US inflation numbers and comments from Federal Reserve officials kept market participants on the brink that the central bank may tighten aggressively to control the inflation. 

US inflation data released last week depicted easing in consumer and producer prices. However, the data is still above market expectations and could not settle market nerves about price pressure. According to the inflation data, US consumer prices rose 8.3 percent in April 2022, a slight improvement from 8.5 percent growth in March, but still higher than market expectations of 8.1 percent. Also, the US producer prices soared by 11 percent in April 2022 after an 11.5 percent growth a month ago. 

It was also higher by market expectations of 10.7 percent growth. In a major development, India banned wheat exports last week as the scorching heat wave cut down output and domestic prices hit a record high. This news came days after the government said that it was targeting record shipments this year. Officials said it will still allow exports backed by already issued letters of credit and to countries that request supplies to meet their food security needs.

Senior government officials said in a press conference that the move to ban overseas’ shipments could be revised later. Inflation data from major economies also highlighted persisting price pressure on various commodities. China’s consumer price surged 2.1 percent in April against the forecast of a rise of 1.8 percent. Meanwhile, consumer prices in India climbed 7.79 percent in April, which is the fastest pace in eight years. Brazil’s consumer price was higher by 12.13 percent in April against the forecast of 12.07 percent.

"In a major development, India banned wheat exports last week as the scorching heat wave cut down output and domestic prices hit a record high." 

The global economic scenario is dented by increasing concerns about the Chinese economy as it struggles to bring the corona virus surge under control while virus-related restrictions are hampering economic activity. The Russia-Ukraine conflict remains unabated as the war continues to unfold in the region with no major efforts to resolve the dispute. European Union’s effort to reach consensus over a proposed plan to prohibit Russian crude eased market sentiments to some extent; however, this was deviated by a drop in Russian gas supply to Europe.