China's politburo meeting, Russia oil price cap to drive commodities markets this week

China's politburo meeting, Russia oil price cap to drive commodities markets this week

Updated: 2 months, 4 days, 12 hours, 9 minutes, 49 seconds ago

Global risk appetite got a much-needed boost from a less hawkish commentary by the US Federal Reserve chairman Jerome Powell and softening of some of the COVID curbs in China.

In the week gone by, the dollar started on a positive note buoyed by safe-haven buying, as China’s worsening Covid outbreak and a series of street protests in a rare show of defiance raised fears of a government crackdown and worries about uneven economic recovery.

But, the government moved quickly with a heavy police presence, censorship of social media and some quiet concessions. The measures taken to shore up the struggling property sector, which threatens the Chinese financial system, also calmed investors’ nerves.

The dollar, however, saw a major pullback after Powell said “the time for moderating the pace of rate increases may come as soon as the December meeting”. Though the central bankers cautioned that the fight against inflation was far from over, markets chose to focus on his affirmation of slower rate hikes.

Along with that, largely weaker economic data from the US signalled that the Fed's aggressive rate hike path had limited consumer and business spending.

Also read: G7 price cap on Russian crude, OPEC+ production cut: What do they mean for India, global oil market

The only exception was better-than-expected labour report, with US payrolls increasing by 263,000 even as the unemployment rate remained unchanged at 3.7 percent in November, which helped the dollar rebound above 105 levels.

Comex gold surged to a four-month high of $1,818 a troy ounce, while silver breached $23 a troy ounce for the first time since May, as lower-than-expected Core PCE figures buoyed expectations of slower rate hikes and pushed the dollar to a four-month low below 104.5. This helped gold and silver to close with sharp gains for November. Investment demand, however,  saw a minor decline with both SPDR gold and iShares silver trust ETF holdings seeing modest outflows.

Oil’s slippery slope

WTI and Brent crude both rebounded sharply from an 11-month low on reports that OPEC+ may cut production at their upcoming meeting on December 4.

China pushing for the vaccination of the elderly was seen as a crucial move for reopening and buoyed hopes of an improved demand outlook.

Base metals rallied during the week in the range of 3-8 percent, as softening of COVID curbs and stimulus support for the battered real estate sector with China Securities Regulatory Commission lifting some multi-year restrictions on stock sales by developers brightened demand prospects.

The week ahead

During this week, the markets will closely watch the Final Services PMI figures to get a sense of overall business activity in major economies. Besides, China’s inflation figures and US Producer Price Index (PPI) will also shed some light on price pressures, all of which are expected to either slow or remain unchanged.

Oil markets, however, are set for some wild swings as OPEC+ members meet later on December 4 to discuss production cuts and the European Union’s Russian oil price cap.

A Reuters report said the European Union has tentatively agreed to set the price cap on Russian crude at $60 per barrel. This needs to be approved by all the EU governments, failing which the embargo on Russian maritime imports will go into effect as of December 5. Russia has rejected the oil cap.

In the last few weeks, Russia has emerged as the biggest oil exporter to India and any change in prices will be watched closely.

Overall, the dollar may see some recovery on improved labour report but is unlikely to lead to a major policy shift and hence gains in the American currency may be limited.

While commodities are likely to trade in a range as markets assess more incoming data and expect China’s leaders to offer more clarity on their virus and economic policies after a Politburo meeting due during the week.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.