Lumber and natural gas in focus
Cathie Wood’s favorite recent commodity chart is lumber. Her and other commodity bears have been overlaying it with other commodities in a hackneyed attempt to show that every spike will result in a bust.
In general, chart overlays are bad practice if they’re not highly correlated assets over the long term. But they’re a favorite of those looking for attention.
The thing is, while lumber has been used as a market to foreshadow all others (don’t get me started on iron ore, which is about Chinese policy) the latest trend in the price of trees is higher. Lumber futures are back up to $750 from an August low of $482.
The futures market in lumber is extraordinarily thin but cash prices have also made a move to the upside, with the latest pricing around $580 and rising 4.5% since last Friday. Random Lengths pointed to to upward momentum across grades as consumption outpaced production though noted that buyers remained cautious. But if you factor in yesterday’s call
from Goldman Sachs for a multi-year boom in US housing and there is plenty to like.
A commodity at a different stage of a boom is European natural gas. To me and everyone else, the price action on October 6 looked like a blowoff top. However TTF prices made a low the following day but haven’t declined or hit a new low since. They’re up 10% today on forecasts for colder weather and lighter wind.
EIA sees a larger fall in US output
- EIA sees crude output at 11.02m bpd this year
- Sees output at 11.73m bpd next year
The drop in estimated production is almost completely covered next year. I would be surprised to see that much production growth in the US given the draw on DUCs and the lack of drilling.
Meanwhile, the White House said its speaking with US oil and gas producers on how the industry can help bring down prices, according to a report.
Add this to the inflationary debate as well:
Compared with last winter’s heating costs, EIA forecasts U.S. households will spend 54% more for propane, 43% more for heating oil, 30% more for natural gas, and 6% more for electric heating. U.S. households will spend even more if the weather is colder than expected.
They also note that the National Oceanic and Atmospheric Administration expects a slightly colder winter this year than last year
US dollar gives it back
This is the second day of choppy trade and whipsaws in the FX space. Yields and the US dollar initially rose on rising wages in the CPI report but both reversed soon afterwards.
One of the things at work is a big bid in long-dated Treasuries ahead of today’s bond auction.
USD/JPY topped out fractionally above yesterday’s fresh cycle high and has now retreated below the Asian low, carving out a short-term double top with a target at 113.00.
I should say more correctly that voting continues, but there are sufficient yes votes to pass the bill already.
This was to be expected as the Dems have the majority in the House. The bill passed the Senate last week.
Now it is off to US President Biden for signing, Biden will not delay doing so.
Update, final vote is 219-206 to pass the bill along party lines. Raising the debt ceiling by US$480 billion, enough through to early December,
The Reuters Tankan monthly poll is intended to track the quarterly Bank of Japan tankan survey.
Sentiment index for manufacturers 6 in October
- from 18 in September
- its lowest since April
Service index rose to -1
Comments from some of the respondents express familiar themes, in brief:
- business hasn’t returned to what it was before the coronavirus, the worst of the pandemic is over and conditions are on a recovery trend
- raw material prices are surging, it’s not being reflected in sales prices as consumers’ deflationary mindset remains strong
- Demand for semiconductor-related products is strong but we’re being impacted by production cuts at car companies and firms making factory machinery
Poll of 503 big and mid-sized companies
- conducted from Sept. 29 to Oct. 8
- 267 responded
This has been rumored
A newswires report says Apple is poised to lower its iPhone production because it can’t secure enough chips.
Market watchers have been wondering for awhile how Apple would be able to maintain its production given shortages that were hitting everyone.
Shares of Apple are down more than 1% after hours.