Central banks' hawkish policies impact commodities and dollar




The Federal Reserve (and other central banks) pushed commodities lower in some cases as investors had to adapt to a prolonged monetary policy stance. The "hawkish" do-nothing approach confirmed by the Fed, Bank of England, European Central Bank, Swiss National Bank, and the Reserve Bank (with the exception of the Bank of Japan, which maintained its ultra-easy policy for another month) will also compel commodity markets and investors to accept a stronger US dollar for an extended period.

This, in turn, will exert pressure on users, producers, and traders, potentially causing them to stumble. External factors such as oil production cuts, global warming (including El Nino in Eastern Australia), US political and financial unrest (such as the looming government shutdown from October 1), and the health of the Chinese economy could further contribute to this uncertainty.

World oil prices closed above $US90 a barrel for the second consecutive week, although with modest losses compared to the previous week's significant gains. Iron ore saw an increase on Friday but ended the week lower, while copper declined. Gold performed weakly throughout the week, partly due to the US dollar reaching a six-month high.

Comex gold futures gained 0.3% to reach $US1,945.40 per ounce, with a marginal 0.04% increase for the week. Conversely, copper experienced a substantial 2.7% decrease, falling below $US3.70 per pound to close at $US3.6940. Their resilience will be tested with the release of Chinese manufacturing and service sector activity surveys for August.

Federal Reserve Chair Jay Powell is scheduled to give a speech on Wednesday, his first comments following the central bank meeting a week ago and his subsequent media conference.

Both Brent and US West Texas Crude recorded higher prices on Friday, though slightly lower for the week. WTI ended the week up 0.3% at $US90.33, while Brent closed at $US92.43, marking a 0.5% daily increase but nearly a 2% decrease for the week.

Despite another substantial decrease in US oil rig usage last week, it had little impact on Friday. A total of 11 rigs concluded their oil and gas campaigns in US oil regions, primarily the shale formations of the Midwest and Southwest (Permian Basin). According to Baker Hughes, the US energy services group, the number of oil rigs operating in the US fell by eight last week. The count for oil rigs declined to 507 from 515, while the total for gas decreased by three to 118. Miscellaneous rigs remained unchanged at five. A year earlier, the US had 602 oil rigs, 160 gas rigs, and two miscellaneous rigs in operation.

Overall, there were 630 rigs operating in the US this week, marking a 17.5% decrease compared to the 764 in operation a year earlier.

A new factor impacting oil and gas markets is Russia's ban on diesel and gasoline exports, tightening supply. Russia imposed a ban of around one million barrels per day of diesel and gasoline exports, citing the aim of stabilising domestic fuel prices. However, some observers view this ban as part of Vladimir Putin's strategy to weaponize energy exports amid the ongoing conflict with Ukraine. This export ban further reduces supply, already constrained by Saudi Arabia's one-million-barrel-per-day production cut set to last until year-end, and Russia's 300,000-barrel-per-day cut over the same period. These reductions prompted the International Energy Agency to warn earlier this month of a "substantial market deficit" in the fourth quarter.

Newcastle thermal coal prices closed at $US162.40 per tonne for November delivery, marking a 4% decrease for the week. Singapore iron ore futures rebounded to $US120 a tonne after Thursday's decline, closing at $120.95, which was $US2 lower than the previous Friday.

The Federal Reserve held interest rates steady last week, but there is a possibility of a 25-basis-point rate hike before the end of the year, according to the Fed's updated quarterly projections. The new forecast indicates two cuts, instead of four, for the following year. If the economy continues its current strong performance, 2024 might see one or no cuts.


Name Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.