US labour report to determine second quarter sentiment for commodities next week

Gold and global equities surged to unprecedented heights, concluding the first quarter of 2024 on a positive trajectory, primarily fuelled by central banks’ assurances of rate cuts.

The dollar maintained its position above 104 levels throughout the last week, with markets exercising caution ahead of the US core personal consumption expenditures index release. There were expectations that inflation might remain uncomfortably high in February. Additionally, notable Federal Reserve officials such as Federal Reserve Bank of Atlanta President Raphael Bostic, Federal Reserve Governor Lisa Cook, and Fed Governor Christopher Waller advocated for delayed or reduced cuts this year. Consequently, swaps traders reduced their bets on Fed easing, bringing it down to approximately 60 percent for a potential June cut.

Economic indicators from the US provided further support, painting a resilient picture. GDP and consumer spending exhibited strong growth, with advances of 3.4 percent and 3.3 percent respectively in the October-December quarter. Moreover, consumer sentiment surged to 79.4 by the end of March, marking its highest level since July 2021.

Gold continued its relentless ascent, bolstered by declining US Treasury yields and robust safe-haven demand, particularly in a holiday-shortened week. The COMEX Gold market witnessed a historic rally, reaching an impressive $2256 per troy ounce and concluding the quarter with approximately 9 percent gains. While gold surged by 4 percent weekly, silver’s gains were constrained to 1 percent amidst a mixed trend in industrial metals.

On the MCX Gold (June) chart, a notable ‘V’ shaped recovery was observed, surging above its previous swing high and establishing a new peak. Sustaining levels above Rs.67400 could potentially propel the counter towards its next resistance level at Rs 68,900 per 10 gram.

WTI Crude oil also experienced robust advancements throughout March, concluding the quarter with a remarkable 16.5 percent gain. This surge was attributed to OPEC+ output cuts and market anticipation of lower interest rates. Additionally, signs of Russia complying with OPEC production pledges, shifting the focus from exports to production, may further stimulate price increases in the crude oil market.

In contrast, most base metals ended the quarter on a weaker note, with concerns lingering over Chinese economic recovery and seasonal demand patterns. LME Copper managed a modest quarterly upside amidst production cut proposals from top copper smelters amid tight supply conditions.

The release of US Core PCE figures during the Good Friday holiday met expectations, providing some stability to market sentiment. While the Fed’s preferred inflation gauge remained above the 2 percent target, robust consumer spending indicated economic resilience despite higher borrowing costs.

Looking ahead, all eyes are on the upcoming US jobs data, which is poised to influence market dynamics. A strong labour market could diminish the likelihood of a June rate cut further, while any signs of cooling may prompt the Fed to act sooner to prevent an economic downturn. Forecasts suggest an increase of 205,000 in non-farm payrolls, with the unemployment rate expected to remain steady at 3.9 percent.

Additionally, average hourly earnings may see a slight uptick to 0.3 percent in March. Traders will closely monitor these developments, particularly after February’s sharp increase in NFP failed to elicit a favorable response in the dollar due to downward revisions in previous months.

In summary, the first quarter of 2024 showcased resilience in the face of economic uncertainties, with gold and oil leading the rally in commodities, while equities reached new heights. As the second quarter unfolds, market participants remain vigilant, awaiting key economic indicators and policy decisions to guide their investment strategies in a dynamic global landscape.

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