Risky assets, including US stocks, strengthened today ahead of the Fed’s meeting, with the market pricing in a pause. While expectations of keeping rates unchanged materialised, policymakers that another hike might be needed before keeping rates higher for longer next year. After the last hike is priced in, we expect investors to start paying attention to macroeconomic indicators, especially those with a skew on the downside, to help drive the narrative for the timing and scale of cuts next year. The dollar continued to decline, while the 10yr US Treasury yield hovered above 4.30%. Elsewhere, the pound weakened after the inflation reading softened below expectations, with YoY growth of 6.7%, as core eased into 6.3%. This has brought the possibility of BOE’s hikes down the curve significantly; at the time of writing, forward swaps are pricing tomorrow’s meeting to result in a hike of 11bps.
China kept its benchmark rates unchanged, following fresh signs of economic and currency stabilisation in recent days. Aluminium, as one of the more macro-sensitive base metals, rallied, jumping back above $2,250/t to $2,256/t. From the fundamental standpoint, with the traditional peak season having started in September, we see smelter sentiment improve in the near term. The supply of aluminium increased thanks to continued recovery out of Yunnan, where operating capacity recovered to 5.55m mt. We expect supply out of the region to remain a key tailwind to the nation’s production in the near term. Copper bounced back above $8,300/t to close at $8,345.50/t. Zinc’s protracted buying pressure highlights price resilience above the $2,500/t level; the metal closed at $2,555.50/t.
Oil futures erased some of the earlier gains, with WTI and Brent softening back into $91/bl and $94/bl. Gold and silver jumped higher following the dollar softness.
All price data is from 20.09.2023 as of 17:30
