- Steel prices pared intraday gains as traders fear oversupply, economic slowdown.
- China’s official PMIs failed to impress metal buyers amid broad pessimism.
- US dollar retreat probes ahead of Fed’s preferred inflation gauge.
Steel prices struggled to extend weekly gains bracing for quarterly losses as fears of a recession added to supply woes in Thursday’s Asian session. Even so, the industrial metal managed to respond to robust activity numbers from China.
Construction steel rebar on the Shanghai Futures Exchange (SFE) was up 0.1% at around 4,370 yuan per metric ton, while hot-rolled coil was down 0.1% by press time. Further, stainless steel rose 0.8% intraday but remained under pressure of late.
Speaking of China data, preliminary readings of official PMIs for May came in better than previous readings. That said, the NBS Manufacturing PMI headline rose to 50.2 and 49.6 compared to the 50.4 forecast earlier. Further, the non-manufacturing PMI rallied to 47.8 versus 54.7 expected and 52.5 in previous readings.
However, the willingness of major central bankers to combat inflation even at the cost of a short-term economic slowdown has recently put a pesky pressure on market sentiment.
Among them, Fed Chairman Jerome Powell repeated his recent pledge to fight inflation, preparing to announce another 0.75% rate hike if necessary. The Fed boss praised US economic strength and helped the US dollar remain strong. It’s worth noting that Powell’s comments pointing to challenges to US jobs data amid a battle with inflation seem to have weighed on the risk profile of late.
Drawing on the mood, the US 10-year Treasury yield snapped a two-day decline as key bond coupons rebounded from weekly lows to 3.10%, up one basis point (bp). US Dollar buyers seem to be investigating the same as the US Dollar Index (DXY) retreated from a two-week high at 105.00. Furthermore, S&P 500 futures were down 0.30% intraday recently at 3,810.
Elsewhere, rising steel production in Asia and the recent increase in production have had an additional negative impact on steel prices.
Going forward, metal prices are likely to remain under pressure with today’s US core Personal Consumption Expenditure (PCE) price index, up 0.4% MoM and 0.3% expected earlier, a key catalyst to watch for near-term directions. If the Fed’s preferred inflation index is to remain firm, chances of witnessing an aggressive rate hike cannot be ruled out, which is seen as negative for commodities. Additionally, higher rates will negatively impact industrial metal growth and demand, delivering a double-barreled attack on the metal if today’s US data comes in solid.