US stocks weakened once again following a stronger-than-expected inflation gauge print, once again reaffirming the market conviction of a hawkish Fed. The PCE index rose by 5.4% y/y after three consecutive months of softness; personal spending increase is reflected through a recent pick up in motor vehicles, food services and accommodation. Inflation-adjusted disposable incomes rose by 1.4%, largely supported by an increase in wages, marking the biggest increase since March 2021. Wages are poised to edge higher this year, catching up with inflation increases over the months, which is set to complicate the Federal Reserve outlook as policymakers aim to avoid the wage-price spiral. At the same time, US consumer confidence jumped to the highest level in a year, while US new home sales exceeded market expectations. The dollar and the 10yr US Treasury yield both rallied. The 2yr yield hit 4.80%, the highest level since 2007, as markets bolstered their hawkish Fed outlook.
Metals followed the stocks lower today amid strong US data. Aluminium tumbled to $2,333.50/t, and the news indicating that the US will impose a 200% tariff on all imports of Russian-made aluminium struggled to offset the losses. Aluminium cash to 3-month spread weakened sharply to -$53/t, indicating the deepest contango since 2008. Copper fell below $8,800/t to close at $8,716.50/t. Zinc closed lower at $2,964/t. Lead was the only metal that managed to settle higher on the day at $2,071/t after finding support at $2,060/t. Widening spreads and continued accumulation of social inventory in China further highlights the lack of demand from the region, and with stronger emphasis back on the Fed from the macroeconomic standpoint, metals’ prices struggled and closed lower on the week.
Oil futures tumbled following the PCE data, but WTI and Brent managed to recover the losses and are now trading at $76/bl and $83/bl, respectively. Gold and silver weakened to $1,811/oz and $20.87/oz, respectively.
All price data is from 24.02.2023 as of 17:30