Uncertainties regarding the monetary policies of central banks and concerns about economic activity had an impact on the commodity market last week. Asset prices struggled to find direction, as the global slowdown in economic activity and the concern that rising oil prices might hinder the fight against inflation.
The “hawk” steps taken by the US Federal Reserve (Fed) in the fight against inflation, albeit slowly, have an impact on the country’s economy. While the signs of a slowdown in the labor market intensified in the data released last week, this situation strengthened the concerns in the markets that the US economy might enter a recession.
It is seen that investors, who have been between inflation and recession concerns for a long time, have decreased their interest in relatively risky assets after the recession danger started to come to the fore.
While non-farm employment declined to 236,000 in the US, the number of first-time unemployment claims applicants rose to 228,000 in the week ending April 1, exceeding expectations.
The fact that the factory orders data announced in the USA fell more than the forecasts in February also increased the recession concerns.
While the Supply Management Institute (ISM) manufacturing index in the country remained below market expectations with 46.3 in March, the continuation of the contraction in the manufacturing industry was another factor that increased the recession concerns.
After the risk of recession started to come to the fore by investors, who were caught between inflation and recession concerns, the search for a safe harbor also supported the demand for bonds.
The US 10-year bond yield ended the week at 3.41%, down about 7 basis points after seeing its lowest level since September 2022 with 3.26 percent last week.
With these developments, uncertainties regarding the Fed’s next month’s steps remained strong.
Analysts said that inflation data to be released in the US this week is in the focus of investors.
Gold tests its highest level since March 9, 2022 at $2,032 an ounce
The search for a safe haven with increasing uncertainties last week continued to support precious metal prices.
An ounce of gold, which tested the highest level since March 9, 2022 at $ 2,032, finished the week with an increase of 1.9 percent.
At $25,136, silver rose 3.6 percent, platinum 1.7 percent and palladium 0.8 percent, the highest level since April 2022.
Analysts pointed out that the increasing recession concerns in the USA strengthened the expectations that the Fed might end its “hawk” steps and stated that this situation supported the price of ounce of gold. The weakening of the dollar, along with the weak economic data, also supported gold.
Mixed course in energy commodities
Energy commodities showed a mixed course last week.
Brent oil lost 6 percent and natural gas traded on the New York Mercantile Exchange fell 9.3 percent.
The rise in Brent oil prices was driven by increased supply concerns after the decision of the OPEC+ group member countries, which consists of the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producer countries, to cut production.
Russian Deputy Prime Minister Aleksandr Novak pointed out that there are 23 countries in the OPEC+ group and stated that other countries may decide to reduce their oil production voluntarily if they deem it necessary.
Considering the expected demand recovery in China, where the Kovid-19 measures have been lifted, concerns about supply shrinkage are increasing.
It is estimated that the new production cut decision of the member countries of the OPEC+ group, which consists of OPEC and some non-OPEC producer countries, will cause an increase in oil prices by 10 dollars per barrel in the short term, and the prices may rise to the level of 110 dollars until the summer months.
The forecast for the decline in US crude oil stocks also affected Brent oil upwards.
Saudi Arabia, the world’s largest oil exporter, has raised the price of crude oil for Asian oil consumers for the third month in anticipation of demand recovery.
Analysts state that this step, which came after the “surprise” production cut move of 9 member countries of the OPEC+ group, which consists of OPEC and some non-OPEC producer countries, has led to increasing concerns about supply contraction, considering the expected demand recovery in the region.
Natural gas prices fell last week as heating demand decreased and production increased. Analysts noted that the decline in electricity production in the USA is also an indicator of the decline in demand for natural gas.
Demand concerns come to the fore in base metals
The slowdown in economic activity also highlighted demand concerns for base metals. Base metals slumped last week as auto demand fell in China.
In the over-the-counter market, copper lost 1.3 percent, lead 1.3 percent, aluminum 2.9 percent, nickel 1.7 percent and zinc 4.5 percent last week.
Copper prices fell, with the manufacturing industry Purchasing Managers Index (PMI) data falling to 50 in the manufacturing industry in China.
Recession concerns in agricultural commodities
Recession concerns also negatively affected agricultural commodities.
Wheat traded on the Chicago Mercantile Exchange fell 2.4 percent, corn 2.6 percent, soybeans 0.8 percent and rice 4.5 percent.
Testing the highest level since October 2016 at $0.2324 on the Intercontinental Exchange (ICE), sugar rose 4.3 percent and coffee 8.1 percent, while cotton fell 2.1 percent and cocoa decreased 2.4 percent.
Demand concerns also had an impact on cotton.
While cocoa prices fell in West Africa due to concerns about cocoa quality, the increase in cocoa stocks in US port warehouses also affected prices downwards.
While the US-based trade organization, the National Confectionery Association, announced that the amount of ground cocoa in North America decreased in the 4th quarter of 2022, it is stated that this situation increased the concerns about the global cocoa demand.
While changing weather factors affected sugar prices, the concerns about the decrease in sugar production in India also caused sugar prices to rise. The move by the Brazilian government to change the way it taxed biofuels also had an upward impact on sugar.
Coffee prices rallied last week with the predictions that coffee production will decrease. The Indonesian Coffee Exporters and Industrialists Association stated that coffee production could decline in 2023 as heavy rains damage coffee fields. The National Federation of Coffee Producers of Colombia predicted that coffee production will decline in the first half of 2023, while the US Department of Agriculture and Rabobank lowered their coffee production forecasts. The appreciation of the Brazilian real against the dollar was also an important supporting factor for coffee.