Commodity markets to focus on Chinese home prices, US retail sales, flash PMIs next week

By Kaynat Chainwala, AVP Commodity Research, Kotak Securities

An upbeat US labour market report and a hawkish tone from the FOMC limited global risk appetite this week ending June 14. During the June FOMC meeting, the Fed kept the funds target range steady at 5.25-5.50 percent for the 7th consecutive meeting. However, the dot-plot projections indicated that members expect only one 25bps rate cut on average this year, down from three cuts projected in March. Four members even forecasted no cuts at all. Policymakers also expressed less optimism about reducing inflation in the US economy, while expectations for growth and unemployment remained unchanged, adding to the hawkish sentiment.

Nevertheless, softer inflation numbers and an unexpected increase in US weekly jobless claims increased confidence that the Fed might change course in Q3 2024. The annual inflation rate in the US unexpectedly slowed to 3.3 percent in May 2024, the lowest in three months, down from 3.4 percent in April. Similarly, annual core inflation eased to a more than three-year low of 3.4 percent in May 2024, down from 3.6 percent the previous month. These figures boosted market sentiment, leading the S&P 500 and Nasdaq to record highs, closing the week up 1.6 percent and 3.2 percent, respectively.

COMEX Gold prices saw their first weekly gain in four weeks, closing the week 1 percent higher near $2350 per troy ounce. Investors weighed signs of cooling inflation in the US against a hawkish FOMC policy outcome and robust job additions in May. Recent data from the World Gold Council indicated that global gold ETFs saw inflows in May, ending twelve consecutive months of outflows. Chinese gold ETFs added $253 million in May, extending their inflow streak to six months and reaching a record high in total assets under management.

After registering an all-time high at 74,442, MCX Gold August Future (continuous) is consolidating in a ‘Symmetrical Triangle’ pattern. While price is meandering around the 20-day SMA (Simple Moving Average), we notice a range for the counter marked by a resistance at Rs 73,516 per 10 gram and support at Rs 70,750. Additionally, a crucial base is visible at Rs 70,080. Aligning with the stagnant 14-period RSI (Relative Strength Index), we expect the trend to be sideways for the next week.

WTI Crude oil hit a two-week high of $79.3 per barrel, driven by expectations of SPR refilling, rising seasonal fuel demand, and strong demand forecasts from EIA and OPEC. However, prices retreated from higher levels due to unexpected inventory buildups and ongoing talks regarding a potential ceasefire in Gaza. LME base metals remained under pressure due to Fed’s tighter monetary policy stance and as Chinese inflation numbers indicated sluggish domestic demand and uneven economic recovery.

Moderating inflation prompted traders to increase their bets to price in approximately 52 bps of cuts by the end of December, implying expectations of two 25bps cuts this year. The probability of a rate cut in September also rose sharply to 62 percent from 46.6 percent the previous week. Additionally, US consumer sentiment declined to a seven-month low in June, while inflation expectations for the next twelve months edged up to 3.1 percent from 3.0 percent, underscoring persistent concerns about higher prices.

Next week, markets will focus on key Chinese data, US retail sales and flash PMIs from advanced economies. The Bank of England’s monetary policy decision and speeches by several Fed officials may provide insights into the policy outlook. Markets anticipate a dovish stance from the BoE due to the decline in UK inflation towards the 2 percent target, although strong wage growth suggests that the first rate cut may not occur until August.

Market participants will closely monitor Chinese home prices data, especially to assess the impact of recent measures aimed at the property market, with any disappointment potentially increasing calls for further stimulus.

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