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Crude oil futures traded lower on Friday morning as the ‘S&P Global Flash US Composite PMI’ numbers indicated a slowing down of the US economy. At 10.07 am on Friday, August Brent oil futures were at $110.15, down by 1.42 per cent; and August crude oil futures on WTI were at $104.38, down by 0.11 per cent.
July crude oil futures were trading at ₹8,180 on the Multi Commodity Exchange (MCX) in the initial hour of Friday morning against the previous close of ₹8,222, down by 0.51 per cent, and August futures were trading at ₹7,980 against the previous close of ₹8038, down by 0.72 per cent.
The ‘Flash US PMI Composite Output Index’ registered a five-month low at 51.2 in June, down from 53.6 in May. The ‘Flash US Services Business Activity Index’ witnessed a five-month low at 51.6 in June against 53.4 in May. The ‘Flash US Manufacturing Output Index’ registered a 24-month low at 49.6 in June against 55.2 in May, and the ‘Flash US Manufacturing PMI’ registered a 23-month low at 52.4 in June against 57.0 in May.
Pace slips in June
Commenting on the Flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said the pace of US economic growth has slowed sharply in June, with deteriorating forward-looking indicators setting the scene for an economic contraction in the third quarter.
The survey data are consistent with the economy expanding at an annualised rate of less than 1 per cent in June, with the goods-producing sector already in decline and the vast service sector slowing sharply.
“Having enjoyed a mini-boom from consumers returning after the relaxation of pandemic restrictions, many services firms are now seeing households increasingly struggle with the rising cost of living, with producers of non-essential goods seeing a similar drop in orders,” he said.
There has consequently been a remarkable drop in demand for goods and services during June compared to prior months. Businesses have become much more concerned about the outlook as a result of the rising cost of living and drop in demand, as well as the increasingly aggressive interest rate path outlined by the Federal Reserve and the concomitant deterioration in broader financial conditions.
He said the business confidence is now at a level that would typically herald an economic downturn, adding to the risk of recession. “A corollary of the drop in demand was less pressure on prices, with the survey’s inflation gauges for firms’ costs and their selling prices falling sharply in June to suggest that, although still elevated, price pressures have peaked,” he said. The US is the major consumer of crude oil in the global market.
Recession fears
Saish Sandeep Sawant Dessai, Research Associate, Base Metals, Angel One Ltd, said markets are gripped by fears of a recession after US Federal Reserve Chief Jerome Powell said that the job market was unsustainably strong and that the central bank's emphasis was on reducing inflation.
In his outlook for the day, he said, “We expect crude to trade lower towards ₹8,110 levels, a break of which could prompt the price to move lower to ₹7,970 levels.”
Copper gains a tad
July copper futures were trading at ₹798.05 on MCX in the initial hour of Friday morning against the previous close of ₹698.25, up by 1.40 per cent.
Saish Sandeep Sawant Dessai, Research Associate, Base Metals, Angel One Ltd, said the base metals pack continued to end on a negative note, with copper being the top loser, down over 4 per cent on the LME and MCX.
On Thursday, copper prices hit a 16-month low and were headed for their worst one-day decline since March 2020 as rapidly rising interest rates and dismal economic data stoked concerns about a global downturn that would cut demand for metals. Fears of a recession have increased as a result of aggressive interest rate increases that could cause copper prices to drop even more.
In his outlook for the day, he said, “We expect copper to trade lower towards ₹688 levels, a break of which could prompt the price to move lower to ₹678 levels.”
On the National Commodities and Derivatives Exchange (NCDEX), July steel long futures were trading at ₹46,800 in the initial hour of Friday morning against the previous close of ₹46,500, up by 0.65 per cent. July guarseed contracts were trading at ₹5,447 on NCDEX in the initial hour of Friday morning against the previous close of ₹5,491, down by 0.80 per cent.
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