Financial markets had a lot to digest today, with the ECB and BOE raising rates by 50bp following a hawkish Fed last night. The Fed has suggested rates will continue to rise, and equity markets declined sharply as they continued to price in higher rates and lower earnings. The hawkish tilt prompted equities to decline, down nearly 3% at the time of writing in the U.S., and Euro Stoxx 50 closing down 3.5% on the day. Yields were bid today as investors expect higher terminal rates, with the U.S. 10yr at 3.234%. The dollar index gained ground, with large gains coming against USDJPY and AUD. We could see a correction in cable back towards 1.20. The recent releases from the C.B.s suggest that they still expect inflationary pressures to persist, and the terminal rate will be higher.
Metals prices sold off sharply against a stronger dollar and hawkish Fed comments. Copper failed to gain a footing above $8,500/t, which caused a sell-off to $8,300/t; the spread narrowed slightly but is still in contango at $39.5/t. Aluminium suffered a similar fate, closing at $2,384/t, down over 2%, and the spread remained weak at $39.25/t. Inventories across the market remain tight, but we expect large amounts of material held off the exchange. We expect some moderate improvement in orders in the physical market due to re-stocking and the anticipation of more robust demand from China in 2023. Zinc prices sold off, falling to $3,159.5/t. Tin continued its trend lower, towards $23,450/t, with the cash to 3 months spread at $80/t back.
Energy prices failed to hold onto the highs and have softened, with brent and WTI at $81.68/bl and $76.39/bl, respectively. Precious metals market came under heavy selling due to higher yields and a hawkish Fed. Gold traded through $1,800/oz to $1,779/oz, with silver trading at $23.14/oz.
All price data is from 15.12.2022 as of 17:30