Commodities struggle with looming recession fear

The commodity market sentiment got hit in the past fortnight as major agencies reduced global growth estimates, central banks reaffirmed their aggressive monetary stance and China grappled to control its virus situation.

Continuing with the recent downward trend, commodities witnessed range-bound trading and were under pressure due to the statement of the Federal Reserve regarding further rate hikes to tame inflation, weakening confidence about China, and increasing concerns about slow economic growth. In the ongoing G 7 summit in Germany, a coalition move by Britain, the United States, Japan and Canada to restrict new imports of Russian gold is just being seen as a symbolic gesture within the global bullion market, as Russian exports to western countries have already dried up.

In the global markets, the precious metal witnessed range-bound trading at around USD 1,850 per troy ounce level. Also, the benchmark US 10-year Treasury yields eased after gains, buoying the demand for the precious metal. On the other hand, silver in the previous week fell from its highs pulled down by a strong USD and recession fears. Industrial metals witnessed pressurised trading as optimism about the Chinese economy languished with renewed virus concerns with major agencies lowering their growth estimates. In the past fortnight, crude oil climbed to March highs on supply concerns and struggled to build on the gains amid volatility in the overall financial market.

Oil prices did see a slight surge after the energy minister of the United Arab Emirates said their country is producing near full capacity, countering the expectations that it could help boost supply in this precarious market. Interestingly, the UAE and Saudi Arabia are perceived as the only two nations in the Organization of the Petroleum Exporting Countries (OPEC) with spare capacity available to make up for lost Russian oil supply and lower output from other member nations. On global economic developments, the World Bank reduced the global growth estimate for 2022 from 4.1 per cent to 2.9 per cent. It also warned about stagflation risks and a looming recession.

Also, the Organisation for Economic Cooperation and Development (OECD) lowered its global growth forecast for 2022 from 4.5 per cent to 3 per cent. It expects inflation in OECD countries to reach near 8.5 per cent this year. The forecasts are mainly based on the increasing challenges induced by the Russia-Ukraine war. Historic inflation numbers in major economies have directed many central banks to have a hawkish view amidst increasing emphasis on controlling inflation. Monetary tightening concerns grew further as the Federal Reserve as well as the Reserve Bank of India announced a larger increase in key lending rates, emphasising their urgency to get inflation under limits.