Source: AP

Energy – China’s apparent oil demand declines

The latest industrial output data from China shows that refiners reduced activity in November. Crude processed in the month fell to the lowest in five months at around 14.3m b/d as some processors shut plants for seasonal maintenance. As per the recent data from Mysteel OilChem, five state-owned plants were shut for seasonal maintenance last month. This includes Sinopec Fujian Refining & Chemical Co., which has an annual refining capacity of 12mt. Meanwhile, apparent domestic demand was also weaker, falling by around 2.1% year-on-year to a little more than 14m b/d. Cumulative apparent demand fell by 3.3% YoY to 14m b/d over the first 11 months of the year.

The latest data from Baker Hughes shows that the number of active US oil rigs remained unchanged over the week at 482, after rising by five in the preceding week. The total rig count (oil and gas combined) also remains steady at 589 over the reporting week. Primary Vision’s frac spread count, which gives an idea of completion activity, decreased by three over the week to 217.

Weekly positioning data from the Commodity Futures Trading Commission (CFTC) shows that managed money net long position in NYMEX WTI dropped after rising for two consecutive weeks. Money managers trimmed net longs in NYMEX WTI by 12,448 lots over the week to 103,986 lots as of 10 December 2024. On the other hand, exchange data shows that speculators have built fresh longs of 5,349 lots in ICE Brent over the last week, leaving them with 162,273 lots of net long position. The persistent concerns around the Russia-Ukraine war along with the probability of fresh US sanctions on Russian crude have been keeping the speculative interest in energy commodities high.

In products, net bullish bets for gasoline jumped to their highest level since mid-April 2024. Speculators boosted the net longs for gasoline by 6,546 lots (after reporting declines for two straight weeks) to 73,037 lots for the week ending 10 December 2024. There are suggestions that the gasoline supply could tighten next year due to the planned refinery outages and closures. LyondellBasell’s Houston refinery is set to close by the end of the first quarter and will start idling as early as January. The refinery processes about 264k b/d.

Metals – Chinese aluminium production hits record highs

The National Bureau of Statistics (NBS) numbers released this morning show that Chinese monthly primary aluminium production rose 3.6% YoY to reach a record of 3.7mt in November as rising overseas export demand helped the metal output stay elevated. Along with that, record alumina prices also helped the nationwide production of the lightweight metal to remain high despite reports of some smelters reducing output. Cumulatively, output rose 4.6% YoY to 40.2mt over the first 11 months of the year. Among other metals, monthly crude steel production fell 4.3% month-on-month to 78.4mt last month primarily due to tighter margins and seasonally weakening downstream steel consumption. Meanwhile, cumulative output fell 2.7% YoY to 929.2mt in the January-November 2024 period.

According to media reports, Japanese aluminium buyers were offered a premium of US$228/t (the highest premium since 2015) for the first quarter of 2025, up from US$175/t (+30% quarter-on-quarter) this quarter. However, it is slightly lower than the initial offers of US$230-260/t. The increase in premiums reflects expectations of tighter supply in Asia after China cancelled a 13% tax rebate on aluminium products from 1 December 2024.

In mine supply, Peru’s latest official numbers showed that copper output in the country fell 1.3% YoY to 237kt in October. It is reported that cumulative output loses from mines like Cerro Verde, and Quellaveco’s primarily contributed to Peru’s overall production decline in October. Cumulatively, production declined 0.7% YoY to 2.23mt for the first 10 months of the year.

Meanwhile, weekly data from Shanghai Futures Exchange (ShFE) shows that inventories for base metals remained mixed over the last week. Aluminium weekly stocks fell by 9,875 tonnes for a seventh consecutive week to 214,501 tonnes as of last Friday, the lowest since 10 May 2024. Copper inventories decreased by 13,199 tonnes (-13.5% week-on-week) for the eighth week straight to 84,557 tonnes (the lowest since 2 February 2024), while zinc inventories declined by 2,317 tonnes (-4.4% WoW) for a fourth consecutive week to 50,666 tonnes (the lowest since 9 February 2024) at the end of last week. In contrast, weekly inventories for lead and nickel rose by 8.3% and 1.7% respectively.

The latest positioning data from the CFTC shows that speculators increased their net longs of COMEX copper by 1,460 lots for a second consecutive week to 12,635 lots as of 10 December. In precious metals, managed money net longs in COMEX gold increased by 18,792 lots for the third week straight to 220,189 lots over the last reporting week. The move was fuelled by rising gross longs by 17,826 lots to 236,267 lots for the reporting week. Similarly, speculators increased net longs of silver by 5,792 lots for a second consecutive week to 30,685 lots over the last Tuesday.

Agriculture – China’s grain production estimates at record highs

Recent estimates from the National Bureau of Statistics show that China grain production could rise 1.6% YoY to a record high of 706.5mt for 2024. The above includes the corn production estimate of 294.9mt (+2.1% YoY), while the wheat production forecast stood at 140.1mt (+2.6% YoY) for the above-mentioned period. The rise in production estimates could be largely attributed to the favourable weather conditions for the grain crops in major producing regions, despite some regions experiencing floods, droughts and other disasters.

The latest estimates from the Western Australia Grain Association show that wheat harvest from the country’s top wheat-producing state could rise to 10.83mt for the 2024/25 season, above its previous estimates of 10.33mt. Overall grain production estimates have been revised higher and there is still a week or two of harvest remaining in some regions.

The latest CFTC data shows that money managers decreased their net bearish bets in CBOT soybean by 13,897 lots for a second week straight over the last week, leaving them with a net short position of 58,320 lots as of 10 December 2024. The move was predominantly driven by falling gross shorts by 12,166 lots. Similarly, speculators decreased their net short in CBOT wheat by 2,607 lots after reporting gains for four consecutive weeks to 66,779 lots as of last Tuesday. The move was led by falling short positions with gross shorts decreasing by 3,481 lots to 149,272 lots. Meanwhile, net speculative long positions in CBOT corn rose significantly by 77,670 lots after declining for two consecutive weeks to 165,890 lots (the most bullish bets since 21 February 2023) over the last reporting week, following an increase in gross longs by 53,471 lots to 327,099 lots.   

The AUD/USD pair sticks to its mildly positive bias through the first half of the European session on Monday, albeit it lacks any follow-through buying. Spot prices remain close to over a one-year low touched last Friday and currently trade around the 0.6365-0.6370 region, up just over 0.15% for the day. 

The US Dollar (USD) kicks off the new week on a weaker note amid a modest pullback in the US Treasury bond yields and turns out to be a key factor lending some support to the AUD/USD pair. That said, the Reserve Bank of Australia's (RBA) dovish tilt, along with China's economic woes, act as a headwind for the Australian Dollar (AUD). Apart from this, expectations for a less dovish Federal Reserve (Fed) favor the USD bulls and suggest that the path of least resistance for spot prices remains to the downside. 

Investors now seem convinced that the US central bank will slow the pace of its rate-cutting cycle amid signs that the progress in lowering inflation toward the 2% target has stalled. This, in turn, has been a key factor behind the recent rise in the benchmark 10-year US Treasury yield to a three-week high and validates the positive outlook for the buck. Apart from this, geopolitical risk and US-China trade war fears should benefit the safe-haven buck, warranting some caution before placing bullish bets around the AUD/USD pair. 

Traders might also refrain from placing aggressive bets and opt to wait for the outcome of the highly-anticipated FOMC policy meeting on Wednesday. The Fed is widely expected to lower borrowing costs by 25 basis points (bps), though it could adopt a more cautious stance on cutting rates. Hence, the focus will be on the accompanying policy statement, which, along with Fed Chair Jerome Powell's comments at the post-meeting press conference, will drive the USD demand and provide a fresh impetus to the AUD/USD pair.

Source: FXSTREET

This chart depicts the price of Bitcoin over time.

Source: Reuters

China’s latest efforts to convince investors that it will boost its economy with great stimulus measures. On Friday, the Chinese authorities repeated that they will boost consumption but the lack of details reversed the pre-announcement enthusiasm and sent the CSI 300 more than 2% lower. And the Chinese stocks were sold again today on the back of a significant slow down in retail sales growth last month, as confirmation that whatever is done in China is not bearing fruit. Meanwhile, the Chine yields’ nosedive does nothing to motivate investors to come back. That’s a massive problem that reminds investors of Japan which struggled with the famous ‘liquidity trap’ dilemma for decades – where the low rates couldn’t boost consumption and kept the economy in a low gear for decades. 

In Korea, the political turmoil continues to weigh on sentiment, while in France, the relief on the appointment of Francois Bayrou – another very established name in French politics – to replace Barnier as the new French PM was clouded by Moody’s downgrading the French credit rating to Aa3 – three levels below the top. Moody’s blamed the political fragmentation, and Bayrou will probably struggle with the same divided government as his predecessor to pass any budget-healing measures.

Nearby, German politicians will hold a confidence vote to pave the way for a Ferbuary snap election. But the German opposition said that they will maintain their borrowing limit unchanged if they come to power next year – as opposed to the earlier statements from the CDU leader Friedrich Merz about his openness to increase that limit to give more support to the economy – which obviously was not ideal for the budget discipline.

To summarize, nothing is less clear than the political picture in the eurozone’s two strongest economies, so the bets that the European Central Bank (ECB) must do the heavy lifting remains strong after last week’s cautious 25bp cut. The expectation is that the ECB will deliver another 25bp cut in January. But the dovishness is mostly priced in, therefore, the EURUSD should find enough support near the 1.05 mark and re-challenge the 1.06 offers.

Across the Channel, Cable is slightly better bid this morning, but Friday’s disappointing set of data – that hinted at surprisingly worse industrial and manufacturing production topped with surprisingly soft services – warned again that the British economy will see the backdrops of tax increases before it starts seeing the benefits of spending. The Bank of England (BoE) is expected to maintain its rate unchanged this week, to make sure to balance out the government’s spending plans, but some officials could sound dovish on the back of weak growth numbers. As per sterling, the selloff could slow on the back of a cautious BoE and an unnecessarily soft Federal Reserve (Fed). But the dream of seeing Cable end the year above the 1.30 is melting by the day.

In Japan, the USDJPY is gaining traction to the upside as investors trim their bets for a Bank of Japan (BoJ) rate hike this week. Some officials had said earlier this month that waiting for the next hike would make little sense – a hawkish risk that should cap the USDJPY’s ascent near 155 into the decision.

In the US, the Federal Reserve (Fed) is expected to trim its rates by another 25bp when it meets this week. Last week’s CPI print was eventless, and the jump in the PPI number was mostly wiped out – as egg prices were mostly responsible for the uptick. What the Fed will announce about the next meetings will probably matter more than this week’s cut. On one hand, Powell recognizes that the US economy and jobs market remain resilient. On the other hand, Trump’s pro-growth policies and tariffs could boost inflation again. So, on both hands, there is nothing that justifies the continuation of regular cuts in 2025.

The S&P500 closed last week near record while Nasdaq advanced to a fresh record high on Friday. This time, it was Broadcom’s turn to shine. The company’s stock price jumped 24% to a record high on Friday after announcing better-than-expected earnings and saying that it expects a booming demand for their custom-made AI chips. Remember, Broadcom and Apple announced to build a chip together a day before. Tech companies’ willingness to build their own chips could be a opening for companies like Broadcom in the AI race – if they succeed in delivering strong, custom-made and cheaper solutions and threaten Nvidia’s share of pie. Nvidia’s ecosystem of software, tools, and AI research infrastructure remains a powerful defense, but its high valuation raises questions.

Source: ACTIONFOREX