EUROPEAN COMMODITIES UPDATE: Commodities extend post-Fed gains as BoE and ECB loom

Analysis details (10:23)

• WTI Jan and Brent Feb futures remain on a firmer footing in a continuation of the fallout from the FOMC policy announcement and press conference- which ultimately was more dovish than expected, brought the prospect of 2024 rate cuts closer into view, and led to a tumble in the Dollar. The contracts settled higher by USD 0.86/bbl (at USD 69.47/bbl) and USD 1.02/bbl (at USD 74.26/bbl) respectively before Fed Chair Powell’s press conference got underway, although crude prices saw minimal move on the release of the Fed statement itself. The futures then saw upward momentum, but Brent and WTI were stalled in APAC hours by resistance around the USD 75/bbl and USD 70/bbl levels, respectively. Price action overnight was somewhat rangebound, but the contracts held onto a bulk of yesterday’s gains amid quiet newsflow. Aside from that, macro newsflow in European hours has been light with traders awaiting the BoE and ECB announcements. The IEA Oil Market report was released this morning to round off the trio of monthly oil reports – the IEA trimmed its 2023 global oil demand growth forecast by 90k to 2.3mln BPD and raised the 2024 demand forecast by 130k to 1.1mln BPD citing improved GDP outlook. As a point of comparison, the OPEC December MOMR left both its 2023 and 2024 demand growth forecasts unchanged, whilst the EIA STEO cut both its 2023 and 2024 forecasts by 30k BPD and 60k BPD respectively, with the divergence across the reports highlighting an uncertain and fluid environment. The agency also noted that evidence of a slowdown in oil demand is mounting, with the pace of expansion set to ease from 2.8mln BPD Y/Y in Q3 2023 to 1.9mln BPD in Q4 2023. Early-doors, the Chinese Commerce Ministry said external demand shows signs of warming up – this comment followed the surprise expansion in Chinese exports in November. Elsewhere, Credit Agricole, one of France's biggest banks, announced Thursday it would no longer finance any new fossil fuel extraction projects following the COP28 climate deal. These comments come against the backdrop of OPEC's warning of a ‘dangerous’ lack of investment in oil. In geopolitics, the Iranian Defense Minister, in response to the US’ bid to establish a multinational naval force in the Red Sea to confront the attacks by Tehran-backed Houthis, said the US "will face major problems if it wants to form an international force in the Red Sea", and added, "We have control in the Red Sea and all countries are present in it and no one can manoeuvre there". WTI has now risen above USD 70.50/bbl (vs low 69.54/bbl) while Brent edges above USD 75.50/bbl (vs low 74.44/bbl), with the contracts up some 2% apiece intraday.


• Over to metals, spot gold was catapulted by the demised in the Dollar and yields following the Fed statement and press conference, with the opening candle at the time at USD 1,982.35/oz, and the high set overnight at USD 2,039.35/oz. Prices have since taken a breather and come off best levels but hold onto a bulk of the post-Fed gains. Spot silver snapped its seven-day losing streak and retraced almost three days of losses following the Fed announcement. Spot silver printed a low of USD 22.50/oz yesterday and a high close to USD 24/oz overnight. Base metals similarly surged on the prospect of looser monetary policy, although gains overnight were capped by the mixed APAC mood. 3M LME copper has risen to levels near USD 8,450/t vs pre-Fed prices of around USD 8,330/t. Conversely, Dalian iron ore prices overnight fell by over 1% with traders citing the lack of new stimulus from China this week coupled with weaker-than-expected bank lending.

14 Dec 2023 - 10:26- Fixed IncomeEU Research- Source: Newsquawk