Metal stocks remained in focus on Friday as fears of slowing growth and a potential easing in the asset-buying program instigated a market-wide sell-off and investors sought safety.
The minutes of the July Federal Open Market Committee showed the Fed is making plans to pull back the pace of its monthly asset purchases, likely before the end of the year. However, it wanted to be clear that asset tapering is not a precursor to a rate hike. The minutes showed that members would rather wait until early 2022 to start tapering.
This led to the world stocks and commodities market retreating. European and Asian shares plunged and Wall Street indices also underwent choppy trading. In commodity markets, oil prices came off three-month lows Friday and were on track for a weekly decline of almost 6 percent.
Experts believe commodity is not a safe space anymore. Mark Matthews of Bank Julius Baer said, "For commodities, we generally feel the signals are showing us that we are at a peak and they should go down. The dollar is now at a new high for this year and so the dollar would put pressure on commodities."
Meanwhile, the dollar stayed strong, boosted by the same reasons that brought the rest of the assets on their knees. The dollar index, which measures the greenback against six rivals, rose as high as 93.597 for the first time since early November. The dollar is considered to be a safe haven while markets undergo turbulence amid fears of potential easing in US stimulus, slowing growth, and rising spread of Delta variant of coronavirus.
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Nifty Metal is down 3 percent, with Hindalco being the top loser. It is down over 4.5 percent, followed by NMDC which is down over 4 percent. Tata Steel, Jindal Steel, and JSW Steel are all down nearly 3 percent.
Metals are particularly pressured by the concerns about growth in China -- the top consumer. The fast-spreading Delta variant of coronavirus is doing nothing to cool the investor anxiety as weaker-than-expected data from the US and China suggest a crimp in the global economic recovery.
Other commodities are also heading to their worst week on speculation that slowing economic growth will reverse the rebound in demand for raw materials, now that metals and oil are falling.
"The Chinese National Development and Reform Commission (NDRC) said they are going to use their foreign reserves to stabilize the commodity prices. And so commodities were weak on the back of that... Put it all together, I don't feel that commodities are a space that will do well," Matthews added.
Andrew Holland of Avendus Capital sees about 5-10 percent correction in the commodity market, depending on the growth expectations.
Iron ore closed 12 percent down in Singapore on Thursday, its lowest level since December. It is the most China-centric commodity, so when investors give up commodities, iron ore is the first one to be on the firing line. This slump is spilling over to steel prices.
Steel prices are further falling on expectations of waning demand from Chinese markets. China is now cracking down on its property market and curbs are surging prices.
Copper also sank to a four-month low on Thursday as investors worried over Chinese steel production. China has repeatedly urged its steel mills to curb output, party to cut back on the pollution. Some major steel producers are already making arrangements to reduce supply, pushing the prices higher.
First Published: IST