Rally in commodity market reversed

ISTANBUL

Recent weeks' rally in the commodity market was reversed last week.

The commodities followed a negative course last week amid hawkish comments from US Federal Reserve Chair Jerome Powell and ongoing concerns over the Chinese economy.

Powell signaled last week that additional interest rate hikes are likely to battle against the inflation.

"Nearly all FOMC (Federal Open Market Committee) participants expect that it will be appropriate to raise interest rates again this year, and perhaps twice," Powell said during his hearing at the Senate Banking Committee on Thursday.

After Powell's hawkish comments that signaled interest rates are set to be higher than previously expected made pricing difficult in the markets.

"It only makes sense to move at a careful pace," Powell said, adding that the Fed is trying "to avoid the mistake of going too far" in raising interest rates.

Previous week, the Fed skipped an interest rate hike in line with market estimates, and left its federal funds rate unchanged between 5-5.25%.

Pointing that the headline inflation remains "far too high," Fed Governor Michelle Bowman said Thursday: "I expect that we will need to increase the federal funds rate further to achieve a sufficiently restrictive stance of monetary policy to meaningfully and durably bring inflation down.

Commodities were also hit by the news saying that Chinese banks did not find the interest rate cuts sufficient.

The People’s Bank of China last Tuesday cut two key lending rates for the first time in 10 months.

The one-year and five-year loan prime rates were slashed by 10 basis points each to 3.55% and 4.20%, respectively.

The move followed two monetary easing moves the prior week as the post-COVID recovery lost momentum. The bank had lowered its one-year medium-term lending rate, and also reduced its seven-day reverse repurchase rate.

Last week, copper dropped 1.9%, aluminum 4.1%, nickel 7.9%, zinc 4.4%, while lead ticked up 1%.

Palladium tested its lowest level since May 2019, reaching $1,273.73.

Brent oil lost 2.5% last week while natural gas traded on the New York Mercantile Exchange rose 3.7%.

Wheat traded on the Chicago Mercantile Exchange gained 6%, while corn declined 1.6%, soybeans 2.9%, and rice 0.5%.

In the Intercontinental Exchange, cotton went down by 1.8%, coffee 9.1%, sugar 6.5%, and cocoa 0.8%.