The macro implications of the metals squeeze

  • The aluminum squeeze may be driven by micro factors, but that doesn’t mean that it won’t have macro consequences, particularly given how the rest of the base metal complex has risen in sympathy
  • Yesterday Bill Dudley said that there was no real need for the Fed to be more aggressive given that inflation remains below target, but he knows as well as you do that both core and headline PCE inflation will be 2% or higher when they’re reported at the end of the month. Moreover, the commodity move suggests upside risks moving forward
  • Trends in base metals have had a pretty solid relationship with headline inflation over the last decade, and the recent spike suggests further upside risk to inflation figures, particularly when combined with the oil price surge. That in turn may eventually encourage the market to test just how relaxed the FOMC would be with above-target inflation and tight labor markets