The commodities sector is on track for its fourth consecutive weekly gain, bolstered throughout August by a softer dollar, declining Treasury yields, and growing expectations that the U.S. Federal Reserve will initiate rate cuts at the September 18 FOMC meeting. With U.S. economic data improving, traders and analysts have shifted their concerns from a sharp slowdown to a soft landing. Additionally, inflation continues to ease, and signs of recovery in China have brightened the demand outlook for growth-dependent commodities.
However, uncertainty remains. While the month-long correction appears to have run its course, a strong rebound is unlikely until the global economic outlook, particularly in China and Europe, strengthens further. The Bloomberg Commodity Total Return Index (BCOMTR) is up around 1.3% for the month and 2.2% for the year. Losses in the energy sector—led by fuel products and natural gas—have been offset by gains in industrial and precious metals, as well as soft commodities like sugar, coffee, and cocoa, which have been boosted by weather-related issues.
September is expected to bring volatility, particularly as markets respond to the FOMC's anticipated rate cut and its impact on the dollar, which recently rebounded from a seven-month low. Interest rate-sensitive investors may welcome the start of a rate cut cycle, potentially increasing demand for industrial metals and gold. However, gold faces a seasonally challenging month, with a history of losses in September.
Crude oil prices remain within a narrowing range, with WTI finding support around USD 71 and Brent around USD 75. The upside is capped by the 200-day moving average, with resistance at USD 77.90 for WTI and USD 82.25 for Brent. Libya’s political turmoil, which has cut production by around 500,000 barrels a day, adds uncertainty to the market. OPEC+ is considering an October production increase, but the group’s efforts to stabilize prices may be complicated by non-OPEC+ production increases.
Copper futures saw their third weekly gain, despite mid-week profit-taking. The metal is supported by renewed demand, partly driven by news that China is considering allowing homeowners to refinance mortgages, potentially boosting consumption. However, a stronger recovery in copper prices depends on improvements in demand fundamentals, which may be supported by lower funding costs once the FOMC begins cutting rates.
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