Stocks opened higher this week, continuing the positive momentum from Friday when a solid jobs report stoked risk-on sentiment; this momentum cooled later in the day. This is unlike something we saw last year, when economic resilience weighed on riskier assets, as markets would have priced in a tighter monetary policy environment. Now, while this data helped to increase the expectations of a hike, markets remain hopeful that the previous tightening is not going to result in a sharp recession, and hence strong labour market report is underscoring the market's view of economic resilience. According to S&P Global, service PMI pointed to a marginal softness, down to 54.9; meanwhile, ISM's gauge unexpectedly fell to the lowest level so far this year. In line with China's manufacturing results last week, the diverging performance between two sources is clouding the outlook for economic performance. Still, the bets for a hike in July continue to grow, with forward swaps pricing in 20bps of an increase with a 75% probability; a pause in June is now fully priced in. The dollar continued to strengthen, and the 10yr US Treasury yield tested the 3.75% level.
We are entering a period with little narrative, where a lack of a strong market signal to drive the trend means that trading is becoming mostly sentiment-driven rather than fundamental. There is still little demand coming out of China, and we have seen base metals respond more to the stock changes instead, pushing aluminium cash to 3-month to $45/t last week; this tightness did not last, and the spread returned to -$34.25/t today. Meanwhile, aluminium remained unchanged at $2,244/t. With the macro environment stable and the blackout period from the Fed, the outlook for this week is also set to be quiet. On Monday, performance was muted across the complex. Copper edged back above $8,300/t and is testing the 200-day moving average at $8,374/t at the time of writing; it later closed at $8,335/t. Lead and zinc settled at $2,2028/t and $2,288.50/t, respectively.
Oil futures jumped higher to $72/bl and $77/bl for WTI and Brent, respectively, after Saudi Arabia announced a pledge to cut output by an extra 1m bl/d to support prices. Gold and silver remained unchanged at $1,957/oz and $23.50/oz, respectively.
All price data is from 05.06.2023 as of 17:30
