The commodities market remained negative last week on the back of stronger expectations that the US Federal Reserve (Fed) could raise interest rates twice this year and continued concerns over the Chinese economy.
In a presentation to the US Congress last week, Fed Chairman Jerome Powell said that the Federal Open Market Committee (FOMC) generally thinks it would be appropriate to raise interest rates again, perhaps twice, this year.
After Powell’s statements, it was seen that the worry that the “hawk” policies implemented in the USA within the scope of the fight against inflation could take longer than expected, made pricing difficult in the markets.
Stating that they have come a long way in their tightening policy, Powell stated that the reason for keeping interest rates constant at the last meeting was to “give themselves more time to make decisions”.
Fed Board Member Michelle Bowman underlined that inflation is still unacceptably high, adding that more policy rate hikes will be required to reach a sufficiently restrictive level and control inflation.
After these developments, the Fed is predicted to increase the policy rate by 25 basis points with a 74 percent probability in the pricing in the money markets next month, while the possibility that the bank will increase the policy rate to 5.50-5.75 percent by the end of the year has also gained strength.
While the concerns about the Chinese economy are getting stronger day by day, commodity prices continue to be affected by this situation. The commodity market was affected by the news that Chinese banks did not find the interest rate cuts sufficient.
The People’s Bank of China (PBoC) lowered the 1-year loan interest rate (LPR) from 3.65 percent to 3.55 percent, and the 5-year loan interest rate from 4.30 percent to 4.20 percent.
Palladium tests its lowest level in 4 years
Last week, gold fell 1.9 percent, silver 7.3 percent, platinum 6.5 percent and palladium 8.9 percent.
Palladium tested the lowest level since May 2019 at $1,273.73.
Gold continued its decline, especially with the messages from the Fed and the European Central Bank (ECB) that further rate hikes could be made and the demand for safe assets decreased.
The precious metal has lost some of its safe-haven support in recent weeks, as concerns over the spread of the banking crisis in the US and signs of softening relations between the US and China.
Analysts said that even if interest rates remain high, a possible recession in the US and rising geopolitical tensions are also likely to trigger a rally below.
Silver also continued its downward trend amid concerns about the global economic outlook.
The decline in construction production in the Eurozone also triggered silver demand concerns.
The positive trend seen in the previous week in palladium was reversed last week.
Although palladium recovered in the previous week due to the concerns that Russia will be subject to bans by the London Metal Exchange, short-term supply concerns and supply shortages in South Africa, sharp decreases were seen last week as concerns about the global automotive sector still continued.
Analysts said the increasing demand for electric vehicles has negatively impacted the palladium market.
Nickel fell hard with heavy supply in Indonesia
It has been a week of strong sales in base metals as well.
While the week closed with a decrease of 1.9 percent in copper, 4.1 percent in aluminum, 7.9 percent in nickel and 4.4 percent in zinc, lead increased by 1 percent.
Analysts noted that there is an intense supply of nickel from Indonesia.
A mixed course was observed in energy commodities.
Brent oil lost 2.5 percent, while natural gas traded on the New York Mercantile Exchange rose 3.7 percent.
Iran’s crude oil exports and oil production hit a record high in 2023 despite US sanctions. Russia, on the other hand, is preparing to increase its exports of diesel and gas oil transported by sea this month. Expectations that demand will decrease and supply will increase support the downward movement of oil prices.
Despite the sharp declines in agricultural commodities, wheat rally
Despite the sharp declines in agricultural commodities last week, the rally in wheat drew attention.
Wheat traded on the Chicago Mercantile Exchange gained 6 percent, while corn fell 1.6 percent, soybeans 2.9 percent and rice 0.5 percent.
In the Intercontinental Exchange (ICE), cotton decreased 1.8 percent, coffee 9.1 percent, sugar 6.5 percent and cocoa 0.8 percent.
Concerns that the weather conditions will be dry and disrupt production, news that India’s wheat production is 10 percent lower than the government’s estimate and that Russia may withdraw from the grain corridor agreement caused an increase in wheat prices.
On the first trading day of the week, wheat rose to $ 7,6025 with an increase of 1.8 percent due to the increased geopolitical risks after the rebellion of the Wagner group, founded by Yevgeniy Prigojin, against the Russian administration.
News that India may lift its cracked rice ban to Indonesia, Gambia and Senegal eased concerns about rice supply.
Coffee prices have also decreased with the expectation that the weather conditions will improve in Brazil and that this will increase production.
With the normalization of the weather in Ivory Coast, the ability of farmers to transport cocoa beans to ports puts pressure on cocoa prices.
Sugar prices fell on the back of the Brazilian Sugar Cane Industry Association (UNICA) reporting that Brazil’s sugar production rose year-on-year in May and weak demand from China.
Low oil prices and concerns about overproduction also caused a depreciation in sugar prices.