Commodity markets to focus on US inflation, ECB policy meet next week

By Kaynat Chainwala, senior manager - commodity research at Kotak Securities

Gold continued its relentless upside while equities wavered as the latest labour data quelled urgency for the much-anticipated first rate cut and a rally in oil prices added to inflationary jitters.

Data released during the week ended April 5 showed signs of a slowdown in the US labour market (with easing JOLTs job quits) and a strong Manufacturing PMI was countered by ease in Services PMI. In the latest Fed speeches, Minneapolis Fed President Neel Kashkari floated the idea of no rate cuts in 2024 if progress on inflation stalls, with the economy remaining robust, while several others still expect the US central bank to cut rates three times in 2024. The comments followed Fed chair’s speech earlier this week, when he reiterated that rate cuts might be appropriate at some point this year, even though there’s no hurry. Mixed Fed comments, signs of a resilient US economy and rising oil prices led to rate cut uncertainty.

COMEX Gold prices rose to a record high of $2350 per troy ounce last week before closing with a third consecutive weekly advance, amid escalation in geo-political tensions, prospects of Fed rate cuts and robust central bank buying. A recent World Gold Council report showed central banks continued adding to their gold holdings in February, marking the ninth straight month of accumulation, with China dominating purchases. PBoC (People's Bank of China) increased reserves for the sixteenth consecutive month, by 12 tonnes to 2,257 tonnes in February. Even though record high prices and elevated rates are hurting retail demand and ETF flows, central bank buying is supporting overall demand.

Renewed war-risk premium fueled a rally in WTI crude oil to five and a half month high of $87.63 a barrel as Israel has increased preparations for potential retaliation by Iran after Monday’s airstrike on the Iranian embassy in Syria, increasing concerns of a wider conflict in a region home to almost one-third of global oil supplies. Cease-fire talks between Israel and Hamas also remain in a deadlock, signaling the potential for more upside.

On the weekly chart, MCX Crude Oil (Apr) has given an upward breakout of its ‘falling trend line’ affirming a bullish presence. In addition, the RSI (relative strength index 14) has surged above its 50 level. The next hurdle for the counter is placed at Rs 7,530, above which major resistance is placed at Rs 7,750.

LME base metals witnessed a rally of more than 5 percent as expansion in global manufacturing activity in March boosted hopes of demand recovery. Tight concentrate markets paved the way for a sharp upside in Copper and Zinc while prospects of delay in delayed smelter restarts boosted the rally in Aluminium to one-year highs.

Next week, US inflation numbers will be in focus as the latest jobs report displayed economic resilience and defied fears of a recession, even amid high-interest rates. While the non-farm payrolls advanced 303,000 last month following a combined 22,000 upward revision to job gains in the prior two months, fears of accelerated inflation receded as the participation rate rose to 62.7 percent, the first advance since November, and average hourly earnings met estimates. This has now complicated the Fed’s decision of a June rate cut and in turn, added more weightage to next week’s CPI and PPI figures.

Other notable market movers would be China's new loans and inflation along with ECB monetary policy meeting. Markets would keenly wait to see whether an unexpected decline in Eurozone inflation in March pushes the ECB towards early rate cuts.

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