Commodity market under pressure after Fed's hawkish statements

By Duhan Degirmenci and Burhan Sansarlioglu

ISTANBUL (AA) - The commodity market was under selling pressure last week due to the hawkish statements of the Fed.

The commodity market left behind a week dominated by declines.

The Fed continued its hawkish stance, and increased demand for the dollar negatively affected asset prices.

After the Fed's monetary policy decisions, the commodity market experienced selling pressure as the bank signaled that it may raise interest rates for the rest of the year.

The Fed kept the policy rate unchanged within expectations, leaving it at a 22-year high of 5.25-5.50% last week.

Fed Chairman Jerome Powell, making a statement after the decision, said the bank is ready to raise interest rates further if appropriate, and that it intends to keep monetary policy at a restrictive level until it is sure that inflation is sustainably moving towards the target.

Stating that the bank's decision to keep the policy rate unchanged at this meeting does not mean that the bank has reached the desired stance in monetary policy, Powell added that most members of the Federal Open Market Committee (FOMC) suggested that it would be appropriate to raise interest rates once more in the remaining two meetings this year.

Powell emphasized that the bank's primary goal is a "soft landing" in the economy, noting that the bank has been working on this for a long time.

With these developments, the dollar index finished the week at 105.6, up 0.2%.

Uncertainties in global economies in the dilemma of inflation and recession also continued to have an impact on the commodity market.

Increasing inventories, particularly in metals, affected commodity prices downward.

With the dollar appreciation on expectations that the Fed will maintain interest rates high and the depreciation in stock markets, investors turned to safe havens such as gold and silver, with ounce prices increasing by 0.1 and 2.3%, respectively.

Last week, palladium lost 0.1%, while platinum gained 0.1%.

Copper lost 2.8%, lead 2%, and nickel 3.4%, while zinc remained flat; aluminum also gained 1.7%. Copper stocks traded on the London Metal Exchange (LME) more than doubled in two months, reaching their highest level since May 2022.

On July 12, registered base copper stocks were only 54,225 metric tons, reaching 149,600 metric tons last week.

Total guaranteed lead stocks on the LME rose to 69,200 metric tons, while zinc stocks exceeded 81,000 metric tons.

- Energy commodities

Brent oil fell 1.4% last week, while natural gas traded on the New York Mercantile Exchange rose 0.2%.

Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman defended the OPEC+ countries' decision to cut oil production, saying light regulations are needed to limit volatility in international energy markets.

Concerns about demand in China, the world's largest oil importer, as well as uncertainties about global central banks' plans to combat inflation, the minister added, should be closely monitored.

Analysts believe that concerns about the Fed maintaining its hawkish stance in Brent oil outweigh supply concerns.

Stating that there is a risk of Brent oil reaching the $100 level, analysts also suggested that tighter monetary policies against ongoing high inflation levels may limit the rise in oil prices.

Natural gas prices rose sharply after the US Energy Information Administration (EIA) estimated in its monthly Drilling Productivity Report that US gas production would be lower in October than in September.

Wheat trading on the Chicago Mercantile Exchange fell 4.1%, soybeans 3.4%, and rice 2.4%, while corn gained 0.3%.

Wheat prices fell as cheap Russian grain entered the market.

Brazil-based oilseed group Abiove forecasted that the country's soybean exports will exceed 99 million tons this year; yield potential for soybeans increased slightly this week after falling for several weeks due to the historic drought.

With these developments, soybeans have seen declines.

- Decline in coffee

Coffee traded on the Intercontinental Exchange fell 5.6%, cocoa 4.6%, and cotton 0.6%.

Rain forecasts in Brazil alleviated drought concerns, causing coffee prices to fall sharply, as a Brazil-based agrometeorological institute said rains could increase in the country.

Cocoa saw profit-taking transactions due to overbought prices.

Sugar prices continue to increase due to hot and dry weather forecasts in Brazil.

Sugar, which rose 0.6% last week, hit its highest level since Oct. 2011.

*Writing by Gokhan Ergocun