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The lengthening of the commodities price wave

After major central banks raised rates, the commodity market became more volatile and the price wavelength grew longer.

Also interesting was the fact that product-based divergence increased last week as commodities took a mixed path.

While investors this week concentrated on central banks, a busy macroeconomic calendar, and firms’ balance sheets, the markets struggled to discern direction due to conflicting signals.

The monetary policy choices of the US Federal Reserve (Fed) and the European Central Bank (ECB) heightened the uncertainty in the commodity market, which had a volatile week prior.

Last week, the Fed increased interest rates by another 25 basis points. It raised rates for the tenth time in less than a year, bringing the federal funds rate target range to its highest level since August 2007.

Inflation has “moderated somewhat” since mid-2022, according to Fed Chair Jerome Powell, but “pressures run high.”

In response to the intense inflation pressures, the ECB also announced a rate increase of 25 basis points last week.

Rates for the primary refinancing operations, marginal loan facilities, and deposit facilities were all raised to 3.75 percent, 4 percent, and 3.25 percent, respectively.

The inflation outlook is still “too high for too long,” according to a statement from the ECB.

Last week, the commodity market suffered from worries that China’s economic growth may be beginning to stall.

The final purchasing managers’ index (PMI) data released last week revealed that the euro area’s manufacturing sector declined at its sharpest rate since May 2020 in April.

According to a study by the US-based financial services business S&P Global, the eurozone manufacturing PMI from Hamburg Commercial Bank was marginally revised higher to 45.8 in April from the first flash figure of 45.5.

The price of precious metals fluctuated last week, with gold and silver rising by 1.4% and 2.5%, respectively, while palladium and platinum dropped by 0.7% and 1.4%, respectively.

Copper fell by 1.1 percent, lead by 1.8 percent, aluminum by 1.9 percent, and zinc by 1.2 percent in the over-the-counter market, while nickel increased by 3.8 percent.

Natural gas traded on the New York Mercantile Exchange declined 11.3 percent last week while Brent oil fell 6.2 percent.

The decrease in oil prices was driven by weak economic statistics from China. In April, the Caixin China General Manufacturing PMI unexpectedly dropped from 50 in March to 49.5 in April, defying market expectations amid a continuing real estate crisis and concerns about a global slowdown.

Last week, predictions that the Fed will decrease interest rates by 50 basis points until the end of the year drove up prices for agricultural commodities.

Last week, the price of wheat increased by 4.2 percent, corn by 2.1 percent, soybeans by 1.2 percent and rice by 3.9 percent on the Chicago Mercantile Exchange.

Cotton increased by 4%, coffee by 1%, cocoa by 0.1, and sugar decreased by 3.2% on the Intercontinental Exchange (ICE).

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