Lead is a toxic metal for humans by its nature. And it seems that now it is also toxic for investments as its price dropped by 3% on the London Metal Exchange this Monday, from $2150 to $2087 per tonne.
It is a production metal that is sensitive to economic growth perspectives and, as such, its price significantly dropped at the beginning of the week after the United States was hit by a huge inflationary shock. Consumer prices rose unexpectedly by 8.6% year-on-year in May after posting 8.3% in April. May figures were expected to remain at this level, but these expectations were never met. This fact may indicate that even tightening of the Federal Reserve’s (Fed) monetary policy didn’t help to slow down the inflation spiral. Thus, such a situation may require the Fed to decide on sharp interest rate actions during its two-day meeting ending on June 15. Last week investors were betting that the Fed would hike interest rates from 1% to 1.5% during this meeting as 94.8% of interest rate futures were set on this level. Now 94.4% of investors are expecting the Fed to hike interest rates to 1.75% on June 15, while only 5.6% consider rates will be hiked to 1.5%. The increasing cost of money will have a negative effect on production and investments, and also on the demand for production metals.
So, most of risky commodity assets’ prices plummeted, including metals. There are not only risks of increasing inflation and rising interest rates to consider, but also a slowing down of the U.S. and global economy due to geopolitics, high energy, and food prices.
The Fed’s actions on June 15 are less predictable now as sharp interest rate hikes may curb economic growth and lead to stagnation.
This week investors will also be looking out for decisions made by the Bank of England (BoE) and the Swiss National Bank (SNB) on June 16. The European Central Bank official statement this week will also be on investors’ watch list. The positions of major central banks on further monetary policy actions will direct commodity prices, including that of lead.
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