Metals recover on expectations of China easing COVID-19 measures

Commodities witnessed a remarkable recovery most of the week, with focus ranging from optimism about the reopening of the Chinese market, to the negative effects of the prolonged US interest rate hike cycle on global demand and growth.

The energy market continued to focus on the price supportive effect of the OPEC Plus group's decision to cut production and the expected European Union sanctions on Russian crude sales.

In general, the Bloomberg Commodity Index, which tracks a group of commodity futures contracts in the energy, metals and agricultural sectors, witnessed a rise of more than 4% from its highest level in three weeks.  

Saxo Bank Head of Commodity Strategy Ole Hansen said Federal Reserve Chairman Jerome Powell shocked market sentiment after emphasizing that it was still too early to pause after an expected 75bp rate hike on Wednesday, the fourth in this cycle.

On the other hand, it is evident that the Federal Open Market Committee intends to adopt economic data in its decisions, with the contribution of indicators of weakness in the markets to change this trend, especially after the Federal Reserve raised in its statement the possibility of stopping to assess the impact of cumulative tightening.  

The time lag between interest rate hikes and their economic impact remains a concern, as the bond market attempts to do pricing amid a further downturn in the US yield curve.

The spread on the two-year US Treasury bond and the 10-year yield expanded this week to -61 basis points, the largest decline since the 1980s, highlighting the risks of mistakes in central bank policy that cause a decline in growth and reduce the prospects for control. on inflation.

These developments helped support gold and silver, which recorded high levels of recovery after short coverage after the failure of the initial attempt to reduce their prices through the main support.

Gold traded higher during the week after recovering from the impact of the strong US dollar and increasing returns due to the selling that followed Jerome Powell's press conference.

Indicators of gold weakness initially emerged in surpassing the key support rate levels of 1615 USD per ounce for the third time with the subsequent recovery supported by the short coverage and the dollar's decline.

Gold prices were also supported by the decline in US yields, which indicates the escalation of the risks of an economic slowdown.

The market is awaiting the upcoming economic data after returning to stability, starting with the US payrolls released on Friday, which did not succeed despite their importance in curbing the rise of gold during the end of the week.

Saxo Bank maintained its long-term forecast that the medium-term inflation outlook is likely to be surprising, with a rise of 4% to 5% over the next decade, but not too bad.

This comes as a result of the new geopolitical situation and the division of the world into two parts, as everything revolves around the noticeable decline of the trend of globalization as a result of the need for countries to rely on themselves.

The current decade is characterized by the urgent need for commodities and capital, as well as the transformation trends in the energy sector, where the scarcity of raw materials and labor contributes to keeping inflation levels high for a longer period, at a rate of more than 3%, as pricing is currently carried out in the swap market.  

This scenario, along with the risk of an economic slowdown, contributes to the extension of expectations that the central bank will raise interest rates, which leads to a decline in yields and the US dollar, and allows the recovery of gold and silver during 2023. Central banks provide support with the purchase of a record amount of 400 tons in the third quarter, which offsets and exceeds The decrease of 227 tons in total holdings in bullion-backed exchange-traded funds.

With firm support at $1,615, the first major challenge lies in the $1,675-1,680 price level, which has seen its highest levels since the rise of the last 50-day moving average in March.

The Bloomberg Industrial Metals Index was on track to achieve its best week since July in light of the gains led by the three main metals, nickel, aluminum and copper, amid uncertain expectations that China is close to ending the zero-Covid policy, as well as exacerbating fears about falling supplies as a result of the increased activity before. Chinese buyers.

Copper, in turn, recorded a rise as a result of the suspension of operations at the Las Pampas mine in Peru, one of the largest in the world and owned by the giant MMG company, where operations since October 31 have witnessed protests by local residents.  

Cotton recorded a rise of 20% last Friday, after declining by more than 50% since May due to concerns about the conditions of the global economy, which is reflected in the levels of demand for clothing by consumers.

Despite the pressure caused by the recovery of the US dollar on other agricultural commodities, cotton rose with signs of recovery in the Chinese yarn sector.

This increase was highlighted with a 98% increase in weekly US export sales to China compared to last year.

The prices of wheat traded in Chicago and Paris rose at the beginning of the week after Russia announced the suspension of the Ukrainian grain export deal, to fall again after the change of the Russian position and allowing shipments to move.

However, prices continued to rise amid increasing drought fears in Argentina and the United States of America.

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