Commodity markets see upward trend last week
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Commodity markets see upward trend last week

Jul 26, 2023


The commodity markets saw a positive course last week with the verbal guidance of the US Federal Reserve and the news that the Chinese government would support the economy.

Fed Chairman Jerome Powell's speech at the Jackson Hole Economic Policy Symposium emphasized that the US central bank is ready to raise interest rates further if appropriate.

Powell said core inflation is still high on an annual basis, and there is still a long way to go to return to price stability.

Last week, Philadelphia Fed Chair Patrick Harker said that there is no need for additional rate hikes at the moment, while Cleveland Fed President Loretta Mester said that they need to see more evidence that inflation is cooling.

With these developments, money markets are pricing that the Fed will keep the policy rate unchanged at the September meeting with a probability of 81% and will raise the interest rate by 25 basis points with a probability of 19%.

On the other hand, US bond yields fluctuated during the week, with 30-year and 10-year yields testing the highest levels in the last 12 and 16 years, respectively.

The dollar/yuan parity saw its highest weekly close since December 2007.

Growing concerns about the Chinese economy and expectations about the Chinese government's steps to support the economy continue to affect asset prices.

In addition to the country's manufacturing industry data giving negative signals about the economy, the simultaneous decline in producer and customer prices for the first time since 2020 triggered deflation concerns in China.

According to analysts, the weakening demand on a global and country basis has raised concerns about economic activity, but markets continue to expect that the Chinese government will support all areas of the economy.

Although the People's Bank of China continued to support the yuan against the US dollar, the increasing risk perception in the country caused the dollar/yuan parity to see a peak level of nearly a year.

Last week, the impact of the statements made by Chinese officials to calm the markets on asset prices was observed, while the Chinese central bank continued to make the strongest interventions in its history through state-owned banks to prevent the depreciation of the yuan.

The dollar/yuan parity, which kept its upward trend for the fourth consecutive week, ended the week at 7.2898 with an increase of 0.1%, the highest weekly closing since December 2007.

*Writing by Gokhan Ergocun