Commodity markets will be watching US retail sales and FOMC officials' remarks next week

Commodity markets will be watching US retail sales and FOMC officials' remarks next week

Commodity markets will be watching US retail sales and FOMC officials' remarks next week

Fears of interruption and the need for ships to reroute might help boost the price of crude oil, particularly as Saudi Arabia has warned that recent steps by the US and its allies could worsen tensions.

With growing geopolitical tensions in the Middle East, global markets saw swings in risk sentiment as they kept a tight eye on inflation estimates from China and the United States.

As market players anxiously anticipated indications of a potential slowdown in US inflation, which might heighten hopes of an early Federal Reserve rate decrease, the US dollar index fluctuated, bouncing between gains and losses. The dollar and US 10-year Treasury rates, however, immediately increased after US inflation statistics beat estimates, rising over 102.7 and 4%, respectively. The US CPI and Core CPI increased by 3.4 and 3.9 percent over the course of a year, respectively, above forecasts of 3.2 and 3.8 percent. The dollar fell below 102.2 after an initially upbeat response, as expectations for a rate decrease were mostly intact in spite of the robust inflation figures.

Following the announcement of US inflation data, COMEX gold prices surged dramatically from their low of $200 per troy ounce in 2017. Gold prices stabilized at the end of the week after early turbulence as concern over the US Federal Reserve's first monetary easing program was stoked by a productive inflation reading that was lower than anticipated.

In December 2023, US producer prices unexpectedly fell 0.1 percent month over month despite the market expecting a 0.1 percent rise. The yearly increase of 1 percent was less than the predicted rise of 1.3 percent. The statistics raised expectations for a gradual convergence of inflation toward the Federal Reserve's goal by contradicting prior high CPI figures. The continuous violence in the Middle East is driving up demand for gold as a safe haven, but silver is also recovering; at the end of the week, it had lost only 0.10 percent.

From $70.13 to $75.25 per barrel, WTI oil had a notable upturn. It then closed at $72.68 per barrel, up 1%. Strikes on Houthi targets in Yemen in response to assaults on ships in the Red Sea re-energized the war risk premium. Production and flows in a region that produces one-third of the world's crude oil are threatened by the wider Middle East crisis and worries about Iran's potential direct participation. Fears of interruption and the need for ships to reroute might help boost the price of crude oil, particularly as Saudi Arabia has warned that recent steps by the US and its allies could worsen tensions.

Due to worries about the state of the world's manufacturing and construction industries as well as uncertainties about the Fed's interest rate forecast, the majority of base metals on the LME dropped to one-month lows. Concerns in the market have also been heightened by the World Bank's prediction that global growth would decline in 2024 for the third year in a row and that China's economic growth would fall to 4.5 percent. Falling consumer prices, which indicate a reluctance to spend money, and China's problematic real estate sector concerns are to blame for the downturn.

With the recent US data casting doubt on the future for interest rates, investors will be watching for statements from FOMC members and impending US retail sales data in the approaching week. The Fed may decide to take a cautious approach in response to December's strong retail sales performance, which might lessen the need for a rate decrease.

In addition, the People's Bank of China is expected to lower interest rates on its one-year policy loan for the first time since August as a result of the CPI declining in China for the third consecutive month in December. There is also conjecture on a potential decrease in the minimum reserve requirement for banks. The deflation signal points to poor domestic demand, especially for crucial GDP and other data releases from China, and maybe rising requests for intervention.