US stocks jumped higher following a softer inflation report release. US CPI figure came at 6.5% y/y and -0.1% m/m, with the softness coming from falling energy costs. Core inflation rose by 5.7% y/y, the slowest since December 2021. Despite being in line with market expectations, continued softness in pricing pressures has given the market a respite about the trajectory of the monetary policy tightening. The forward swaps are now pricing in a 27bps rate hike in February, vs 36bps a week ago. On the other hand, the labour market data shows little weakness, with initial jobless claims posting a increase to 205,000 in the week ending January 7th. Before we see any increase in the unemployment level, the economy must first see the number of job openings fall while jobless claims increase. With these figures remaining robust at the moment, a rise in the unemployment rate is not yet imminent, putting pressure on wage growth and complicating the path for the Fed down the line. The dollar fluctuated but continued to weaken, and the 10yr US Treasury yield tested 3.50%.
After yesterday's rally, most metals started the day on the back foot; however, softer inflation boosted prices in the latter half of the day. Aluminium jumped above the $2,500/t resistance level, marking the 5th straight day of positive gains; the metal closed at $2,548.50/t. Likewise, copper maintained its position above $9,000/t, with an appetite for higher prices bringing the level to $X/t; cash to 3-month remained broadly unchanged in recent days at -$19.50/t. Lead closed unchanged at $2,198/t, while zinc strengthened into $3,235.50/t. In the meantime, China’s domestic social inventories show signs of swelling ahead of the Lunar New Year celebrations as demand cools during the off-season. Concurrently, reports suggest that some aluminium smelters closed their production ahead of the scheduled holiday period, as domestic demand has been weaker than expected, especially coming from the metal processors.
WTI and Brent futures jumped to $78/bl and $84/bl on the back US data. Gold and silver, however, struggled to post solid gains, with gold remaining unchanged at $1,893/oz as silver settling at $23.85/oz.
All price data is from 12.01.2023 as of 17:30