A mix of contrasting data across the market today widened the divergence between key central banks’ tightening expectations. In the US, stocks gained ground after inflationary expectations eased by more than expected: the overall CPI performance slowed to 4.0% y/y, marking the lows not seen since the end of 2021. The core reading, while remaining above forecasts, has also eased, down to 5.3% in May. Moderating inflation has prompted swap traders to lower their monetary policy tightening expectations, with the July meeting now pricing in 17bps with the probability of 57%, vs 21bps a day before. On the other hand, the UK’s labour market data surprised on the upside, underscoring lower unemployment alongside further wage pressures, raising the stakes for further interest rate increases from the BOE – 128bps worth of increases are currently being priced in until the end of the year. The dollar weakened slightly to 103.20, and the 10yr US Treasury yield remained unchanged.
Base metals complex benefitted today from a combination of potential stimulus from China and a softer dollar. Chinese officials are considering a broad package of supportive measures to boost economic performance, in particular the real estate and domestic demand. An additional 7-day RRR reduction today has added to the sentiment. We suspect that, given a lack of a strong domestic demand outlook, officials will continue to release additional support measures to nudge sentiment higher, before further accelerating it into the second half of the year. Nickel and iron ore futures were once again the beneficiaries of this move, gaining ground to settle at $21,952/t and $111.66/mt, respectively. Other metals saw more moderate gains, with aluminium edging slightly higher to $2,232/t while copper strengthened into the resistance level of $8,500/t. Lead and zinc closed higher at $2,080.50/t and $2,381.50/t, respectively.
Oil futures recovered recent losses, supported by the possibility of further support from China, with WTI and Brent now trading at $69/bl and $74/bl. Gold and silver weakened sharply in the latter half of the day despite easing expectations from the Fed to tighten; gold and silver remained broadly unchanged by the end of the day at $1,945/oz and $23.80/oz, respectively.
All price data is from 13.06.2023 as of 17:30
