Monetary policy meetings in US, Japan, UK to set the tone for commodity market

By Ravindra Rao, CMT, VP-Head Commodity Research at Kotak Securities

The market roller coaster ride for the week ended March 15 has left investors on the edge of their seats, with commodities swaying to the rhythm of rate cut speculations in response to US data releases. As the dust settles, all eyes turn to the Federal Reserve’s dot plot, with hopes for a rate cut taking a hit thanks to some eye-popping US CPI figures.

The dollar, after a dramatic plunge to a seven-week low in previous week (ended March 8), staged a remarkable rebound, climbing to 103.49 during the week ended March 15. This sudden surge came on the heels of US CPI and PPI figures, signaling that the Fed’s battle against inflation is far from over. February’s CPI numbers unexpectedly jumped to 3.2 percent year-on-year (with a monthly increase of 0.4 percent), intensifying concerns about inflationary pressures. Energy costs failed to drop as anticipated, while prices for essentials like food, shelter, and new vehicles rose at a slower pace. However, used cars and trucks continued their downward spiral.

Despite core CPI easing to a near three-year low of 3.8 percent year-on-year, the monthly increase surpassed expectations, painting a complex picture for policymakers. Adding fuel to the fire, US producer prices soared by 0.6 percent month-on-month in February, the steepest rise since August.

Meanwhile, COMEX Gold futures faced headwinds, shedding around 1 percent for the passing week and hovering near $2,161 per troy ounce. Investors, spooked by the hotter-than-expected inflation data, recalibrated their expectations for a rate cut in June, with only a 54 percent chance according to the CME FedWatch tool.

US Treasury Secretary Janet Yellen’s candid admission that inflation may not be as “transitory” as initially thought further dimmed the allure of non-yielding bullion. Yet, geopolitical tensions and central bank buying provided some support, cushioning gold’s decline.

In contrast, metals and crude oil found favour last week. The first draw in US stockpiles since January, coupled with the IEA’s revised oil market outlook projecting a supply deficit through 2024, propelled WTI Crude oil over 3 percent higher. Geopolitical tensions, including a Gaza ceasefire impasse and Ukraine’s attack on a Russian refinery, pushed prices above $81 a barrel for the first time since November. On the charts, MCX Crude Oil (Apr) signalled bullish momentum, breaking out of a ‘Descending Triangle’ pattern and targeting resistance at Rs 7,050.

LME base metals enjoyed a boost from China’s plans to export surplus metals and concerns over supply tightness. LME Copper surged to an 11-month high of $9066.5 per tonne, driven by China’s top smelters’ production cuts in response to dwindling ore supply.

Looking ahead, monetary policy meetings in Japan, the UK, and the US will set the tone for market movements. While the Fed is expected to maintain rates, investors eagerly await the new “dot plot” and Fed Chair Jerome Powell’s insights on the timing of rate cuts. The CPI report is likely to inject caution into the Fed’s deliberations, as policymakers tread carefully to avoid overzealous rate reductions.

Additionally, Chinese economic data and flash Manufacturing PMIs from developed economies will keep traders on their toes. With Chinese lending demand hitting a 19-year low, February’s economic activity may reinforce concerns about sluggish growth. As the week unfolds, markets brace for further twists and turns in this tumultuous financial journey.

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