A 25bps hike from Fed last night would have traditionally soured the mood in risk assets, lifting the dollar and yields higher. This did not take place. On the contrary, we have seen a continued gain in traditional safe havens such as gold and US stocks strengthened on the open. While this is partly driven by market confidence that the banking sector risks are not broad enough to cause a shift in monetary policy, we believe investors are also cautious about the upcoming outlook for the Fed and whether we might see another hike take place. Forward swaps are pricing in a 12bps hike in May, and subsequently, the case for a pivot building in the latter part of the year. Following suit, the BOE has hiked interest rates by 25bps today after a reversal in February’s inflationary reading. Similar moves were seen by the Swiss and Norway central banks. On the economic front, initial jobless claims drifted lower once again, remaining near historic lows, further underlying the robustness of the labour market.
Another day of positive risk-on sentiment helped bring base metal prices higher, keeping the fundamental support levels intact. Aluminium climbed higher, breaching resistance of $2,300/t to close higher at $2,326/t. Copper rejected prices below $8,850/t before gaining ground back above $9,000/t to close at $9,031/t. Lead closed at $2,126/t. Zinc’s move on the upside in the latter half of the day is playing catch up with other metals, as it struggled to gain momentum in line with gains that we have seen in aluminium and copper. The metal closed at $2,907/t. Refined zinc inventory in China has remained flat since the build-up that we saw at the start of the year. We see that demand is struggling to recover, and downstream players have been sluggish. Some European smelters have seen profits restored, given the drop in electricity prices. However, overall demand and supply in the region remain muted and will struggle to recover in the face of a higher interest rate environment. We expect zinc to flirt with $2,820/t in the near term.
Oil futures struggled to find momentum, and WTI and Brent settled slightly higher on the day at $70/bl and $76/bl. Precious metals saw another day of positive gains, with gold and silver trading at $1,992/oz and $23.15/oz, respectively.
All price data is from 23.03.2023 as of 17:30