The US labour report will set the tone for commodity markets, as will the dollar index

Commodities remained volatile as supply concerns mounted, inflation fears persisted and the Fed vowed to keep inflation under control despite recession fears.

Recent comments from Fed officials imply that financial market volatility has not stopped them from raising interest rates further.

Several Fed members sent a hawkish message this week, demonstrating their tenacity in the fight against inflation and reiterating that the Fed’s goal is to control inflation and that they are not ready to reverse course.

This caused the US dollar index to rise above 112 from 110, while US 10-year Treasury yields rose to 3.83% from 3.55% earlier in the week.

Nonetheless, commodities have managed to hold onto gains. COMEX gold prices rose sharply to $1,730.5 an ounce from a two-and-a-half year low of $1,622.2 an ounce last week. Base metals gained traction in the second half of the year following the London Metal Exchange’s decision to restrict new metal supplies from Russia’s Ural Mining and Metallurgical Co and one of its subsidiaries.

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Brent and WTI crude futures have risen the most in the nonfarm commodities space, hitting around three-week highs on the back of an OPEC supply cut of more than 2 million barrels a day from November.

Weaker manufacturing PMI data earlier in the week raised optimism that the Fed could halt the pace of rate hikes; but a solid ADP payroll report and repeated aggressive rhetoric from Fed members reinforced signals of the Fed’s steadfast commitment to tightening policy.

According to US ADP data, private employers added a better-than-expected 2,08k jobs in September, indicating strength in the job market, while September services PMI expansion held steady at 56.7. In contrast, U.S. jobless claims rose 29k to 2.19k for the week ended October 1, while the manufacturing PMI fell to 50.9, the lowest since May 2020. Overall, economic data showed that the U.S -Economy is resilient enough to withstand a rise in interest rates.

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Markets have priced in a 73 percent chance of a 75 basis point rate hike at the November meeting, according to the widely used FedWatch tool, and strong jobs data from the government due today should push them further higher.

In addition, the European Central Bank’s (ECB) monetary policy meeting in September revealed concern among policymakers that inflationary pressures stemming from the depreciation of the euro could worsen unless monetary accommodation is promptly reduced.

In addition, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, warned that the outlook for the global economy is “clouding” as a result of the COVID-19 epidemic, Russia’s invasion of Ukraine and climate catastrophes on all continents. In line with this, she explained that the IMF will lower its forecast for global growth to 2.9 percent in 2023 next week, citing growing risks of recession and financial instability.

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The upcoming data releases, particularly the nonfarm payrolls from the United States, could have a significant impact on the dollar’s movement in the coming sessions. Higher than expected payroll data could only strengthen the case for another 75 basis point rate hike at the November meeting.

Commodities could see more volatility next week as Chinese markets return from their Golden Week holiday. Traders will also be keeping an eye out for US retail sales and inflation statistics next week for more information on the US economy.

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