Soft US labor data increases chances on two rate reduction in 2024; commodities markets watch Fed officials' comments and the BoE policy decision

Soft US labor data increases chances on two rate reduction in 2024; commodities markets watch Fed officials' comments and the BoE policy decision

Given that Hamas is allegedly studying an Israeli proposal for a temporary cease-fire and intends to send a team to Egypt to continue discussions, oil prices may continue to be pressured.

A worse US labor data gave rise to renewed prospects for a second rate drop in 2024, giving investors some cause for celebration in this anxious week that concluded on May 3.

The dollar dropped into the 105 levels as a result of disappointing US data releases and a less aggressive Federal Reserve. Official job vacancies fell to a three-year low of 8.5 million in March, while the ISM Manufacturing PMI fell to 49.2 in April from 50.3 in March. These numbers raise the possibility that the US economy is not as robust as recent statistics suggested.

The Federal Reserve maintained its benchmark short-term borrowing rate at 5.25–5.50 percent at the highly anticipated FOMC meeting, as was generally anticipated. It did, however, declare that starting in June, the rate of balance sheet depletion will decrease from $60 billion to $25 billion each month. Fed Chair Powell played down rumors of a rate increase but emphasized that further proof that price increases are slowing down is required before borrowing prices be lowered.

The dollar dropped from its two-week high of 106.49 levels as a result of this posture, which was seen as less hawkish but relieved traders who were worried about a more aggressive Fed reaction to signals of halted inflation development. All of the gains the dollar had achieved over the previous three weeks were undone by a softer-than-expected US employment report.

Wrapping commodities

Due to a combination of improving global economic growth prospects, fewer rate cuts anticipated for the year, and lowering geopolitical tensions, COMEX Gold had its second weekly decline, closing below $2,300 per troy ounce. Silver fell 3% in tandem with lower industrial metals and weaker gold.

Although expectations of a long-term recovery were raised by the rise in China's manufacturing PMI, LME base metals ended the week on a mixed note. The consumption forecast is being affected by the delayed demand spike during the seasonal building period. A fading geopolitical risk premium, an unexpected spike in US crude oil inventories, and declining gasoline demand ahead of the crucial summer driving season all contributed to deeper losses in crude oil, which saw a 7 percent weekly decline that was the largest since February.

Given that Hamas is allegedly studying an Israeli proposal for a temporary cease-fire and intends to send a team to Egypt to continue discussions, oil prices may continue to be pressured. The MCX Crude Oil (May) weekly chart has encountered resistance close to its "Falling Channel," confirming its bearish nature. Additionally, the price is now trading below the "Parabolic SAR," which serves as a dynamic barrier. The counter's next point of support is around Rs 6,300 per barrel, while the main support is at Rs 6,120.

The most recent US labor data is probably only going to have a short-term effect since it merely indicates a moderation and not "an unexpected weakening" that would lead the Fed to reduce borrowing prices. The average hourly salary grew by 0.2 percent month over month and by 3.9 percent year over year, which is the smallest rate since June 2021. The Federal Reserve would like to see prolonged slowdown in wage growth. However, there are indications that the labor market is becoming more stressed. Non-farm payrolls increased by 1,75,000 last month, the smallest gain in six months, and the unemployment rate increased to 3.9 percent. These factors increased bets on a September rate cut to 80 percent and increased bets on a second rate cut in the meeting in November or December.

As the markets await the Bank of England policy decision, statements by a number of FOMC members next week will influence Fed pivot bets. In the UK, slow growth and declining inflation created the ideal conditions for a change in policy. Officials from the Monetary Policy Committee (MPC) are still at odds about when to implement the first rate drop in four years.