By Ulf Bergman
Macro/Geopolitics
Yesterday’s release of the minutes from the Federal Reserve’s latest interest rate-setting meeting showed that the US central bank's policymakers agreed that continued hikes are necessary to bring the current elevated inflation under control. While most of the rate-setters appeared to favour the current approach with 25 basis point increases rather than bolder moves, there was an agreement that interest rates may have to rise more than previously expected to bring the inflation rate back down to the official target of two per cent. As a result, the US dollar continued to gain ground yesterday as market participants readjusted their interest expectations and put pressure on commodity prices.
Commodity Markets
The news that the policymakers at the Federal Reserve are considering raising interest rates further than anticipated a few months ago weighed on crude oil prices yesterday, as further monetary tightening and a stronger dollar are likely to put pressure on global demand. The Brent April futures declined by 2.5 per cent and ended Wednesday’s session at 80.60 dollars per barrel. However, the contracts have seen a marginal recovery in today’s early trading.
European and US natural gas prices rebounded yesterday amid projections of a return to colder weather. The European front-month futures advanced by 2.6 per cent on Wednesday and settled at 50.57 euros per megawatt-hour. However, the contracts have reversed course in today’s trading and retreated below 50 euros amid losses of around one per cent. Across the Atlantic, the US natural gas futures for delivery next month gained almost five per cent yesterday.
Thermal coal prices continued to recover yesterday amid forecasts of lower temperatures in Europe and North America and higher natural gas prices. The Newcastle futures for delivery in April gained 1.6 per cent and settled at 197 dollars per tonne, while the contracts for delivery in North-West Europe advanced by 2.8 per cent and ended the session at 138 dollars per tonne.
After steady gains during the previous six trading sessions, the iron ore futures listed on the Singapore Exchange gave up some of those gains yesterday. The front-month contracts retreated by 0.8 per cent and settled at 130 dollars per tonne as a stronger dollar weighed on prices. The contracts have also continued lower in today's session, with losses of around a quarter of a per cent.
The prospects of a stronger dollar amid additional US monetary tightening put pressure on the base metals yesterday, with the futures trading on the London Metal Exchange ending the session in the red. The copper contracts shed one per cent over the course of yesterday’s trading, while the aluminium futures recorded losses of two per cent for the day. The nickel and zinc contracts fared even worse and ended the day 2.5 per cent below Tuesday’s close.
The wheat futures listed on the Chicago Board of Trade continued to move lower yesterday as the supply outlook remained favourable despite geopolitical tensions. The front-month contracts followed up Tuesday’s two per cent retreat with a 1.7 per cent decline yesterday. The soybean futures gave up some of the previous session’s gains yesterday, following a 0.7 per cent decline. The corn contracts also reversed course on Wednesday amid a 0.9 per cent loss.
Freight and Bunker Markets
The Baltic Exchange’s leading dry bulk freight indices had a second consecutive day of positive performances across all of the vessel segments. The headline Baltic Dry Index surged 13.5 per cent amid solid gains for all sub-indices. However, the Capesizes led the way higher with a 28.7 increase amid improving sentiments for the larger vessels. The Panamaxes also experienced a day of solid gains, with their freight indicator advancing by 12.8 per cent. The smaller vessels also recorded healthy gains, with the Suramaxes advancing by 8.1 per cent and the Handysizes gaining 2.4 per cent.
The Baltic’s wet freight indices did not enjoy the same exuberance as their dry counterparts yesterday. The dirty tanker index declined by 0.2 per cent, while the gauge for the vessels carrying clean products dropped by 4.1 per cent. The tankers carrying LPG were the day’s highlight amid a gain of 4.9 per cent, while the freight indicator for the LNG carriers remained unchanged on Wednesday.
The trading in low sulphur bunker fuel was affected by the falling crude oil prices yesterday, with the VLSFO declining in the world’s largest ports. The fuel shed 2.4 per cent in Singapore, two per cent in Rotterdam and 1.4 per cent in Houston. For MGO, the past day saw more diverse developments across the shipping hubs. The ports in Europe and Asia recorded gains of around half a per cent, while prices dropped by 3.5 per cent in Houston.
The View from the Shipfix Desk
Despite extensive interest hikes and continued talk of an economic slowdown, the US economy shows only scant signs of slowing. Previous indications from the US Federal Reserve that most of the interest rate hikes are behind us have faced renewed scrutiny. An increasing number of its policymakers now suggest that interest rates may have to rise more than they previously envisaged and that they must remain high for an extended period to bring US inflation down.
Shipfix’s forward-looking cargo orders provide support for the notion that the US economy remains robust. However, it is not without caveats. While aggregate cargo order volumes recorded in January were historically high, the current month shows less strength. Also, orders for steel to be discharged in US ports increased in January but have since fallen back to levels more in line with previous months.
With less than a week left of February, the total for the month looks unlikely to match January's reading or, indeed, the same month last year. Hence, the data may indicate that the world’s largest economy is starting to feel the effects of recent months’ interest rate hikes.
A thaw in diplomatic relations between China and Australia and an increasing focus on economic growth in the world’s second-largest economy has resulted in an easing of the previous restrictions on imports of Australian coal.
Data Source: Shipfix