US CPI due could be the focal point of the week; Let’s analyse it’s impact on Commodities.

Commodities markets have seen quite start of the year with Precious Metals & Base Metals declining in January amid Energy complex remaining lacklustre. Dollar index largely witnessed steady moves since the start of the year. Macro cues released so far in the year indicated resilient economy which prompted the unwinding of overly dovish bets on the monetary policy path. Traders now discount just over 100 basis points of rate cuts for 2024, a sharp reduction from the nearly 160 basis points expected mere weeks earlier.  The shift in market pricing boosted the U.S. dollar across the board, creating an unfriendly environment for precious metals & Base metals in last few weeks.

However attentions have now turned to CPI print due this week which could be a major driver of any change in narrative of Fed stance towards monetary easing this year.

The market anticipates a 0.2% increase in January’s CPI, mirroring December’s growth, with a yearly rise forecasted at 2.9%. Core inflation reading is expected to ease fractionally lower to 3.7% on an annual basis. The current market sentiment suggests a slightly bearish outlook for precious metals, but this could quickly shift depending on tomorrow data and the Federal Reserve’s interpretation of it.

If progress on disinflation falters or proceeds less favorably than anticipated, U.S. Treasury yields are likely to push higher, reinforcing the greenback’s recovery witnessed recently. This could turn out to be bearish trigger for metals complex, at least in the near term.

On the other hand, if CPI figures surprise to the downside, the opposite scenario may play out, particularly if the miss is significant. This could lead to lower yields and a softer U.S. dollar, boosting metal’s complex as Silver looks more reactive to bounce as compared to Gold.

Regardless of the outcome, volatility may persist in the current week in commodities complex.