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Recession concerns, dollar demand clamp down on commodity market

Interest rate hikes against inflation cause concerns for weaker economic growth, expert says

Selling pressure in the commodity market continues amid rising recession and inflation concerns which have increased the demand for the dollar.

The weeks-long downward trend has been dubbed unavoidable.

The negative trend in the commodity market deepened further with the fear that the inflation data announced in the US would agitate the Fed for a more hawkish stance and the country would enter recession.

According to data released last week, the country’s annual inflation was at 9.1% in June, surpassing expectations.

Following this, it is expected that the Fed will take stronger tightening steps in July and September meetings, increasing interest rates by 100 and 75 basis points, respectively.

The dollar index finished the week at 108.1 with an increase of 1.1% after reaching the highest level for the last 20 years with 109.3.

The ounce price of gold, which saw its lowest level in a year with $1,697.6, carried the downward trend for the 5th week in a row and closed the week at $1,707 with a depreciation of 2.2%.

Silver, which saw its lowest level in two years at $18.1 per ounce, decreased by 3.1% last week.

Platinum fell 5.2% and palladium 15.9%.

  • Copper hits lowest level since November 2020

A pound of copper, which saw its lowest level since November 2020 with $3.2 last week, finished the week with a 7.8% depreciation.

Aluminum decreased by 3%, nickel by 11% and zinc by 5.3%.

The barrel price of Brent oil fell to $92.5 due to recession concerns a 7% weekly drop.

Natural gas traded on the New York Mercantile Exchange, on the other hand, a 16.9% increase.

While issues related to the natural gas supply continue, Gazprom announced that it cannot guarantee gas flow due to a gas tribune problem.

The turbine, which was repaired by Siemens in Canada, was decided to be sent to Germany instead of Russia due to the war.

Gazprom had reduced the natural gas capacity to Europe citing the absence of the turbine.

  • Sharp decreases in agricultural commodities

Recession concerns and central banks’ hawkish monetary policies continue to have an impact on agricultural commodities.

Wheat traded on the Chicago Mercantile Exchange finished the week with a decrease of 12.4%.

Last week, corn fell 3% and soybeans fell 3.9%, while rice rose 0.4%.

Cotton, which saw its lowest level since May 2021, decreased by 7.2% and coffee, which saw the lowest level since October 2021, decreased by 9.4%.

Sugar also lost 0.3% last week.

Zafer Ergezen, a futures and commodity markets expert, stated that concerns about a slowdown in economic growth increased with the Fed’s interest rate hike, adding that interest rate hikes pushed the dollar index up, which caused selling pressure in all commodity markets.

Ergezen stated that the central banks’ interest rate hikes against inflation brought along concerns that economic growth would slow down.

Referring to the decline in corn, Ergezen noted that the increase in production estimates creates the perception that the effects of the Russia-Ukraine war are not as bad as expected.

Pointing to the rise in rice, Ergezen said: “There are concerns about rice production due to global temperatures. Therefore, we followed a positive trend in rice prices.”

Noting that cotton finished the week with a decline, Ergezen stated that interest rate hikes caused sellers to become more active in the cotton market.

Ergezen said that the continued strengthening of the dollar index also puts selling pressure on coffee prices.

Source
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