COMMODITY INVESTORS TO FOCUS ON FOMC STATEMENT NEXT WEEK AS MARKETS NEARLY CERTAIN OF FIRST RATE CUT IN SEPTEMBER

By Kaynat Chainwala, AVP - Commodity Research at Kotak Securities

Tamer US inflation figures provided markets a much needed relief at the end of the turbulent week (ended July 26) marked by political uncertainty, sell-off in global tech shares and serious concerns about Chinese economic recovery.

Following a sharp pullback from all-time highs in the previous week, Gold prices briefly recovered and surged above $2400 per troy ounce earlier this week as President Joe Biden's decision to end his re-election campaign and endorse Vice President Kamala Harris prompted speculation on whether it would benefit or hinder Donald Trump's chances of returning to the White House. However, the uptick did not last long as recovery in dollar coupled with markets’ preference of Yen as a safe-haven asset over gold led to sharp retreat in gold to two-week low of $2351.9 per troy ounce.

COMEX gold rebounded to $2,389.7 per ounce but closed with a second consecutive weekly loss, while Silver tumbled more than 4 percent this week, in line with weakness in gold and base metals. On the domestic front, decline in gold and silver was steeper at 6.9 percent and 8.9 percent respectively primarily due to the cut in import duty from 15 percent to 6 percent, which exceeded the market's expectations of a 10 percent reduction. Lower prices could potentially stimulate retail demand and prompt increased imports in the medium term.

WTI crude prices closed the week lower by 4.4 percent, marking a third consecutive weekly decline as weak Chinese demand prospects and hopes of Gaza ceasefire outweighed the impact of lower US stock levels. Chinese slowdown concerns further hurt the demand outlook amid already declining refinery runs and imports. OPEC+ ministerial meeting due August 1 is likely to attract attention from oil market participants, although no changes to the group's output policy are expected.

On the four hourly chart, MCX Crude Oil (August) has witnessed support near its 50 percent ‘Fibonacci Retracement Level’. In addition, MACD (Moving Average Convergence Divergence) indicator has provided a fresh positive crossover affirming positive momentum. Next resistance for the counter is placed at Rs 6,730 per barrel, above which major resistance is placed at Rs 6,880.

Losses in base metals deepened this week as recent interest rate cuts by the People’s Bank of China, intended to bolster a struggling economy, failed to boost confidence in the demand outlook, thereby pushing LME Copper, Aluminium to four-month lows and Zinc to lowest levels since April. The upcoming Politburo meeting, scheduled for late July, will be closely watched by investors to see if the government acknowledges economic headwinds and implements more immediate measures to proactively boost domestic demand.

Core PCE increased 0.2 percent MoM from May and 2.6 percent from a year ago, slightly exceeding expectations, thereby pushing July rate cut off the table. However, impact of the same was muted on dollar and most commodities as moderating inflation and a cooler labour market kept markets nearly certain of the first rate cut in September. Investors will now turn their attention to the upcoming FOMC statement and key economic data next week for additional guidance on future monetary policy. Bank of Japan policy decision will also be closely watched amid tightening expectations, contrasting with anticipated rate cuts by the Federal Reserve and the European Central Bank.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

2024-07-27T13:36:46Z dg43tfdfdgfd