Commodity markets to focus on Fed Chair’s speech, US PCE price index, Q3 GDP numbers this week

Global financial markets experienced a wave of optimism last week ended March 22, fueled by signals from several central banks indicating a shift towards looser monetary policy.

The surprise rate cut by the Swiss National Bank (SNB), coupled with a dovish stance from the Bank of England, and the Federal Reserve maintaining its rate cut outlook, reignited investor confidence. European markets reflected this sentiment with the Stoxx 600 surpassing its record high of 509, while the UK’s FTSE 100 approached its all-time peak of 8,047.

The SNB’s decision marked it as the first major central bank in the developed world to cut rates in this cycle, lowering its main key rate from 1.75 percent to 1.5 percent, with inflation forecast remaining below 2 percent over the next few years. Meanwhile, the Bank of England kept rates steady at 5.25 percent during its March meeting, hinting at favourable conditions for potential interest rate reductions.

Similarly, the three leading US stock indices soared to their highest levels as Fed Chair Jerome Powell reaffirmed the outlook for three rate cuts this year, indicating policymakers’ lack of concern over a recent rebound in price pressures. Notably, the US dollar witnessed a turnaround, bouncing back from a dip to 103.17 following FOMC projections. This rebound was attributed to signs of resilience in the US economy and the interest rate gap between the Federal Reserve and other central banks.

Positive economic indicators, such as the US flash Manufacturing PMI reaching a two-year high in March, existing home sales surging to a one-year high of 4.38 million, and unexpected declines in weekly jobless claims, further bolstered market sentiment.

While COMEX Gold futures initially hit a fresh record high of $2225.3 per troy ounce, they ended the week flat near $2165 per troy ounce. The rally, driven by a slightly dovish FOMC policy outcome, was tempered by a recovery in the dollar amid concerns that recent US data might prompt the Fed to reconsider its rate reduction forecasts. Conversely, silver registered a 2 percent weekly loss in line with weakness in industrial metals.

WTI Crude oil experienced a surge to its highest levels since November, buoyed by a drawdown in US crude inventories for a second consecutive week and the dovish Fed policy outcome. However, prices retreated to $81 a barrel as geopolitical tensions eased after US Secretary of State Antony Blinken expressed optimism regarding talks in Qatar aimed at reaching a Gaza ceasefire agreement between Israel and Hamas.

On the weekly chart, MCX Crude Oil (Apr) formed a ‘Shooting Star’ candlestick pattern, while the Stochastic (14) signaled a fresh negative crossover, indicating a potential profit booking scenario down to support levels of Rs 6,480 per barrel.

LME base metals faced downward pressure as the China property debt crisis extended for the fourth consecutive year. Sentiment towards the Chinese property market, a major demand driver for metals, remained pessimistic amidst the growing threat of liquidation, with the housing minister suggesting that seriously insolvent developers should go bankrupt if necessary.

Looking ahead, next week will put a spotlight on Fed Chair Jerome Powell’s speech, the US PCE price index, and the final Q3 GDP figures. A hotter Core PCE, inconsistent with the Fed’s 2 percent target, could bolster the greenback and pose a challenge for bullion prices, while a softer figure may support further rate cuts. Additionally, the potential for liquidity boosts in China, with room for lowering the reserve requirement ratio for banks, may provide some cushion for metals markets.

The author is head commodity research at Kotak Securities.

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