Lead Outlook

The macroeconomic outlook is deteriorating, and in our view, Europe and the UK are in recession already, and the US will be 6 months behind. Higher interest rates, in conjunction with elevated energy and electricity prices, are squeezing households’ disposable income, and new mortgage rates are considerably higher and are now a fixed cost to the consumer. We expect end-user demand to decline, and this will have an impact across the whole supply-chain; although material availability is poor for metals with bonded and exchange warehouses low in stock, this will lead to a dislocated market and volatile price action in spreads, while the macro impacts the flat price. The 20th Party Congress has ended, and their COVID policy is here to stay. As a result, sentiment in China has declined, and if the output of refined materials rises, this will put further pressure on prices. The Fed has increased the rates by 75bps with 50bps to come, but investors are looking at where they pivot, and any dovish language will cause a selloff in the dollar, giving rise to metals prices. If Chinese demand returns and the dollar weakens, this could present significant volatility and price rises, compounded inflationary pressures.