Commodities are awakening from their slumber which is sparking renewed global inflation fears. Due to escalating global tensions, crude oil has surged more than 10% since the start of March which has seen the price per barrel close above $90 per barrel last week. Precious metals along with industrial metals have also benefitted from the rise in oil prices which has seen the Reuters Core Commodity index climb to a 6-month high. As mentioned previously, the Federal Reserve’s (Fed) fight against inflation is essentially its fight against oil and this recent break-out in commodity prices has poured some cold water on the expectations that the Fed will start cutting rates as soon as June this year.
The headlining data print from last week was the US non-farm payroll print which recorded another strong month for the US labor market in March, again much stronger than initially anticipated, with non-farm payrolls increasing by 303 thousand, up from 270 thousand in February. Additionally a host of FOMC members along with Fed chair Jerome Powell made media appearances and their tone, along with the strong US labor market results, added further doubt as to whether the Fed will start cutting rates in June.
Looking at the week ahead, all eyes will be on the US CPI print for March which is expected to increase to 3.4%, up from 3.2% in February. A stronger than expected US CPI print will strengthen the dollar as it will further dent the hopes of rate cuts by June. Additionally, the ECB will announce their latest rate decision where they will certainly stay pat on their current rate of 4.50%.
Locally, the latest SA mining and manufacturing results will be released for the month of February. The results from January have been disappointing to say the least with mining recording year-on-year contraction of 3.3% while manufacturing grew by only 2.8%.
The first chart of the week is the Thomas Reuters Core Commodity index. The index will test the resistance level of 300, the 61.8% Fibo retracement, soon and a break above this level will allow the current commodity bull to race towards the 2022 high of 330.
UK Brent Crude is looking poised to climb higher to test the 2023 high of $95 per barrel. Technically, the commodity is overbought on the RSI indicator so a pullback and test of the blue support range around $87.50 seems like the next likely move. Additionally, the 50-day MA has now crossed above the 200-day MA which is another strong indicator for a sustained move higher.
Gold is leading the gains in the basket of precious metals and it is only a matter of time before the rest of the metals follow and break higher. The move higher in precious metal prices is immensely rand positive but we will have to see platinum come to the party for sustained rand gains before the local elections. Platinum has broken above the 50-day and 200-day MA’s and it is looking set to test the 61.8% Fibo rate of $957 per ounce and the major downward trend line in the days to come if it maintains levels above $915 per ounce.
Over to the rand, with the help of stronger commodity prices the local unit is weathering the volatility storms ahead of the local elections. The rand has been able to keep the USDZAR pair below the critical rate of 18.97 which has allowed the rand to pull the pair below the 200-day MA support of 18.75. The pair however remains trapped in the blue wedge but the rand is knocking on the bottom end of the wedge once again. A test on the support rate of 18.54 seems like the next move for the pair but I expect the blue support range between 18.30 and 18.40 to hold its ground before the elections, if the rand manages to catch that break. A failed break below 18.50 will however see the pair pop back higher to re-test the critical rate of 18.97.
Closing out this week’s report is the mighty greenback. The DXY is maintaining levels above the red trend line which now serves as a neckline support for the index. The cross of the 50-day above the 200-day MA is also bullish for the dollar along with the dampened rate cut expectations. A failed break below the 50-day and 200-day MA’s of 103.8 will allow the DXY to break above the 61.8% Fibo level towards 106.
