Commodity traders to take cues from Fed Chair speech, flash PMI numbers next week

By Kaynat Chainwala, Senior Manager- Commodity Research at Kotak Securities

Market volatility was notable this week (ended May 17) as optimism sparked by soft US inflation data, was tempered by traders reconsidering the future path for interest rates following hawkish comments from several Fed officials. However, market confidence was restored soon after, thanks to sweeping measures from China aimed at rescuing property markets.

The US dollar weakened to 104.08 as US Core CPI data marked the first decline in six months in April, suggesting a gradual easing of persistent price pressures. Additionally, US retail sales unexpectedly fell short of expectations, signaling a potential softening in consumer demand. This strengthened rate cut wagers and pushed the Dow Jones above the key 40,000 level for the first time. Similarly, the S&P 500 and Nasdaq indices reached record-high closing levels. Nonetheless, signs of a tight labour market prompted a rebound in both US Treasury yields and the dollar from their respective six-week lows.

COMEX Gold prices gained 1.7 percent for the week, reaching a one-month high of $2,423.7 per ounce. This increase was driven by optimism surrounding China’s stimulus measures, which were expected to sustain strong demand. However, gold prices experienced volatility throughout the week, initially surging following the release of US CPI figures but later retreating as several Federal Reserve officials emphasized the importance of maintaining elevated borrowing costs to achieve the targeted 2 percent inflation rate, suggesting that a single soft inflation reading might not prompt immediate rate cuts.

On the daily chart, MCX GOLD June futures maintained its upward trend and closed at an all-time high (Rs 73,711 per 10 gram). The majority of indicators suggest that the price may maintain its positive momentum into next week (starting from May 20). The closest resistance, according to Fibonacci extension, is Rs 74,959 (38.2 percent), which is followed by Rs 76,466 (50 percent).

Rally in industrial metals propelled silver prices, with COMEX Silver prices surging 9 percent and surpassing the $31 per ounce mark for the first time since 2013 and MCX prices hitting record highs.

Meanwhile, WTI Crude oil futures benefited from a decline in US crude stocks and ongoing geopolitical tensions. However, oil price weekly gain of 2 percent and unprecedented rally in base metals can be primarily attributed to China’s efforts to stabilize its struggling property market. LME base metals emerged as standout performers, with copper attracting significant investor attention. A short squeeze on the COMEX led to bullish movements, pushing copper prices to record highs on COMEX and ShFE, while LME prices were seen rapidly approaching the all-time high of $10,845 per tonne.

Now, as the focus is shifting from speculation about “if” to deliberation over “when” rate cuts might occur in 2024, speeches by FOMC officials gain more significance as traders seek clues about the potential timing of a Fed pivot. According to the CME FedWatch Tool, traders are currently pricing in a roughly 66 percent chance of a US rate cut in September, while 34 percent probability is assigned to a status quo. So, speech by the Fed Chair Powell early next week will be particularly scrutinized as FOMC officials recently reiterated a “higher for longer” stance and did not openly alter their views on the timing of rate cuts this week.

On the data front, flash PMI figures will provide early insights into economic activity, while revised University of Michigan inflation expectations may assist markets in assessing the inflation outlook. Amidst this dynamic landscape, a relative lack of significant economic data next week may offer markets a much-needed breather after a turbulent week.

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