By Ulf Bergman
Macro/Geopolitics
Like in China, the US economy proved to be more resilient than widely expected during the final quarter of last year. Yesterday’s release of multiple economic data showed that the US economy remains strong, which could see the Federal Reserve being forced to maintain a hawkish stance on interest hikes. While the world’s largest economy expanded at a slower pace than during the third quarter, the 2.9 per cent year-on-year growth was still higher than the consensus among economists of 2.6 per cent.
In addition to strong quarterly growth, the US economy saw durable goods orders increase by more than expected in December. Compared to a month earlier, purchases of goods meant to last at least three years grew by 5.6 per cent, substantially above the expected 2.5 per cent growth. The US labour market also proved to be in good health, with initial jobless claims during the past week falling to the lowest level since April.
Despite the solid economic data, the US dollar only gained limited ground yesterday, with the dollar index remaining close to the lowest levels since May last year. It is expected that the effects of the recent aggressive interest rate hikes will start to materialise in the coming months, with lower inflation and growth. There were also signs that consumer spending, a key driver of growth in the US, was losing its momentum during the quarter. Hence, coming quarterly growth data may be less impressive, with an increased likelihood of a contraction during the second and third quarters.
Commodity Markets
Crude oil prices gained ground yesterday amid the stronger-than-expected economic data in the US, which raised hopes of a soft landing for the world’s largest economy. The Brent futures advanced by 1.6 per cent and ended Thursday’s trading session at 87.47 dollars per barrel. The contracts have also continued to rise in today's session, with gains in excess of one per cent.
During yesterday's trading, European natural gas prices continued to lose ground. The front-month futures settled just below 55 euros per megawatt-hour following a daily decline of 4.5 per cent. High inventory levels and expectations of a robust inflow of LNG volumes weighed on the prices as the continent is heading for milder weather in the coming week. The contracts have also shed more ground in today’s session amid losses of nearly two per cent.
Across the Atlantic, US natural gas prices dropped below 3 dollars per million British thermal units for the first time since May 2021, as milder weather and rising domestic production weighed on prices.
After Wednesday’s extensive losses, the thermal coal futures had a mixed session on Thursday. The Newcastle futures for delivery in March regained some lost ground and settled at 251 dollars per tonne, following a 3.4 per cent gain for the day. In contrast, the March contracts for delivery in North-West Europe remained in the red, settling at 137 dollars per tonne following a 2.5 per cent loss for the day.
The holidays in China continued to restrict trading activities in iron ore, with the futures trading at the Singapore Exchange remaining near last week’s levels of 125 dollars per tonne.
Thursday was also relatively uneventful for the base metal futures trading on the London Metal Exchange. The copper contracts ended the session 0.2 per cent higher, while zinc and nickel saw gains of around one per cent. In contrast, the aluminium futures recorded limited losses and ended the session 0.7 per lower than the previous close.
A pick-up in demand saw the grain and oilseed futures trading in Chicago gaining ground on Thursday, with wheat, corn and soybeans advancing by more than one per cent.
Freight and Bunker Markets
The Baltic Exchange’s freight index for the Capesizes continued to decline yesterday as the holidays in China weighed on activities. The gauge for the largest vessel segment extended its recent run of sessions in the red to an eighth consecutive day, following a drop of thirteen per cent. The drop contributed to the Baltic Dry Index retreating by 3.7 per cent. However, the pains in the dry bulk sector were not evenly distributed, and the Panamaxes saw their freight rate indicator advance by one per cent. The smaller segments experienced marginal losses, with the sub-index for the Supramaxes retreating by 0.5 per cent and the Handysizes shedding 0.2 per cent.
The Baltic’s wet freight indices experienced a day that resembled a repeat of Wednesday. The gauges for the dirty and clean tankers remained in the red, with the former declining by 1.3 per cent and the latter losing 1.9 per cent. The LPG carriers had a second day of soaring rates, with their freight index advancing by 21.5 per cent. In contrast, the gauge for the LNG freight rates remained unchanged for a third consecutive day.
The rising crude oil prices saw VLSFO advance by around one per cent in Rotterdam and Houston on Thursday. However, prices for the low sulphur fuel remained broadly unchanged in Singapore. The trading in MGO was also mixed across the three ports, with prices retreating by approximately one per cent in Rotterdam and Singapore while gaining 0.9 per cent in Houston.
The View from the Shipfix Desk
Copper is generally seen as a bellwether of economic activities, given its central role in manufacturing. The futures for the red metal trading on the LME has risen by more than ten per cent so far this year and are trading near the highest levels since the middle of last year. The easing of the Covid restriction in China and expectations of a rebound for the country’s economy have contributed to copper’s newfound strength.
While a few days remain of the current month, the cargo order volumes for copper discharging in China as dry bulk look set to fall below the ones for the same month a year ago. However, the drop comes after robust volumes during the final month of last year. The easing of the stringent Covid restrictions in December is likely to have led to many Chinese buyers of copper stepping up their purchases ahead of the early Chinese Lunar New Year. Hence, given the forward-looking nature of the cargo order data, Chinese copper imports are likely to increase in the coming months.
Data Source: Shipfix