Daily Fundamental Analysis 11-05-2022

• Market News
• Daily Fundamental reports
• 2022, 11 May

Overview

Market participants will be watching for any signs inflation may be starting to cool, with expectations calling for an 8.1% annual increase compared to the 8.5% rise recorded in March.

Precious Metals::

Gold prices saw a steady move in the first half of the session although eased to a three month low in the latter half, as hawkish comments from Fed officials and an elevated dollar continued to pressure bullion while investors await monthly U.S. inflation data, which could have some impact on the Federal Reserve's monetary policy stance. Fed officials fortified their arguments for swiftest series of interest rate hikes since at least the 1990s to combat inflation, while President Joe Biden urged the U.S. central bank to tame the price increases he said were hurting American households. Market participants today will keep an eye on the U.S. inflation data which could give further direction to the metal prices. There are expectations of YoY inflation being recorded lower to 8.1% than previous month of 8.5%, this could lead to some initial pressure on metal prices. Fall in both metals with higher pace has led to a surge in gold/silver ratio which is currently at ~85 levels from around high 70's, hence keeping an eye on this will also be very important.

Outlook:

We expect gold to trade lower towards 1826 levels, break of which could prompt the price to move lower to 1809 levels.

Base Metals

Base metals were under pressure yesterday, but seem to be holding near lows hit recently, where some support could come from a slight pullback in the dollar. Investors await U.S. inflation data due later in the day that could have an impact on the Federal Reserve's policy stance. China's producer prices rose at the slowest pace in a year in April, despite a surge in global commodity prices, leaving room for more stimulus to shore up the flagging economy, which faces pressure from heavy COVID-19 curbs. Peru's government failed to reach an agreement with a group of indigenous communities whose protests have halted operations at MMG massive Las Bambas copper mine. China's April copper cathode output fell on both a monthly and annual basis, as maintenance and the COVID-19 outbreak in the country curbed smelters from producing more metal. Overall it could be a start of some consolidation in metals.

Outlook::

We expect copper to trade lower for the day.

Energy

Crude oil prices tumbled further as USD advanced and higher inflation raised concerns of weaker economic growth. U.S. crude oil inventories unexpectedly jumped last week, exacerbating concerns about slowdown in demand amid intensifying lockdown measures in China and softer global growth fears. This comes as negotiations amongst EU member states on sanctions on Russia oil failed to reach an agreement. French President Macron met with Hungarian Minister to discuss latter’s reluctance to join a proposal to ban Russian oil imports within six months. Saudi Arabia’s oil minister warned that entire energy market is running out of capacity. OPEC+ won’t be able to guarantee sufficient oil supplies when demand fully recovers from the pandemic. US EIA reduced its forecast for domestic production to 11.9mb/d, as US drillers raised output at a slower pace. While oil prices fell, US gasoline prices rallied ahead of summer driving season. The average gasoline price hit USD4.374/gallon, while diesel hit record of USD5.55/gallon. Low inventories amid Russia’s isolation from refining market have been the main drivers.

Outlook::

Crude prices have recently come under pressure given the EU’s delay in the new batch of sanction to be imposed on Russia, which also includes Russian oil embargo. We expect crude to trade lower towards 91.70 levels, break of which could prompt the price to move lower towards 91 levels.

Forex::

Euro Performance – In yesterday’s trading session, both EURUSD plunged by almost 0.27 percent despite the robust release of economic datasets from Germany. The main reason is the ongoing Ukraine and Russian war which has led to sanctions on the former thereby affecting the crude world on which Europe was heavily dependent. The European Union Commission has delayed acting on a proposal to embargo Russian oil. Hungary has dug in its heels in opposition, and other European nations voiced concerns that their economies could suffer distress if Russian oil imports were curtailed further.

Outlook:

EURUSD is likely to trade lower today.

Sterling Pound Performance - In yesterday’s trading session, GBPUSD traded with a negative bias. Bank of England external Monetary Policy Committee member Michael Saunders said a neutral rate might be in the 1.25%-2.5% range, adding that UK rates might need to go above neutral if inflation expectations go higher.

Outlook::

GBPUSD is likely to trade lower today.