Investors in commodities should closely monitor inflation in the US and China as this might influence expectations for monetary policy

Investors in commodities should closely monitor inflation in the US and China as this might influence expectations for monetary policy

Investors in commodities should closely monitor inflation in the US and China as this might influence expectations for monetary policy

Investors will be closely monitoring US and Chinese inflation statistics in the next week as they have the potential to influence monetary policy forecasts.

There has been a noticeable shift in market attitude in the first few weeks of 2024 as investors deal with growing expectations about rapid monetary easing. The initial frenzy associated with the risk-on climate has given way to a more cautious approach, which has caused investors to reconsider their holdings across a range of asset classes.

Treasury rates and the dollar index both indicated a robust start to the year. The 10-year Treasury yield surpassed 4%, while the value of the US dollar reached 103. The Federal Reserve's revision of its projections for rate cuts in 2024 provided the catalyst for this rising trend.

Policymakers agreed to maintain an accommodating position "for some time" until they saw a persistent reduction in inflation, according to the minutes of the December FOMC meeting. The most recent data has forced a reevaluation, even though markets were anticipating six rate decreases in 2024, beginning with a quarter-point reduction in March. From over 90% before, the market now expects just a 62% likelihood of a 25 basis point rate drop by the US central bank in March.

Inconsistent economic statistics increased the level of uncertainty. US job opportunities via JOLTs fell to 8.79 million in November, the lowest since March 2021, and the US industrial activity continued to drop, according to the December ISM PMI survey. The need for a swift rate decrease by the Fed was lessened, meanwhile, by non-farm payrolls, weekly jobless claims, and ADP employment statistics that indicated continued growth in the US labor market.

Within the precious metals market, COMEX Gold had a favorable start to the year, staying above $2100 per troy ounce. The spike was driven by anticipation of a rate drop by the Federal Reserve in March and geopolitical concerns in the Middle East. But with the disclosure of the FOMC minutes, a reality check set in, and gold and silver prices started to retrace below $2040 per troy ounce and $23 per troy ounce, respectively.

The likelihood of a protracted battle in Gaza and rising geopolitical tensions in the Middle East boosted demand for gold as a safe haven, averting more substantial falls. The market is awaiting more signals from the mixed US economic data, and the present price movement of COMEX gold is centered on the resistance zone at $2085–2090 per troy ounce.

The weak industrial outlook in developed economies, particularly in China, put pressure on LME base metals' selling position. Prices were affected by worries of a protracted recession in China's property market, a weak economic recovery brought on by regulatory concerns, and a lack of significant stimulus. A tonne of LME copper dropped to around $8400 due to indications of a slowing Chinese import market. Conversely, aluminum saw a 5% decline, wiping out the gains from the previous week as speculators exaggerated a rally spurred by worries about supply restrictions in the wake of the explosion in Guinea.

Despite indications of poor US demand, WTI crude oil prices saw a weekly rise of more than 2.5 percent, aided by a disruption in Libya's production and increased tensions in the Middle East. Although the EIA data showed that crude oil stocks at the Cushing, Oklahoma hub increased steadily for the eleventh week running, US national stockpiles decreased by 5.503 million barrels, which added to the general optimism in the crude oil markets.

Investors will be closely monitoring US and Chinese inflation statistics in the next week as they have the potential to influence monetary policy forecasts. A decrease in borrowing rates by Chinese authorities is anticipated in 2024, particularly in light of the People's Bank of China's recent weakening of the country's currency peg—the biggest in six months. China's meager economic recovery is forcing the nation to think about lowering interest rates and providing sufficient liquidity.