Author: Consultant

• GDP, a measure of all the goods and services produced, increased at a 3.3% annualized rate in the fourth quarter of 2023. Wall Street had been looking for a 2% gain.
• The U.S. economy for all of 2023 accelerated at a 2.5% annualized pace, well ahead of the Wall Street outlook at the beginning of the year for few if any gains and better than the 1.9% increase in 2022.
• A strong pace of consumer spending helped drive the expansion, as did government spending.

https://www.cnbc.com/2024/01/25/gdp-q4-2023-the-us-economy-grew-at-a-3point3percent-pace-in-the-fourth-quarter.html

Oil rose slightly on Wednesday, with Brent trading near $80 a barrel, as a Chinese economic stimulus package and geopolitical tensions were countered by concerns over tepid demand and a stronger dollar.

The front-month March contract for Brent crude was up 40 cents to $79.95 a barrel at 1410 GMT. U.S. West Texas Intermediate crude was up 57 cents to $74.94 a barrel.

China’s central bank will cut the amount of cash that banks must hold as reserves from Feb. 5, governor Pan Gongsheng said on Wednesday, the first such cut for the year as policymakers extend efforts to shore up a fragile economic recovery.

Meanwhile, U.S. crude stocks fell by 6.67 million barrels in the week ended Jan. 19, according to market sources citing American Petroleum Institute figures on Tuesday. Gasoline inventories, however, increased by 7.2 million barrels, stoking concerns over fuel demand in the world’s top oil consumer.

The Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, will release the data later on Wednesday.

A stronger U.S. dollar also weighed on oil prices as demand from buyers in other currencies ebbs when they have to pay more for dollar-denominated oil.

The dollar index hovered near a six-week high against major peers on Wednesday as investors cemented expectations that the Federal Reserve would be in no rush to cut interest rates in the face of a resilient U.S. economy.

Geopolitical tensions, which have led to a massive displacement in global trade, remained in focus.

“Trade disruptions in the Red Sea add only a marginal premium to oil prices and no physical supplies have been lost so far, but regional escalation cannot be ruled out,” HSBC Global Research said in a note.

A coalition of 24 nations led by the U.S. and UK conducted new strikes against Houthi fighters in Yemen on Tuesday. The strikes were aimed at stopping the Houthis’ attacks on global trade, Britain said in a joint statement.

The U.S. said Iran-aligned Houthis have mounted 26 attacks since late November on commercial shipping in the Red Sea, a shipping lane used by about 12 per cent of global oil trade before the attacks.

The U.S. also carried out strikes against Iran-linked militia in Iraq on Tuesday, following an attack on an Iraqi air base that wounded U.S. forces.

Bank of Canada holds rate steady, says discussions have shifted away from further hikes

The Bank of Canada held its policy interest rate steady for the fourth consecutive time, and said that monetary policy discussions have shifted from whether to raise borrowing costs further to how long the bank should wait before lowering them as the Canadian economy has shifted into a state of “excess supply.”

The widely-anticipated decision keeps the bank’s policy rate at 5 per cent, a two-decade high reached last July.

While the bank remained on hold on Wednesday, there was a notable pivot in its language, which downplayed the odds of further rate hikes and opened the door to the possible rate cuts.

“With overall demand in the economy no longer running ahead of supply, Governing Council’s discussion of monetary policy is shifting from whether our policy rate is restrictive enough to restore price stability, to how long it needs to stay at the current level,” Bank of Canada governor Tiff Macklem said in a statement published alongside the rate announcement.

He did not rule out further rate hikes altogether, but suggested they were unlikely if inflation and economic activity develops in line with the bank’s projection.

– Mark Rendell

Stocks rose Monday as investors built on the previous session’s historic move to record highs.

The Dow Jones Industrial Average climbed 150 points, or 0.5%, to a new record level. The S&P 500 added 0.2%, also reaching a fresh all-time high. The Nasdaq Composite advanced 0.3%.

Macy’s rose more than 1% after rejecting a $5.8 billion proposal to take the retailer private. SolarEdge jumped more than 2% on the back of the company announcing it would lay off 16% of its workforce.

Archer-Daniels-Midland dropped more than 22% after issuing weak earnings guidance and placing CFO Vikram Luthar on leave amid an investigation tied to accounting practices. B Riley Financial slipped nearly 6% after Bloomberg reported that regulators are investigating deals with a client connected to securities fraud.

Monday’s gains come after the broad S&P 500 on Friday broke above its intraday and closing record highs set in January 2022. The move signaled that Wall Street is indeed in a bull run that began in October 2022 after stocks plunged earlier that year.

“It’s almost like a fear of missing out,” said Brian Price, head of investment management at Commonwealth Financial. “We had a little bit of volatility to start the year as investors maybe rebalance portfolios and look to realize some gains. But now, it just seems like we’re resuming the trend that was clearly in place” in the fourth quarter.

https://www.cnbc.com/2024/01/21/stock-market-today-live-updates.html

Oil prices rose on Monday as traders weighed the impact of wars in the Middle East and Ukraine on oil supply against economic headwinds dampening global oil demand.

Brent crude rose 90 cents to $79.46 a barrel by 1450 GMT.

The front-month U.S. West Texas Intermediate crude futures contract for February delivery was up $1.10 at $74.42 a barrel in tepid trade, with the contract set to expire on Monday. The more active March WTI contract was up 91 cents at $74.16.

“While oil prices have firmed up a little, it is strange that they have not risen further, given the rising geopolitical tensions in the Middle East,” said Gary Dugan, chief investment officer at Dalma Capital.

“Part of the reason why oil prices have remained in check could be the market’s anticipation that global growth is slowing.

There are no signs of respite in Israel’s offensive in Gaza while attacks by Iran-aligned Houthis on commercial vessels in the Red Sea have continued despite retaliatory measures from the United States.

Meanwhile, Russian energy company Novatek has been forced to suspend some operations at its Baltic Sea fuel export terminal because of a fire, it said on Sunday, which Ukrainian media said was caused by a drone attack. The fire has been extinguished, local authorities said on Monday.

Oil fundamentals could continue to drag on prices, according to IG analyst Tony Sycamore.

Oil production is higher while the growth outlook in China and Europe is mixed and GDP data this week is expected to show growth of the U.S. economy has slowed considerably, he said.

“Investors want to be bullish, but tepid data and a cautious narrative from policymakers keep them on the back foot,” said Tamas Varga of oil broker PVM.

The latest demand growth forecasts by the U.S. Energy Information Administration, the International Energy Agency and the Organization of the Petroleum Exporting Countries for 2024 are in a wide range between 1.24 million and 2.25 million barrels per day, though all three organisations expect demand growth to slow in 2025.

Separately, production at Libya’s Sharara oilfield resumed on Sunday, state oil company NOC said, after protesters ended a sit-in that had halted output since early January.

Sunoco SUN-N said on Monday it would acquire fuels storage and pipeline operator NuStar Energy NS-N in a deal valued at about $7.3-billion including debt, as it tries to diversify its core business beyond distribution of motor fuels.

The equity portion of the deal comes up to $2.99-billion, and NuStar’s shareholders stand to receive 0.400 of a Sunoco share for each NuStar unit they hold, valuing Sunoco’s shares at $23.78. That represents a premium of 31.9 per cent to NuStar’s last closing price.

The deal, which has been approved by the boards of both the companies, will give Sunoco access to NuStar’s transportation and storage facilities, including a portfolio of about 9,500 miles of pipeline and 63 terminals.

The companies have flagged cost savings of $150-million by the third year following closing of the deal, expected in the second quarter of 2024.

Shares of Sunoco were down 5 per cent in premarket trading, while shares of NuStar were up 23 per cent.

Earlier this month, Sunoco agreed to sell 204 convenience stores in West Texas, New Mexico and Oklahoma to 7-Eleven Inc for about $1-billion. It said it would also acquire liquid fuels terminals in Amsterdam in the Netherlands and Bantry Bay in Ireland from Zenith Energy.

Sunoco, a Dallas-based company, is an affiliate of U.S. pipeline operator Energy Transfer, which is controlled by billionaire Kelcy Warren.

Monday January 22

Bank of Japan monetary policy meeting and outlook report (continues Tuesday)

10 am ET: U.S. leading indicator

Earnings include: United Airlines Holdings Inc.

==

Tuesday January 23

Euro area consumer confidence

830 am ET: Canada new housing price index for December. It’s forecast to be unchanged from November and down 0.9 per cent from a year ago.

10 am ET: U.S. Richmond Fed Manufacturing Index for January.

Earnings include: Canadian National Railway Co.; General Electric Co.; Halliburton Co.; Johnson & Johnson; Microsoft Corp.; Netlfix Inc.; Procter & Gamble Co.; Texas Instruments Inc.; Verizon Communications Inc.; 3M Co.

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Wednesday January 24

Japan releases trade deficit and purchasing managers indexes.

Euro area and the UK releases both manufacturing and services PMIs

945 am ET: Bank of Canada policy announcement and monetary policy report. Press conference follows at 1030 am.

945 am ET: S&P global PMIs.

Earnings include: Abbott Labs; AT&T Inc.; Champion Iron Ltd.; CSX Corp.; Freeport McMoran Copper & Gold Inc.; International Business Machines; Novagold Resourcres Inc.; ServiceNow Inc.; Tesla Inc.

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Thursday January 25

Germany and France release business confidence numbers.

815 am ET: European Central Bank Monetary Policy Announcement.

830 am ET: Canada job vacancy rate for November.

830 am ET: Canada manufacturing sales for December.

830 am ET: U.S. weekly jobless claims

830 am ET: U.S. real GDP for the fourth quarter. It’s expected to be up 2 per cent on an annualized basis, slowing from the third quarter’s 4.9 per cent growth.

830 am ET: U.S. wholesale and retail inventories and durable goods orders for December.

10 am ET: U.S. new home sales.

Earnings include: Comcast Corp.; Intel Corp.; Marsh McLennan Companies Inc.; NextEra Energy Inc.; Northrop Grumman Corp.; Starbucks Corp.; T-Mobile US Inc.; Union Pacific Corp.; Visa Inc.

==

Friday January 26

Germany, France and UK consumer confidence surveys

830 am ET: Canada wholesale trade for December

830 am ET: U.S. personal spending and income for December. Consensus is for gains of 0.4 per cent and 0.3 per cent, respectively.

830 am ET: U.S. core PCE price index for December. Consensus is for a rise of 0.2 per cent, or 3 per cent from a year ago. In November it was up 0.1 per cent.

10 am ET: U.S. pending home sales.

Ontario’s budget balance for November

Earnings include: American Express Co.; Caterpillar Inc.; Colgate-Palmolive Co.; Norfolk Southern

February Nymex natural gas (NGG24) on Friday closed -0.178 (-6.60%).

Nat-gas prices on Friday fell sharply for a second day to a 3-week low, as weather forecasts shift warmer for the end of January and the beginning of February, signaling heating demand for nat-gas could fall further.  The Commodity Weather Group Friday forecasted above-normal temperatures for the eastern U.S. from January 29 to February 2.

The current Arctic temperatures engulfing the U.S. have curtailed nat-gas output and led to a surge in heating demand.  Lower-48 state dry gas production Friday was 97.4 bcf/day (-4.0% y/y), according to BNEF.  Lower-48 state gas demand Friday was 115.8 bcf/day (+29.3% y/y), according to BNEF.  LNG net flows to U.S. LNG export terminals Friday were 13.9 bcf/day (-7.4% w/w), according to BNEF.

The U.S. Climate Prediction Center said there is a greater than 55% chance the current El Nino weather pattern will remain strong in the Northern Hemisphere through March, keeping temperatures above average and weighing on nat-gas prices.  AccuWeather said El Nino will limit snowfall across Canada this season in addition to causing above-normal temperatures across North America.

An increase in U.S. electricity output is positive for nat-gas demand from utility providers.  The Edison Electric Institute reported Thursday that total U.S. electricity output in the week ended January 13 rose +6.4% y/y to 82,435 GWh (gigawatt hours), although cumulative U.S. electricity output in the 52-week period ending January 13 fell -1.0% y/y to 4,087,720 GWh.

Thursday’s weekly EIA report was bearish for nat-gas prices as nat-gas inventories for the week ended January 12 fell -154 bcf, a smaller draw than expectations of -165 bcf, although above the 5-year average draw of -126 bcf.  As of January 12, nat-gas inventories were up +12.8% y/y and were +11.2% above their 5-year seasonal average, signaling ample nat-gas supplies.  In Europe, gas storage was 79% full as of January 15, above the 5-year seasonal average of 67% full for this time of year.

Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ending January 19 rose +3 rigs to 120 rigs, just above the 2-year low of 113 rigs posted September 8.  Active rigs have fallen back since climbing to a 4-1/2 year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).
 

February WTI crude oil (CLG24) on Friday closed down -0.67 (-0.90%), and Feb RBOB gasoline (RBG24) closed down -2.07 (-0.95%).

Crude oil and gasoline prices on Friday settled moderately lower.  Expectations that global oil supplies will remain adequate despite geopolitical risks in the Middle East are weighing on crude prices.  A weaker dollar Friday limited losses in energy prices.

The outlook for adequate global crude supplies is weighing on prices after the International Energy Agency said global oil markets will likely remain “reasonably well-supplied” this year, provided there are no major disruptions, as production climbs outside OPEC+ producers.

Friday’s U.S. economic news was mixed for energy demand and crude prices.  On the negative side, Dec existing home sales unexpectedly fell -1.0% m/m to a 13-year low of 3.78 million versus expectations of a +0.3% m/m increase to 3.83 million.  Conversely, the University of Michigan U.S. Jan consumer sentiment index rose +9.1 to a 2-1/2 year high of  78.8, stronger than expectations of 70.1.

The recent series of hostile incidents in the Red Sea against commercial shipping is bullish for oil prices.  Last Friday, the U.S. Navy advised vessels to avoid the southern Red Sea.  Houthis started attacking ships in the Red Sea in mid-November in support of Hamas in the Israeli-Hamas war and said they won’t stop the attacks until Israel ends its assault on Gaza.  Attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.

An increase in Russian crude oil exports is bearish for crude oil prices.  Tanker-tracking data from Vortexa monitored by Bloomberg shows the four-week average of refined fuel shipments from Russia rose to 2.77 million bpd in the four weeks to Jan 14, up +53,000 bpd from the prior week.

In a bullish factor, Libya’s National Oil Corporation declared force majeure on Jan 7 at its Sharara oil field, which was shut down on Jan 3 after protestors entered the facility.  The Sharara oil field is Libya’s largest and pumps about 300,000 bpd.

A decline in crude in floating storage is bullish for prices.  Monday’s weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -14% w/w to 75.76 million bbl as of Jan 12.

On Nov 30, OPEC+ agreed to cut crude production by -1.0 million bpd through June 2024.  However, crude prices sold off on the news since no details were provided on how the cuts would be distributed among members, nor how Russia’s -300,000 bpd export cut would factor into the new totals.  Delegates said the final details of the new accord, including national production levels, would be announced individually by each country rather than in the customary OPEC+ communique.  The market was disappointed that the extra cuts in OPEC crude output will be announced by each individual country, which suggests the reductions are only voluntary.  Meanwhile, Angola on Dec 21 announced that it was leaving OPEC amid a dispute over oil production quotas.

Saudi Arabia said on Nov 30 that it would maintain its unilateral crude production cut of 1.0 million bpd through Q1-2024.  The move would maintain Saudi Arabia’s crude output at about 9 million bpd, the lowest level in three years.  Russia also said it will deepen its voluntary oil export cuts by 200,000 bpd to 500,000 bpd in Q1 of 2024.  OPEC Dec crude production fell -40,000 bpd to 28.050 million bpd.

Thursday’s EIA report showed that (1) U.S. crude oil inventories as of Jan 12 were -2.7% below the seasonal 5-year average, (2) gasoline inventories were +0.3 above the seasonal 5-year average, and (3) distillate inventories were -3.4% below the 5-year seasonal average.  U.S. crude oil production in the week ended Jan 12 rose +0.8% w/w at 13.3 million bpd, matching the record high.

Baker Hughes reported Friday that active U.S. oil rigs in the week ended Jan 19 fell by -2 rigs to 497 rigs, just above the 2-year low of 494 rigs from Nov 10.  The number of U.S. oil rigs in the past year has fallen from the 3-3/4 year high of 627 rigs posted in December 2022.