What to Watch as Commodities Traders Prepare for Powell
Jerome Powell takes center-stage for commodities in coming days, with the Federal Reserve chief set to unleash another large rate hike that could pile more pressure on energy, metals and crops.
The fear is that stronger anti-inflation medicine from the US central bank will not just squeeze demand, but add to a dollar surge that’s battering commodities. Ahead of Powell’s big unveil on Wednesday, markets have been jittery: gold sank to a two-year low, crude notched a third weekly fall, and metals are on retreat again.
“A chunky rate hike is now largely priced into markets, but we think it could still keep a lid on prices next week,” analysts at Capital Economics wrote in a note.
There’s a lot to watch elsewhere too. Europe’s leaders are hatching plans to fight the energy crisis, with Germany mulling nationalizations. The US will offer the latest insight on meat demand, and there’s a clutch of key conferences: on copper in Barcelona, gold in Denver and climate in New York and Pittsburgh. With geopolitical tensions running high, the UN’s General Assembly might also be a focus.
Gold Versus Fed
Pre-Fed tensions are most obvious in the bullion market. The looming rate decision -- together with the bank’s language around inflation and future hikes -- will drive the next moves for the precious metal after a month of steady declines in the face of a supercharged greenback. The Fed is expected to raise rates by at least 75 basis points, but a bigger increase could unleash even more volatility across currency markets.
Funds are already fleeing gold. Hedge funds and money managers have turned net bearish on the precious metal.
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