US stocks fluctuated ahead of the meeting between President Biden and Republican House Speaker McCarthy in regard to the debt-ceiling negotiations. Meanwhile, Treasury Secretary Yellen stated that chances are quite low that the US can pay all its bills in time by mid-June, underscoring the urgency of the decision by policymakers. Resolution of the debt ceiling would mean spending cuts in the longer term and could create further headwinds for the economy in 2024, and equities are yet to price it in. We have seen a higher probability of a rate hike, and this was further underscored by St. Louis Fed President Bullard saying that two more hikes could be on the table this year to help calm inflation. Elsewhere, UK CPI is out this Wednesday, and if it comes in below the estimate of 8.2% y/y, it could boost sentiment.
Base metals weakened after some gains seen by the end of last week driven by concerns over China's post-pandemic recovery. Iron ore futures declined sharply back to the $100/mt level after data showed a lack of steel demand from the construction sector. Whilst we have seen greater investment poured into the sector, we do not expect recovery to accelerate until later on in the year. At the same time, the PBOC kept its 1yr policy rate unchanged earlier this month while injecting more long-term liquidity into the financial system. Markets have pretty much priced in stimulus from the Chinese economy, and if this does not materialise, it could create strong downside pressures. Aluminium weakened to test the support of $2,260/t before seeing a slight recovery to $2,263.50/t. Copper was also testing the $8,150/t during the day; the metal closed at $8,127.50/t. Zinc, in line with iron ore, continued to weaken, falling to close at $2,431.50/t.
Oil futures edged higher, with WTI and Brent now trading at $71/bl and $75/bl. Gold and silver continued to drift lower, down to $1,972/oz and $23.65/oz, respectively.
All price data is from 22.05.2023 as of 17:30