Wkly Futures Market Summary For 12.30.24

ENERGIES

February Crude Oil is higher this morning and has already taken out the December high and is approaching the upper end of a 2 ½ month trading range. A bigger than expected draw in US stocks last week, new pressure against Russia’s shadow fleet, and a slight improvement in attitudes towards China’s economy is offering some support. Friday’s EIA report was bullish against expectations for crude oil but not for the products. Crude oil stocks fell more than expected and distillate stocks fell less than expected. Gasoline stocks increased rather than decreasing as expected. US crude oil stocks at 416.8 million barrels are the lowest for this point in the season in at least six years and the lowest overall since September. Cushing, OK stocks are 22.7 million, also the lowest in six years.

March Natural Gas was sharply higher overnight, gapping above the 200-day moving average and reaching its highest level since June. EIA gas storage last week showed a smaller than expected draw, but seasonably cold weather finally appears to be arriving, actually colder than normal. The 6-10 and 8-14 day forecasts show below and much below normal temperatures dominating the eastern two-thirds of the lower 48 states, which should allow for more significant draws from storage. Friday’s storage report for the week ending December 20 was -93 bcf from the previous week. This was at the bearish end of trade expectations of -111 to -94. Storage was up 1.1% from a year ago and 5.1% above the five-year average versus +1.3% and +3.7% the previous week. This was the smallest surplus to year ago levels since January 2023.

COCOA

March Cocoa was moderately higher overnight following the steep selloff on Friday, which appeared to be set off by long liquidation/profit taking but led to a steeper decline due to thin holiday conditions. The weather forecast for west Africa continues to show hot and dry conditions, which is seasonal. A mostly dry and warm to hot weather pattern is expected to prevail. Harmattan wind speeds should be near average, but the low humidity, abundant sunshine and wind will stress some trees. Ivory Coast cocoa arrivals totaled 82,000 metric tons for the week ending December 29, up from 77,000 the previous week and the highest since December 8.

COFFEE

March Coffee is lower this morning and could test the bottom of the recent consolidation range today. Decent periods of rain continue to reach Brazilian growing areas, which eases some concerns about the upcoming crop. Analysts have been concerned that the extended drought this year has damaged the crop’s potential too much, but the ongoing rains suggest the crop will not be as damaged as previously feared. There are concerns that rainy weather in Vietnam could cause disease problems with their crop, which is currently being harvested.

COTTON

March Cotton is higher this morning as the market may be taking a more optimistic viewpoint (or at least less pessimistic) viewpoint on demand. The dollar has eased back from 26-month highs over the last few sessions, which may be providing some optimism on that front. Friday’s export sales reports showed US cotton sales for the week ending December 19 at 279,056 bales for the 2024/25 (current) marketing year and 29,480 for 2025/26 for a total of 308,536. This was up from 201,759 the previous week and was the strongest since November 21. The largest buyers this week were Turkey at 116,168 bales and Vietnam at 104,470. This was Turkey’s largest purchase for the marketing year, and it was Vietnam’s second largest. China was a net seller of 4,313 bales. Cumulative sales for 2024/25 have reached 7.486 million bales, down from 8.492 million at this time last year and below the five-year average of 10.061 million. They are the lowest for this point in the season since the 2015/16 marketing year.

SUGAR

March Sugar traded in a wide range overnight after reaching a 3 ½ month low last week. Friday’s UNICA report on Brazilian Center-South production reportedly came in “at expectations,” but it also showed cane crush and sugar production falling substantially in the first half of December, which was a big turnaround from the surprise increases during the second half of November. Cane crush for December 1-15 was down 54.3% from last year, and sugar production was down 63.1% . Ethanol production was down only 26.9%, as ethanol’s share of crushing capacity increased to 64.3% from 56.9% previously. The surprise increase in sugar production in the second half of November was clearly an aberration from the overall trend. Production tends to drop off sharply this time of year as the arrival of seasonal rains slow harvest and crushing activity.

METALS

Clearly, news of a sharp jump in Chinese November gold imports and a weak US dollar have not provided improved sentiment toward gold and silver this morning. In fact, despite Chinese “net” gold imports through Hong Kong in November increased by 115% from 15.4 tons in October to 33 metric tons in November and yet gold is soft early. Furthermore, total Chinese gold imports via the Hong Kong trading hub were up 60% at 45.2 metric tons.

As opposed to gold ETF holdings, which have posted net sales this year of 2.42 million ounces, silver ETF holdings are 15.5 million ounces higher year to date which should temper the current bearish track in silver.

While the copper market has seemingly entered a fragile uptrend pattern, fundamental arguments favor the bear camp. However, the market could draft minimal support from expectations of a positive (which would be three straight monthly gains) Chinese December manufacturing report later this week but that was offset by news that Chinese industrial profits this year were the worst in decades. On the other hand, the Chinese have reduced a copper import tariff which could help their import demand.

EQUITIES

Apparently, the corrective bounce started two weeks ago has fizzled and the bias has shifted downward. In addition to rising interest rates, the market is also undermined as result of expanding uncertainty from the approach of the US debt ceiling. Therefore, like the treasury markets, equities are likely to take direction from big-picture macroeconomic and geopolitical influences and not from internal market fundamentals like company sales figures and corporate earnings estimates. It is also likely that year end position squaring will impact equities with the prevailing tone likely to be “long profit taking” from a year of historic gains, especially if debt ceiling uncertainty spooks the markets in the waning hours of 2024.

CURRENCIES

Despite significant evidence of global slowing (particularly in Europe) the dollar has settled into a corrective drift lower. However, the Fed funds Watch-Tool pegs the probability of a January 29th rate cut at only 11.2% which should cushion the dollar against slow erosive action. The primary benefactors of dollar weakness is likely to be the euro and pound despite weak data from those areas recently and that suggests a classic technical bounce is possible instead of emerging solid fundamental uptrends in non-dollar currencies. Surprisingly, the yen remains out-of-favor despite recent positive economic news and residual inflation signals. Unfortunately for the bull camp in the yen, expectations for aggressive BOJ rate hikes are declining with hawkish threats from the Bank of Japan now largely discounted as mere hopeful thinking.

INTEREST RATES

While US scheduled data last week was mostly offsetting, an upside breakout in ongoing claims to the highest level since November 26th of 2021 should have favored the bull camp in US treasuries! However, the trade seems to be focused on the inability of the US Congress to contain deficit spending, with many traders suggesting growing selling pressure might be the result of bond vigilante-ism. In fact, weekend financial press stories regarding the US potentially hitting the “new” debt ceiling limit as early as January 14^th puts the ever-expanding US debt in a front and center position to start the week and to start the New Year. Over the weekend current US Treasury Secretary Janet Yellen indicated that her department may need to implement extraordinary measures prior to January 14^th but the markets could handle the situation in stride as the US has raised its debt limit 103 times since the first debt limit was breached in 1939.