US stocks continued to edge lower after another strong labour market data release, putting pressure on the Fed to tighten monetary policy. US initial jobless claims fell to 190k in the week ending February 25th, failing to show any signs of easing in the labour market. The 10yr and 2yr yields remained above 4.0%, reaffirming the sentiment for a more hawkish Fed. The dollar rose back to 105. The swaps are now pricing in a peak terminal rate of 5.5% in September, with some betting for the figure to be as high as 6.0%. Meanwhile, euro area inflation data pointed to a less-than-expected deceleration in underlying performance, at 5.6% y/y, and show no signs of abating. We anticipate that central banks’ rhetoric will once again begin to shift in the coming months, with increased cautiousness of increasing interest rates too far and too quickly, as market hawkish belief accelerated rapidly in recent weeks.
Metals followed the markets lower today, driven once again by the monetary policy outlook from the Fed. Even a mild improvement in ISM manufacturing failed to sway the markets into a weakening economic environment in the US. Copper weakened sharply after breaching the support level of $9,050/t, falling back below $9,000/t to $8,958.50/t. Lead and zinc closed lower at $2,125.50/t and $3,048/t, respectively. Aluminium weakened, falling back to $2,399.50/t. We have seen downstream purchases pick up on the back of price improvements in aluminium in recent days, but the overall uptake has failed to show signs of recovery; the spreads remain low despite historically weak inventory levels, given little domestic demand in China at the moment.
Oil futures edged slightly higher, with WTI and Brent now trading at $78/bl and $84/bl. Gold and silver fluctuated but struggled to recover, trading at $1,836/oz and $20.80/oz, respectively.
All price data is from 02.03.2023 as of 17:30