1. Metals Outlook
  2. Daily Base Metals Report

US stock markets opened on a positive note today, buoyed by inflation data for January that suggested easing price pressures in line with forecasts. This information is crucial for the Federal Reserve as it weighs the possibility of reducing interest rates. The primary PCE price index showed a decrease to 2.4% YoY in January, a slight drop from the 2.6% YoY noted in the prior month. Meanwhile, the core PCE index, which strips out the more volatile food and energy sectors, dipped to 2.8% YoY, down from 2.9% YoY in December. Although both the headline and core inflation figures exceed the Federal Reserve's annual target of 2%, the core inflation rate hit its lowest yearly level since February 2021. While the headline inflation rate is the official metric used by the Fed, the core rate is often given more consideration as it is viewed as a more accurate predictor of long-term inflation trends. The anticipated nature of the data led to a subdued market reaction, with 10-year Treasury yields stable at 4.27% and the dollar index unmoved at 103.70. Elsewhere, the EU-harmonised inflation rate in Germany decreased to 2.7% YoY in February from 3.1% YoY in January, indicating a continuing decline in Eurozone inflation. We expect inflation to remain sticky in the coming months as price pressures are influenced by a mix of deflationary forces from weaker demand and potential inflationary pressures from less advantageous base effects.

A mixed trading day was seen across the base metals today, as inflationary readings came in line with expectations, providing little macroeconomic incentive out of current ranges. Aluminium breached the $2,200/t level prior to the announcement, and subsequent upside appetite prompted futures to strengthen to $2,228/t. Meanwhile, copper held firm, struggling above $8,500/t once again today. Nickel defended the $17,500/t level once again today, jumping to $17,896/t. However, we believe that this level is above nickel's fundamental value and recent gains remain technically driven, meaning that they might not last over the longer term.

Precious metals gained momentum in the latter half of the day, with gold jumping higher, testing at the $2,050/oz level, and silver appreciating to $22.73/oz. Softer inflation reading reminds investors that interest rates will be lowered eventually, raising the attractiveness of non-yielding assets. Oil remained mostly unchanged, with WTI and Brent crude trading at $78.23/bl and $83.52/bl, respectively.

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All price data is from 29.02.2024 as of 17:30


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