IRON ORE: Outperforming China Steel Prices, But Consistent With Other Metals

Dec-16 04:07

Iron ore is holding relatively steady, the active SGX contract close to $104/ton in latest dealings. We have tracked recent ranges for much of the first part of Dec, but still sit comfortably above mid Nov lows of $95.70/ton.  

  • The earlier data outcomes from China have shifted sentiment greatly. The data implied an uneven recovery, particularly on the consumer, amidst on-going housing activity headwinds. China equities are lower, along with property stocks, although we are broadly maintaining ranges seen since Oct.
  • Iron ore inventories tick up at China ports last week, but remain sub recent cycle highs. We have maintained close to a flat inventory trend since August, but with little signs of a meaningful drawdown.
  • Onshore steel prices are not behaving as resiliently as iron ore, hot rolled coil and steel rebar sit nearer to recent lows.
  • Broader iron ore price trends are reasonably consistent with other metal prices (per the BBG spot metals sub index). 

Historical bullets

US OUTLOOK/OPINION: US Macro Weekly: Fed Shifts Hawkish As Disinflation Stalls

Nov-15 21:51

Our weekly US Macro publication is out (PDF):

  • US “Inflation Week” brought largely in-line results, with sequential core CPI coming in a little lower than expected, and headline CPI and core PPI a little higher than expected.
  • But overall the takeaway was that there was relatively little if any disinflationary progress in October, exacerbated by what looks like a small sequential acceleration in the core PCE reading for the month.
  • The cumulative effect of surprisingly hawkish Fed commentary combined with the slight upside in core PCE (with a helping hand from solid initial jobless claims among other data demonstrating continued resilience) saw a notable shift in rate cut pricing this week.
  • The December FOMC meeting appears to be "live", nearing 50/50 implied probability of a hold at one point Friday morning, versus closer to 20% at the start of the week.
  • At the end of this document we highlight two major shifts in FOMC tone this week: one is that a "pause" was introduced as a possibility by a senior FOMC member (Gov Kugler); the other is that there is growing concern over the implications of soaring longer-end rates.
  • Neutral rate-talk also dominated, and in a hawkish direction - Dallas Fed's Logan mused that the Fed had already perhaps already reached neutral rates.
  • It's probably still the case that the FOMC is still in the "thinking about thinking about slowing rate cuts" stage, which means a December cut is the default. But some of the groundwork for a less dovish rate cut path appears to have been laid since the US election (the potentially hawkish implications of which, FOMC members didn't venture into).
  • This week’s heavy data slate gives way to a quieter schedule Nov 18-22, with key macro highlights including flash November PMIs and housing market data, with FOMC speakers also of interest after this week’s shift (including Cleveland Fed Pres Hammack).

US OUTLOOK/OPINION: Atlanta Fed GDPNow Steady, PCE Upgraded Despite Control Miss

Nov-15 21:08

The Atlanta Fed's GDPNow estimate for Q4 remained steady at 2.5% Q/Q annualized in the Nov 15 update, reflecting higher personal consumption expenditures (now 2.8% vs 2.7% in the prior day's update), offset by downgrades to equipment/ nonresidential structure investment. 

  • The stronger PCE figure comes despite a softer-than-expected Retail Sales Control Group figure - we think this is a reflection of the higher revision to September's Control Group, which will statistically carry over into the Q4 growth rate.
content_image

USDCAD TECHS: Bull Cycle Extension

Nov-15 21:00
  • RES 4: 1.4210 2.0% 10-dma envelope  
  • RES 3: 1.4140 1.500 proj of the Oct 17 - Nov 1 - 6 price swing
  • RES 2: 1.4122 3.0% Upper Bollinger Band
  • RES 1: 1.4106 High Nov 15
  • PRICE: 1.4077 @ 16:54 GMT Nov 15
  • SUP 1: 1.3959 High Nov 1 / 6
  • SUP 2: 1.3891/22 20-day EMA and a key S/T support / Low Nov 6
  • SUP 3: 1.3785 50-day EMA
  • SUP 4: 1.3611 Low Oct 8

A strong rally in USDCAD this week reinforces the current bullish condition. The pair has topped 1.3959, the Nov 1 / 6 high. This break confirms a resumption of the uptrend and has also resulted in a breach of 1.3977, the Oct 13 2022 high. 1.4140 marks the next upside level. Initial firm support to watch lies at 1.3891, the 20-day EMA. A short-term pullback would be considered corrective.