US stocks edged higher on Monday given the economic data released this week. The upcoming batch of UK labour data will be key for the BOE’s interest rate decision by the end of the month. As we mentioned last week, it is the labour data robustness that is keeping the probability of further hikes elevated, as the CPI continues to soften. Moreover, US core CPI reading is expected to have softened to 4.3% y/y in August, further solidifying the case for a rate pause. While we do not expect inflation to approach its target in the near term, continued softness in pricing pressures should start to up the probability of a cut from the Fed next year; the timing and scale of the decline will be key in driving the dollar outlook next year. From the ECB perspective, market is split between whether a hike will materialise, with 9bps being priced in by forward swaps. Given that the ECB remains behind the curve, we anticipate one more hike of 25bps before a pause in this tightening cycle. The dollar is edging back to 104.50.
Base metals jumped higher today, supported by a combination of dollar softness and yuan strength today. Offshore yuan rallied after the PBoC escalated its defence on the currency move. Moreover, strong credit data today pointed to improving demand, and CPI re-accelerated in August, suggesting easing deflationary pressures, albeit by the tinniest margin. The question remains to what level this momentum can be sustained. We are still of the view that the cumulative impacts of policy support and an easier monetary policy will create a solid base for Chinese growth to recover. Q4 performance should be marginally positive as a result. Aluminium closed back above $2,200/t at $2,205.50/t, while copper offset the last couple of days of losses, gaining footing above $8,400/t to close at $8,402/t. Zinc prices oscillated today, but managed to close above a robust resistance level of $2,500/t at $2,509.50/t. All the other metals held their ground.
Oil futures cooled slightly today, and precious metals gained momentum on the back of dollar weakness, with gold and silver trading at $1,923/oz and $23.00/oz, respectively.
All price data is from 11.09.2023 as of 17:30