Global financial markets experienced fluctuations over the past week, influenced by several key factors. These include developments in the Israel-Hamas conflict, mixed corporate earnings reports, and the rollout of economic stimulus measures in China.
The US dollar saw a boost from a combination of lackluster corporate earnings, safe-haven demand, and signs of the US economy’s resilience. Notably, the US economy posted robust annualized growth of 4.9% in Q3 2023, despite higher interest rates. Core PCE prices and personal spending further reinforced the notion of sustained economic strength.
As a result, the greenback reached a three-week high, trading at 106.89. US 10-year treasury yields also remained near a 16-year high, having breached the 5% mark on Monday for the first time since 2007.
COMEX Gold experienced significant price movements, surpassing the $2,000 per ounce mark in the previous week. This marked the third consecutive weekly gain for the precious metal. The main driver behind this rally was escalating geopolitical uncertainties in the Middle East. As central bank meetings and economic data releases loom on the horizon, gold remains an attractive safe-haven asset, offering protection against geopolitical uncertainties and potential strength in the US dollar. From a technical standpoint, COMEX gold closed the week above the double top resistance near $2,009 per troy ounce. This suggests a bullish outlook, with the potential to target all-time highs near $2,085-$2,090 per troy ounce, a formidable multiple resistance zone. Downside support is anticipated at $1,965 per troy ounce.
WTI Crude oil prices initially fell to $82.08 per barrel due to positive developments, including the release of two US hostages by Hamas and the gradual flow of aid into Gaza through Egypt’s border. However, prices rebounded to $86.3 per barrel after Iran’s foreign minister issued a warning that the United States would face consequences if the Israel-Hamas conflict escalated into a larger conflict. This warning followed US strikes on two facilities linked to Iran in Syria. Regarding price movements, WTI crude oil is expected to maintain a trading range of $82 to $88 per barrel. A decisive break in either direction could set a clear trend, although the overall bias might lean slightly towards the positive side, as long as geopolitical conflicts persist.
London Metal Exchange (LME) base metals experienced fluctuations as investors assessed whether China’s renewed focus on fiscal spending would provide the necessary boost to the economy, especially in light of the ongoing real estate crisis. China’s legislature approved a plan to raise the fiscal deficit ratio for 2023 to about 3.8% of GDP, up from the 3% set earlier in the year.
Traders may continue to remain on edge due to concerns of further escalation in the Israel-Hamas conflict, as the Israel army has already conducted a limited ground raid into northern Gaza. Additionally, market attention will be on the US labor report and final PMI figures.Furthermore, the upcoming monetary policy meetings of the Bank of Japan, the Bank of England, and the Federal Reserve are set to influence markets. While investors largely anticipate a status quo, any indications of a hawkish stance in the Federal Open Market Committee (FOMC) statement may push the US dollar above 107 levels. This expectation follows the European Central Bank’s decision to hold rates unchanged and signal a more cautious stance in their recent policy meeting.
(The author is Vice President-Head Commodity Research, Kotak Securities)
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