World Economy

Fed Hike Impact on Commodity, Retail Markets

Fed Hike Impact on  Commodity, Retail Markets Fed Hike Impact on  Commodity, Retail Markets

The Federal Open Market Committee raised interest rates for the first time in almost a decade shifting from its lose monetary policy stance to a gradual and calculated tightening of the support as it sees the US economic recovery going ahead. The initial reaction from commodities market was a muted one with only a small knee jerk reaction in the market.

The next two days saw gold fall sharply to $1055/oz and then recover in the same manner back to near $1070 as traders decided on what the potential impact the Fed move could have, Commodity Online reported.

Base Metals remained largely range bound last week but did witness some volatility backed by the Fed decision. Oil and natural gas prices continued to remain lower pressured further by supply concerns.

The lack of direction in precious metals despite the Fed move last week could indicate a lack of consensus among traders on which way prices are headed. The increase in interest rates would mean that bonds and treasuries are more in favor than gold which is non-yielding asset.

The fact that markets and treasuries have also somewhat reacted positively to the rate hike should come as negative news for precious metals. Given the situation, we feel the focus will once again shift to macro-economic data from the US which if picks up further should pressure bullions lower. Over the short term, increasing inflation could be positive for prices but that looks farfetched right now as crude oil prices have also been languishing near the lows.

Testing Resistance

Copper continues to remain in a large range since mid-November and now is on way to test resistance at $4,725 above which a daily close could trigger short term rallies in copper. Failure to do so, should see prices come down to sub $4,600 levels this week. Fundamentally, the production cut from refiners and smelters could provide support for prices, and one cannot expect any sustainable rallies unless there is a demand pickup from China.

Crude Oil should remain under further downward pressure as prices plunged to a fresh low of $35.56/barrel in intraday Monday. The next support is seen at $35 breaking which $30/bbl is the most likely level this week. Unless, a major supply shock occurs, one should not expect any significant or lasting rallies, and the weekly trend is clearly negative.

Retail Sales

Retail sales in the US grew 3.3% this year, eMarketer estimates, and growth will pick up slightly next year to 3.5%.

According to eMarketer’s latest forecast of retail and ecommerce sales around the world, total retail sales in North America reached $5.25 trillion, including $4.78 trillion in sales in the US alone.

More than a fifth of the world’s retail sales occurred in the US this year. In 2016, US retail sales will approach $5 trillion in value. Despite steady growth of 3%, which puts the US ahead of Canada’s rate of increase, the country’s retail market will lose share of the worldwide total over eMarketer’s forecast period as the retail sector in developing markets grows more quickly.

The vast majority of the nearly $5 trillion in US retail sales occur in stores. This year, retail ecommerce accounted for just 7.1% of all retail sales in the US—though that share is growing.

By 2019, eMarketer estimates, 9.8% of US retail sales will be transacted over the internet. The US, where this share is in line with the North American average, is slightly behind western Europe, where 7.5% of retail sales were transacted online this year.

In Asia-Pacific, the share is 10.2%, the highest in the world.