Akash Jha
By Ravindra V Rao, CMT, VP-Head Commodity Research at Kotak Securities
Chinese regulators intensified their efforts to stimulate domestic consumption, while persistent US inflationary pressures limited gains in other markets.
As persistent inflation in the United States fueled expectations of sustained monetary tightening by the Federal Reserve, the dollar reached a six-month high of 105.43.
The Consumer Price Index (CPI) in the United States increased by 0.6% in August, the greatest monthly increase since May 2022. In the meantime, core inflation slowed for the fifth consecutive month to 4.3%, in line with market expectations. August retail sales also exceeded expectations, increasing by 0.6%, demonstrating consumers’ resilience in the face of rising prices. This leaves the door open for possible interest rate increases in November or December, following an anticipated pause this month.
The US dollar received further support as the euro extended its decline for the ninth consecutive week. This decline followed hints that the European Central Bank (ECB) may momentarily halt future rate hikes, after raising rates to a historic 4 percent by 25 basis points.
According to the ECB’s statement, key interest rates have reached levels that, if maintained for a sufficient period of time, will substantially contribute to the timely return of inflation to the target level.
After declining to $1,921.70 per troy ounce, the price of COMEX Gold recovered. The most recent data from the United States has raised concerns about another Federal Reserve interest rate increase. Nonetheless, market expectations for a pause at the September 19-20 FOMC policy meeting remain essentially unchanged. In contrast, silver benefited from an increase in iShares holdings and a rise in base metal pricing.
Regarding price movement, the silver spot in dollars demonstrated a bullish engulfing pattern, whereas the MCX silver daily chart showed a morning star formation near the 200 SMA support. These indicators indicate the possibility of a silver price recovery within the next week.
Since November 2022, WTI Crude prices surpassed $90 per barrel for the first time. Major oil agencies such as IEA, OPEC, and EIA predicted that the oil market would experience a moderate to significant deficit in the second half of the year. In our article from the previous week, we mentioned the possibility of favorable momentum driving the NYMEX WTI price to $90 per barrel. As anticipated, this scenario materialized with the weekly closing price exceeding the $90 threshold. The ongoing trend appears to be positive, contingent upon the critical level of $88 per barrel being maintained at the close.
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LME base metals experienced fluctuations during the week due to a sudden rebound in the dollar and renewed concerns in property markets. However, the People’s Bank of China’s decision to reduce the reserve requirement ratio (RRR) for all banks, except those already implementing a 5% reserve ratio, by 25 basis points beginning September 15 and unexpectedly positive Chinese economic data provided some support for the metals sector.
The upcoming week will be dominated by the FOMC statement and economic forecasts. Recent US data releases have rekindled hopes for a gentle landing despite rising interest rates. The Bank of England (BOE) is likely to increase interest rates in response to rising inflation, while the Bank of Japan’s (BoJ) policy will be closely monitored after Governor Kazuo Ueda hinted at the possibility of terminating negative interest rates sooner.
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