On a recent Tuesday, the US dollar index lingered near a two-year high, but an unexpected drop in the Producer Price Index (PPI) caused the dollar index to decline, closing down 0.4% at 109.18. The bond market displayed mixed reactions, with the benchmark 10-year Treasury yield closing at 4.793%, while the more sensitive two-year Treasury yield ended at 4.384%. The US stock market was similarly varied, with the Dow Jones Industrial Average rising by 0.52% and the S&P 500 up by 0.11%, while the NASDAQ lost 0.23%.

The data released by the US Department of Labor showed that the PPI for December rose by 3.3% year-on-year, falling short of the expected 3.4% and up from the previous year’s 3.0%. Additionally, the core PPI for December registered a year-on-year increase of 3.5%, which also fell below the market’s prediction of 3.8%. This downward trend in inflation has injected a glimmer of hope into the market regarding easing inflationary pressures, possibly influencing the Federal Reserve’s monetary policy

However, despite these signals suggesting potential rate cuts, the market consensus is that the Fed will refrain from further rate cuts in the first half of 2024. This stems from a robust labor market, with low unemployment rates supporting wage growth, which could subsequently drive inflation—prompting the Fed to approach policy-making with caution.

In addition, there are concerns that the incoming government may impose tariffs on imported goods, a policy shift that has drawn attention from market observersEconomists warn that such tariffs could effectively transfer some costs to consumers, leading to increased prices and stoking inflation, which would compel the Federal Reserve to maintain a cautious stance.

The cooling of the PPI data has negatively impacted the dollar index, presenting favorable conditions for the precious metals market

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A 0.6% decline in the dollar index makes gold cheaper for foreign buyers, subsequently pushing gold prices higherInvestors are closely watching upcoming consumer price index (CPI) data to further assess the trajectory of Federal Reserve policy.

Moreover, market sentiment is also influenced by political developments in the USThe announcement on social media of a new "Office of External Revenue" tasked with collecting tariffs and import taxes has generated market unease and could revive inflation concernsThis uncertainty around policy may exert pressure on the gold market.

On the geopolitical front, the ongoing ceasefire negotiations in Qatar have garnered attentionAn agreement in principle between Israel and Hamas regarding a ceasefire could alleviate regional tensions, affecting demand for gold as a safe-haven assetInvestors must stay vigilant, as geopolitical risks often have direct implications for the gold market.

Overall, the current fundamentals for gold appear to be bullish

Investors are focusing on the critical support levels on the four-hour charts, and a stabilization post-correction may prompt further buying in gold.

According to the latest report from the US Energy Information Administration, US oil demand is projected to stabilize at 20.5 million barrels per day by 2025, indicating a steady offtake despite various market dynamics.

Asian powerhouses hold a significant position in the global crude oil landscape, yet uncertainty surrounding their oil demand is subtly reshaping market movementsRecent official data indicates that crude oil imports in 2024 are expected to decline by 1.9%, marking the first annual drop in two decades due to non-pandemic related factorsHistorically, this nation’s crude oil demand has remained relatively stable even amidst various challenges, making this decline particularly striking and a break from market norms

Such a trend is likely to have profound implications for the global oil market, as the weakness of demand from this major importer could exacerbate the oversupply situation, thereby driving oil prices downward.

Data from the American Petroleum Institute indicated a decline of 2.6 million barrels in US crude oil inventories last week, while gasoline and distillate stocks increasedThis inventory shift suggests that despite reduced crude oil supply, the rise in finished fuel inventories might reflect weak demand.

The market anticipates the soon-to-be-released inventory dataset from the EIA, as investors look to these figures to gauge the supply-demand equilibrium.

In conclusion, the current fundamentals for crude oil seem to support bullish sentimentsInvestors should monitor the hourly support levels in crude oil, and may consider long positions following stabilization after corrections.