|By Ole Hansen| Global markets went quiet ahead of the long awaited Federal Open Market Committee meeting this past week as the first rate hike in almost ten years seemed possible. In the end Janet Yellen and her follow central bankers opted for no change and the statement following the announcement was surprisingly dovish.
While US activity and employment data remains strong the extreme market volatility in late August and developments in commodities and the Chinese exchange rate policy distracted and alarmed the Fed sufficiently to tilt their preference to sitting on their hands for now.
When the FOMC is worried about economic developments outside the US, especially in China and other EM countries, it raises some concerns about the near-term outlook for demand of growth-sensitive commodities such as energy and industrial metals.
The market reaction was therefore not entirely surprising with precious metals once again receiving a bid while industrial metals gave back some of the recent strong gains. The energy sector was mixed with WTI crude oil outperforming Brent by quite a margin following a surprise drop in US inventories together with an overhang of supply from the Atlantic basin.
Silver was the star performer of the week after the break of a key technical level saw it outperform gold by almost two percent. The white metal, to the surprise of many, is currently the second best performing commodity in 2015 after cocoa which has resumed its rally as dryness continue to hurt West African crops. In a report, the World Bank sees the risk of an expanding global deficit for the 2015-16 season as the looming El Niño could trigger significant losses in West African yields.
Industrial metals, not least zinc and nickel went into reverse after the Fed’s delay signaled concern about growth prospects in EM countries. HG copper retraced after having rallied by more than 13% since the August low and the risk of a resumption of weakness has increased.
(By Ole Hansen is head of commodity strategy at Saxo Bank)
