Next week, FOMC policy and US labor statistics will put commodities investors to the test

Next week, FOMC policy and US labor statistics will put commodities investors to the test

With the Fed predicted to preserve the status quo at its meeting for a sixth straight week and to sound a little more hawkish than usual, traders are likely to be on edge.

Despite reducing tensions between Israel and Iran, elevated price pressures in the US clouded the outlook for the commodities market in the week that concluded on April 26. This gave riskier assets some respite.

The dollar dropped to a two-week low of 105.4 due to mixed US economic data. The first quarter's strong pricing pressures combined with the weakest growth since Q2 2022 cast doubt on the Fed's outlook for policy. But the core PCE price index grew rapidly by 3.7 percent, supporting the idea that high interest rates will probably remain in place for the time being and supporting the dollar's recovery above the 106 levels.

In addition, given the stagnation of inflation, Fed members have modified their dovish position from the beginning of the year. They are now supporting the idea of limiting this year's rate reduction. The Federal Reserve Bank of San Francisco President, Mary Daly, said that there is no pressing need to change interest rates, noting steady economic growth, a robust labor market, and ongoing inflation. Parallel to this, Chicago Fed economist Austan Goolsbee said that the central bank must "recalibrate" in response to a string of inflation data points that were higher than anticipated. Despite this, global equities did well, propelled by a surge in technology companies due to impressive results from Alphabet Inc. and Microsoft Corp.

Ahead of the FOMC policy meeting on May 1st, investors considered lowering geopolitical tensions, mixed US economic data, and aggressive remarks from Fed officials. As a result, COMEX Gold futures finished almost 3% down, marking their first weekly fall in six weeks.

Furthermore, after a dismal early estimate, US Treasury Secretary Janet Yellen voiced optimism in US economic growth, which caused benchmark US treasury rates to spike to a five-month high of 4.73 percent and lessen the allure of non-yielding gold. Amidst the decline in gold and weaker industrial metals, silver fell by almost 6%.

Still, demand for safe haven assets fueled by worries about stagflation may help gold.

For the last week, LME base metals have finished lower as investors evaluated the continued property downturn in China and US data that delayed the timing of a Fed shift. The sole exception was copper, which broke beyond $10,000 per tonne for the first price since April 2022 as a result of BHP Group's unsolicited all-share acquisition bid for competitor Anglo American, which brought attention to supply-side issues in the face of growing demand for artificial intelligence and renewable energy.

With the help of worries about a possible Israeli invasion of Rafah and the possibility for a resurgence of Israel-Iran hostilities as a result of the Russia-Iran military alliance, WTI Crude oil recovered from a three-week low of $81.99 per barrel to conclude the week 1 percent higher, at $84 per barrel.

The most recent US inflation report heightened worries that the Fed would not reduce borrowing prices at all in 2024, thus market investors are facing difficult times ahead. Originally predicted for September, expectations now stand at only one or two rate decreases this year, starting in November.

US and Chinese PMIs, US employment statistics, and the FOMC policy meeting will be the main topics of discussion in the next week. With the Fed predicted to maintain the status quo for a sixth straight meeting and adopt a little hawkish tone, traders can expect to be on edge. This is in keeping with Powell's previous remarks that the Fed was ready to maintain tight policy "as long as needed" if price pressures continue.