So where has the commodity price boom gone, six weeks or so into 2023?
The surprisingly good US jobs data for January saw US bond yields leap by 12 points to regain the 3.52% level, while the US dollar rose more than 1% on the day and the week, reversing the recent slide that had helped drive commodity prices higher in the past month.
That saw the Aussie dollar sell off, losing 2% to close the week at 69.23 US cents and a loss for the week of 2.6%.
In other words, Friday trading after the jobs report saw a reversion back to late 2022 standards with commodity prices sliding, currencies bouncing in the wake of the US dollar and renewed speculation about the Fed monetary policy stance.
At Friday’s close, some commodity prices were still showing gains for the year so far – gold and iron ore stand out, along with copper which is still up 5.5% but was close to dipping under $US4 a pound on Comex on Friday.
Iron ore prices remain up nearly $US10 a tonne, closing at $US124.75 on Friday on the Singapore Exchange. It eased late in the week by around $US4 a tonne from the most recent peak of just over $US128 a tonne on Monday, the day Chinese business started back after the Spring holiday/Lunar New Year break.
Gold slumped sharply on Friday after the US jobs data shocked markets with a loss of more than $US53 a tonne. That saw the Comex front month gold close at $US1,876.80, and then fell another 2.7% in after-hours trading.
Gold lost $US66.60 or 3.45% over the final three sessions of last week.
But Brent and US crude types are down sharply – 7% and 9% respectively and well under the $US90 a barrel level in the weeks leading up to the Russian invasion of Ukraine on February 24.
Comex silver is down 2% year to date, wheat prices have fallen more than 4%, US natural gas prices are off 41%, Newcastle-priced thermal coal is off 34% this year, including a drop of 11% for another week.
Australian coking coal was up around $US15 a tonne in Singapore as more reports of Chinese purchases of Australian coking and thermal coal continued to emerge on newswires.
Gold was hammered because buyers had become over confident and forgot that seemingly ‘good’ data can become ‘bad’ very quickly.
In this case, the US Federal Reserve delivered a quarter-percentage-point rate increase which markets took as confirming that the economy was weakening as inflation eased.
They ignored Fed Chair Jerome Powell’s warning of further monetary policy tightening, believing that would be another rise of 0.25%, which would take the Federal Funds Rate to 5%, which is close to the current terminal rate for the central bank.
Powell speaks on Tuesday in New York and everyone in the markets will be watching and listening to what he has to say now the January jobs report has disturbed old certainties.
Economists worry that the shock rise in new job numbers shows the US economy continues to surge despite all those interest rate rises last year and in 2023 and will have to be hit on the head a few more times for get a slowdown underway.
It’s feared that could convince the Federal Reserve to continue to tighten monetary policy after raising interest rates 0.25% last Wednesday.
For the next Fed meeting is in mid-March, a 0.50% rate rise is back on the list of options.
That was the smallest hike since it began tightening rates to slow inflation 11 months ago.
That will become a growing concern until the January Consumer Price Index on Valentine’s Day, February 24. The February jobs data will be out in early March and February’s CPI will be out before the Fed statement due March 22.
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Buried in all the headlines and commentary from the markets in the wake of the January jobs data was another surprise – the number of oil and gas rigs operating in the US unexpectedly fell by the large figure of 12 last week.
Data from services group Baker Hughes said oil and gas rig numbers in the US dropped by 12 to 759 and oil rig numbers dropped by 10 to 599. Gas rig numbers fell by 2.
The most recent peak for oil rigs was 627 on December 2. They fell by 10 the week ending January 20. Friday’s figure was the lowest since last September 2 when numbers dropped to 591.
A year earlier, the US had 497 oil rigs in operation, so the gap this year is still wide..
In total there were 613 oil and gas rigs operating in the US a year ago.
The ANZ Bank analysts said Friday the crude market is awaiting evidence of stronger demand from China amid the end of the country’s zero-COVID policy.
A “no real drop in Russian supply is also tempering sentiment,” while traders in Europe are weighing “ample stockpiles against rising demand,”
US production in November was just over 12.37 million barrels a day – in November 2019, US production peaked at 13 million barrels a day and rig numbers totalled 691.
As a rough rule of thumb that’s a worsening in productivity in the oil industry and could reflect declining output from some of the older fracking areas, although the highly productive Permian area in West Texas and New Mexico is still churning out record volumes.
Friday saw US West Texas Intermediate crude lose more than 3.3% to end the week at $US73.23. Brent crude figures lost more than 2.8% to end at $79.82 a barrel.
