Commodities zoom in on FOMC minutes, Fed speeches, Flash PMI numbers this week

After a week of volatile fluctuations, commodities, except for gold, closed with in the green as traders analysed a barrage of US economic data and speeches by Federal Reserve officials.

Surprising higher-than-expected US inflation figures fuelled speculation of a delay in the Federal Reserve’s move towards monetary easing. January’s US Consumer Price Index (CPI) eased less than anticipated, registering at 3.1 percent, while the core reading unexpectedly held steady at 3.9 percent. Both consumer prices and the core rate experienced significant monthly increases of 0.3 percent and 0.4 percent, leading to a shift in the full pricing of a rate cut to July from June.

However, a sharp decline in retail sales in January, partly attributed to severe winter conditions, renewed expectations of a rate cut in the first half of the year. Retail sales dropped by 0.8 percent, marking the largest decline since March 2023, prompting short-term interest-rate contracts to once again fully price in a Fed rate-cut in June, with the likelihood of a May cut rising to about 44 percent.

The US dollar and treasury yields also reacted to market expectations surrounding the Federal Reserve’s monetary policy. The greenback retreated from its three-month high of 104.97, and US 10-year treasury yields moderated from an 11-week high of 4.33 percent.

COMEX gold prices experienced a second consecutive weekly decline of just over 0.50 percent as mixed US data complicated expectations for the Federal Reserve’s easing path. However, gold recovered from a two-month low of $1996.4 per troy ounce to close the week near $2025 per troy ounce, while silver registered over 3.50 percent weekly gains due to an uptick in industrial metals.

Investment activity in gold remained subdued, with persistent ETF outflows amid higher interest rates. Holdings at the SPDR Gold ETF declined to 837.31 tonnes as of February 15, the lowest since August 2019. China’s central bank continued to add gold to its reserves for the fifteenth consecutive month, announcing a 10-tonne gold purchase in January, pushing their total gold reserves to 2,245 tonnes. The World Gold Council predicts subdued demand for Indian gold jewellery in the next couple of months due to high domestic prices and a seasonal lull in demand.

Most base metals closed the week with over a 2 percent upside, boosted by the dollar’s pullback and hopes of consumption recovery in China after the week-long Lunar New Year Holidays. WTI crude oil also held onto a weekly advance, as escalating geopolitical tensions in the Middle East and OPEC members’ compliance with supply cuts outweighed the gloomy demand outlook by the International Energy Agency (IEA).

Looking ahead to the current week, market participants will closely watch the FOMC meeting minutes, speeches by FOMC officials, and Flash PMI figures, as choppy US data has clouded policy expectations. The minutes of the January FOMC meeting may provide further insights into why Fed officials are not confident enough to initiate policy easing in Q1 2024, as markets had previously anticipated. However, the minutes might reveal a broad consensus for rate cuts later in the year.

Additionally, Chinese markets may reopen on a positive note, fueled by signs of a pickup in consumer spending and optimism regarding construction demand in the coming weeks as the seasonal winter lull draws to an end.

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