US stocks jumped higher on the open after governments and central banks announced their support to shore up confidence in the financial system; these gains were quickly erased as markets remained cautious about the overall health of the banking sector. Still, the ripple effect of the crisis brought the yields lower in both the US and the EU, with 2yr yields falling as much as 50bps, to 4.00% and 2.70%, respectively. This marks the steepest decline in US Treasury yields since 1987. The forward swaps are now pricing in an 18bps hike during the next week’s meeting, down from 31bps a week ago. However, we are not yet certain as to whether this would lead to a pause in rate hikes or a 25bps increase from the Fed next week. We will pay attention to the US CPI reading out tomorrow to gauge the monetary outlook, which we expect to remain upwardly resilient, even with softer wage growth. The dollar weakened to test the 50 DMA support level of 103.45.
Metals managed to recover earlier losses today, with the lows seen approaching late-2022 levels. Aluminium bounced off from $2,280/t, settling higher on the day at $2,333.50/t. Domestically, lower alumina prices are removing the support for aluminium prices; however, they create an attractive price point for downstream producers to purchase material. As a result, we saw social inventories diminish slightly, given the gradual resumption of operating rates from downstream purchasers. Copper closed at $8,931/t after support at $8,650/t held firm. Lead and zinc closed higher at $2,082/t and $2,946.50/t, respectively. China’s hard data is out this Wednesday; we expect industrial production growth to accelerate, and while retail sales should follow suit, this is mostly given the low base of growth from last year. That would follow the PMIs releases earlier this month and could set a positive tone for Chinese equities and metals. Still, we do not think this will be sustainable in the longer term, and cracks should start to show in the coming months. We expect primary spending from Chinese consumers to be directed towards services and luxury goods instead of other non-perishable such as electronics, which once again could cap metals upside.
A similar momentum was seen in oil, but futures struggled to offset most of the gains, with WTI and Brent now trading at $75/bl and $81/bl. Gold and silver rallied strongly, up by 2.0% and 6.0%, after investors sought after the traditional safe havens; both metals now trade at $1,906/oz and $21.78/oz, respectively.
All price data is from 13.03.2023 as of 17:30