Commodities brace for volatile week as US-China trade tensions and extended shutdown cloud outlook

Trump’s threats to hike tariffs on Chinese imports have renewed fears of a US-China trade war, knocking risk assets lower on Friday.

The dollar initially surged to a two-month high of 99.5, supported by fiscal concerns amid the prolonged US government shutdown and political instability in France and Japan. In France, Sébastien Lecornu unexpectedly resigned just weeks after becoming the country’s fifth prime minister in two years, which weighed on the euro. Meanwhile, the yen weakened to a seven-month low against the dollar after conservative candidate Sanae Takaichi, known for supporting loose monetary policy, looked set to become Japan’s next prime minister.

However, the US dollar retreated sharply on Friday, and major US equity indexes recorded their largest single-day drop since April, closing the week with losses exceeding 2 percent, following Trump’s announcement of a 100 percent tariff on Chinese goods, along with new export controls on key US software in retaliation for China’s rare-earth export restrictions.

This escalated sell-offs in crude oil and base metals too. WTI crude fell to $58.22 per barrel on Friday, ending the week 4 percent lower, while copper erased early gains to finish the week down 2 percent. Oil prices were already under pressure as geopolitical risk premiums eased after Israel and Hamas reached a temporary pause in fighting, along with a hostage-for-prisoners exchange agreement.

On the daily chart, MCX Crude oil futures witnessed a sharp decline last week after breaking below the rising channel pattern. The price is currently trading beneath the Supertrend (7,3) and 20 EMA, signaling a bearish outlook. The downtrend is likely to persist in the coming week, with immediate support seen at Rs 5,080 per barrel and next at Rs 4,915. Conversely, initial resistance is placed at Rs 5,480, followed by Rs 5,620.

Meanwhile, bullion extended its winning streak for an eighth consecutive week. Trade war fears triggered a rebound in spot gold, which climbed from below $3,950 per ounce to close near session highs at $4,019. A brief pullback followed Trump’s announcement of a preliminary Israel-Hamas peace deal, after gold had hit a record high of $4,059 per ounce. However, silver was the standout performer, with spot prices surging above $51 per ounce for the first time since 1980 in a historic squeeze driven by tight supply and rising lease rates.

The US government shutdown is now stretching into another week, with potential federal layoffs looming as Congress remains deadlocked. With no Senate vote expected until Tuesday, concerns continue to grow amid already fragile consumer sentiment.

Investors will also keep a close eye on scheduled speeches from Fed Chair Powell and other FOMC officials, along with key data releases such as retail sales, PPI, and jobless claims, all of which could be delayed if the shutdown persists. Globally, focus will shift to Chinese inflation data, remarks from BoE Governor, and the IMF-World Bank annual meetings for insight into broader macroeconomic trends and risks.

Markets will closely monitor developments on the US-China trade front, especially after Trump threatened to withdraw from a planned meeting with Chinese President Xi Jinping at a summit in South Korea later this month. While most of China’s new restrictions are not scheduled to take effect until December 1, markets remain hopeful for last-minute negotiations. Nonetheless, the renewed trade tensions are likely to fuel volatility and keep markets on edge in the short term.

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