Commodities round-up: Here’s what the markets are focused on this week

Investors monitor events in Russia and China, as well as key inflation data from the US for indicators on what could move commodity markets. Photo: Getty (Oselote via Getty Images)

Political instability in Russia at the weekend marginally impacted commodities at the beginning of the week but China’s economy and the monetary policy path of the US Federal Reserve will be the main focus for investors in the coming days.

Yahoo Finance UK takes a look at some of the key macro events moving markets within energy and precious metals, including oil, natural gas, gold and copper.

Oil

Oil opened strongly on Monday, but fell into the red on Tuesday. As a result, Brent crude (BZ=F) settled just 0.45% higher on the day.

“The more hawkish tone from the US Fed appears to be capping oil prices and the broader commodities complex, while there remain broader concerns over China’s economic recovery. Up until now, oil demand indicators for China have been good, with stronger crude oil imports and higher apparent domestic demand,” Warren Paterson and Eva Manthey at ING said.

“The concern is whether this can continue as there are clearly still some weak spots within the Chinese economy – specifically with industrial production and the property sector,” the analysts also noted in a report.

Natural gas

Gas markets also reacted to the political uncertainty in Russia with Europe’s Dutch TTF (TTF=F) enduring a volatile trading session to start the week due to concerns over the remaining Russian pipeline supply flows to Europe.

However, Paterson and Manthey pointed out that fundamentals for the European gas market are still bearish in the short term.

“EU gas storage continues to fill up and is now more than 76% full, well above the 57% seen at the same stage last year and also higher than the five-year average of 60%. In the absence of any significant supply shocks, EU gas storage will hit the European Commission’s target of 90% full well before 1 November,” the analysts noted.

Gold

Meanwhile, the price of gold (GC=F) extended gains again on Tuesday as the turmoil in Russia, gold’s second largest producer, prompted investors to opt for the safe-haven appeal of the precious metal.

For gold, the current uncertainty in Russia appears to be outweighing risks surrounding interest rates following hawkish comments from the US Federal Reserve. This is important to note because higher rates subsequently discourage investing in non-yielding gold.

Read more: Russia mutiny scare pushes up gold prices

“How long-lasting this boost to the gold price proves will be determined by how widespread the butterfly effect of the aborted rebellion by Yevgeny Prigozhin’s Wagner Group turns out to be,” Rupert Rowling, market analyst at Kinesis Money, said in a company report.

“If this proves to be the beginning of the end for president Vladimir Putin’s totalitarian control on Russia, then the resultant uncertainty is likely to keep gold supported in the medium-term with investors wanting to keep some risk off the table.”

Copper

ING noted on Tuesday that LME copper (HG=F) prices remained under pressure given concerns over Chinese demand and a more hawkish Federal Reserve outlook but said LME copper spreads continue to strengthen, reflecting some tightness in the prompt market.

“The cash/3m spread rallied by more than $12/t (£9.44/t) on Monday to a backwardation of $31/t – the strongest we have seen this spread since November last year. Available inventories in LME warehouses continue to fall with on-warrant stocks yesterday falling by 4,400 tonnes to just 25,725 tonnes, the lowest since October 2021.”

A report by Paterson and Manthey highlighted recent data from the China Iron and Steel Association (CISA) showing that steel inventories at major Chinese steel mills climbed for a second consecutive week to 16.2mt in mid-June, up 2.64% compared to early June.

“Meanwhile, crude steel production at major mills rose by 1.4% from the above mentioned period to 2.26mt/d in mid-June,” the report said.

Data points this week

Firstly, the latest US Personal Consumption Expenditures (PCE) data, the Fed's preferred inflation indicator, will be released on Friday.

It is expected to show "core" PCE – which strips out the costs of food and energy – rose 4.7% over the prior year in May, unchanged from April. The Fed targets 2% inflation, on average. Over the prior month, "core" PCE is expected to rise 0.4% in May.

The markets have priced in one more 25bps increase by the Fed before the end of 2023 as it battles to bring down inflation and this latest update may provide further indicators for investors on what the Fed might do next.

Secondly, PMI data from China will be closely watched on Friday as the world’s second-largest economy continues to struggle as momentum following its reopening from zero- tolerance COVID lockdowns in December has hit demand.

Read more: Bank of England set to push UK 'into recession'

The incoming PMI data is expected to show the manufacturing sector contracted for the third consecutive month while the services side grew at the slowest pace in six months.

Osama Rizvi, energy analyst at Primary Vision Network, told Yahoo Finance UK what he is watching this week.

“The first and most important thing that I’d be looking at is Russia and the Wagner mutiny as it has the potential to turn the oil markets topsy turvy.

“IFO indices in Germany will be one of the most important statistics to look at in the coming week along with economic data from the US with the most significant being Weekly jobless claims. I’ll also be looking at PMIs coming out of China as it is really important to the story of recession,” he said.

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