Commodities have witnessed a directionless week as market players continued to assess Fed’s monetary policy stance, virus situation as well as health of Chinese economy. Such directionless trade may continue in the near term with no clear cues.
COMEX gold tested March low earlier this week but bounced back sharply and has been rangebound near $1750 per troy ounce in the last few sessions. Crude oil bounced back after taking support near $65 a barrel however the gains lost momentum just below $70 a barrel. Copper also witnessed mixed trade reflecting volatility in the larger market and amid labour concerns in Chile.
Commodities started the week on a negative note as upbeat US non-farm payrolls data and some hawkish comments fueled expectations that Fed may start monetary tightening soon. Market sentiment however improved as US consumer price data came largely in line with expectations weakening the monetary tightening debate. Commodities however lost traction again as producer price data showed a much bigger-than-expected rise in prices reflecting rising price pressure.
The Fed has begun debate over monetary tightening but has failed to give a clear timeline as to when it will start tapering bond purchases. Lack of clarity from the Fed has caused market players to look at economic numbers and central bank comments to gauge how soon the Fed may start. With mixed economic data and mixed Fed comments there is uncertainty about Fed’s next move. Uncertainty in the market is also evident from diverging trends in asset classes. While commodities have lost their upward momentum on tightening concerns and US dollar and bond yields have inched up, US equities are setting fresh record high levels.
While Fed’s monetary policy is at the center of discussion presently, market players are also closely watching development relating to China. Chinese equities have recovered from recent lows amid expectations of stimulus measures to boost growth however market players remain nervous about economic slowdown, rising virus cases and regulatory crackdown measures.
Also in focus is the virus situation. Global virus cases continue to rise and have surpassed 205 million, as per John Hopkins data. Market reaction so far has been subdued amid expectations that authorities may try to avoid stringent measures to limit economic damage however if the situation continues to worsen, authorities may be forced to impose tighter measures. There are already some warning signs as the International Energy Agency lowered 2021 demand growth estimates owing to renewed virus concerns.
Amid uncertainty about the Fed, market players may keep an eye on US economic numbers and Fed comments. Further cues may come from Federal Open Market Committee (FOMC) minutes and Fed Chairman Jerome Powell’s comments next week. Market players may also focus on China’s industrial production and retail sales data to get more clarity about the health of the economy.