Will Commodities Sustain The Higher Levels?
Ninad RamdasiCategories: DSIJ_Magazine_Web, DSIJMagazine_App, Editorial, Market Moves, Market Watch
China, the second-largest consumer of oil in the world, kept its benchmark lending rates steady while other major economies tightened as it strives to strike a balance between supporting its slow economic development and the falling yuan.
"China, the second-largest consumer of oil in the world, kept its benchmark lending rates steady while other major economies tightened as it strives to strike a balance between supporting its slow economic development and the falling yuan."
Despite the fact that commodities have rebounded, a sustained recovery faces many obstacles due to the fact that after a rapid increase the US dollar is now susceptible to profit-taking
Over the past fortnight, commodities began to show some signs of improvement as the US Dollar index battled to consolidate its gains. The greenback has been the primary driver influencing commodity prices and this trend may continue as market participants prepare for US’ inflation statistics due next week and the US Federal Reserve’s decision on monetary policy in the last week of September. Due to the Federal Reserve’s aggressive posture and safe haven buying, the USD had a strong start to the month and hit a new 2022 high.
A number of Federal Reserve officials, including Chairman Jerome Powell, voiced support for aggressive action to curb inflation, which helped solidify market expectations of another significant rate hike at the upcoming meeting. Hopes of a resolution to Europe’s gas supply difficulty also put pressure on oil. German purchasers had previously secured space to receive Russian gas through the closed Nord Stream 1 pipeline but this had since been changed and no gas had been flowing.
Crude prices have increased dramatically this year with the Brent benchmark approaching its all-time high of USD 147 set in March after Russia’s invasion of Ukraine that aggravated supply issues. Since then, prices have fallen due to concerns about slower economic growth and demand. Forecasts for weaker demand have also put pressure on the commodity market, especially after the International Energy Agency said that there would be no demand growth in the fourth quarter. Despite these worries about demand, supply concerns halted the downfall.
China, the second-largest consumer of oil in the world, kept its benchmark lending rates steady while other major economies tightened as it strives to strike a balance between supporting its slow economic development and the falling yuan. The outlook for China may likewise be dim unless it is able to stop the spread of the corona virus. Market participants will have to look at the US’ inflation data as well as Chinese industrial production and retail sales data as problems continue. In focus will also be the European Union’s efforts to control energy prices.
A number of Japanese government officials have voiced their worries about the sharp decline of the Japanese yen and said they are prepared to act accordingly. South Korea has also voiced concern over the rise in currency market ambiguity. To strengthen the yuan, China has reduced the percentage of required foreign exchange reserves by 2 per cent. Despite the fact that commodities have rebounded, a sustained recovery faces many obstacles. Due to its rapid increase, the US dollar is now susceptible to profit-taking. A big reversal is challenging given the Federal Reserve’s continued emphasis on aggressive rate hikes.