Commodity markets to focus on US Jobs data, comments from Fed chair for clearer insights on policy outlook next week

By Kaynat Chainwala, Associate Vice President – Commodity Research at Kotak Securities

Markets wrapped up the first half of 2024 with cooling inflation and better-than-expected consumer sentiment in the US leading to a bumpy ride in the penultimate session of June.

Dollar hit a two-month high of 106.13 buoyed by Japanese yen weakening to around 161 per dollar, for the first time since 1986 as the Ministry of Finance appointed Atsushi Mimura as Japan’s top currency diplomat, replacing Masato Kanda. Also, markets assessed former president Donald Trump way ahead in the first US presidential debate. Additionally, hawkish comments by Fed officials and reiteration of the wait and watch approach bolstered the greenback. However, Dollar retreated from two month high of 106.13 as data showed inflation continued to ease in May for a second consecutive month after running hotter-than-expected in the first quarter.

COMEX Gold futures were set to close the week (ended June 28) higher buoyed by softening key US inflation gauge and heightened geo-political tensions. However, gold gave up gains as dollar only witnessed marginal weakness despite US data signaling towards slowing growth and inflation. US economy expanded at a 1.4 percent annual pace in the first quarter, marking slowest quarterly growth since spring 2022 and a slight upgrade from its previous estimate of 1.3 percent, while Continuing claims, a proxy for the number of people receiving benefits, increased to 1.84 million in the week ended June 15.

WTI Crude extended gains for third week in a row and surged to two-month high of $82.72 a barrel as tensions between Israel and Lebanon’s Hezbollah have intensified in northern Israel in recent weeks, while Israel is ramping up preparations for the invasion of southern Lebanon to limit Hezbollah’s activities. Crude oil prices may remain supported as a wider conflict could potentially involve Iran and open up a multi-front war in the region, posing a risk to energy supplies.

MCX Crude Oil July futures on the daily chart broke out of a consolidation on Friday that had been developing for more than a week, but the price closed inside the consolidation, making it difficult to hold. The price is currently above both the 20SMA (Simple Moving Average) and the Supertrend (7,3), suggesting that the short-term bullish trend is still in place. If price breaks and holds above Friday’s high of Rs 6,899 per barrel, it could pick up positive momentum and challenge the Rs 7,000 mark in the upcoming week. Conversely, should the price breach the Rs 6,700 consolidation support, it might drop as low as Rs 6,570. In the upcoming week, we anticipate sideways to bullish price movement.

LME base metals received support from easing of homebuying requirements in capital city Beijing while Copper was the only loser in the pack due to fragile Chinese demand outlook evident in negative Yangshan import premium, high Copper exports and elevated stocks.

As expected, US core PCE inflation increased at a slower pace of 0.1 percent MoM in May, while the headline PCE (Personal Consumption Expenditures) remained unchanged mom. On a year-on-year basis, Core inflation increased 2.6 percent in May, the smallest advance since March 2021, after rising 2.8 percent in April, boosting hopes that this might increase Fed policymakers’ confidence that inflation is heading “sustainably” toward the central bank’s 2 percent goal.

With the much awaited PCE numbers failing to significantly alter rate cut expectations, markets are now pinning their hopes on upcoming US Jobs data and comments from Fed chair Jerome Powell for clearer insights on policy outlook.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.