Evening Report | December 27, 2023
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Shippers are gradually resuming the use of the Red Sea for cargo transportation…following U.S.-led efforts to enhance security against attacks on vessels. France's CMA CGM has increased the number of ships traveling through the Suez Canal. Germany's Hapag-Lloyd is expected to decide on whether to return to using the Red Sea on Dec. 27. Maersk has also announced its preparations to resume shipments in the Red Sea and Gulf of Aden. CMA CGM has reported that as of Tuesday, 28 of its vessels are being rerouted around the Cape of Good Hope, marking an increase from 22 ships the previous Thursday, as reported by Reuters.
U.S. natural gas futures experienced a significant surge of over 4%...reaching above $2.5/MMBtu, driven by seasonal demand and increased exports. However, U.S. natural gas prices are predicted to undergo a substantial drop of nearly 41% in 2023, marking the most significant decline since 2006. This decline follows a 10% gain in 2022, primarily due to surplus supply. Record-breaking domestic natural gas production in the U.S. has enabled utilities to accumulate reserves, which currently stand at 8.5% above the seasonal average. This surplus is attributed to increased production and milder winters, which have reduced heating demand, according to the EIA. Forecasts indicate a 4% decrease in heating degree days compared to the previous 10-year average, resulting in a 2% drop in space heating consumption compared to the five-year average. Looking ahead, prices are expected to rebound as demand increases, driven by new U.S. LNG export plants in the U.S., Canada, and Mexico.
U.S. 10-Year Treasury yield drops to 3.8% on anticipated Fed rate cuts…The yield on the U.S. 10-year Treasury note marked its lowest level since July 21. This decline is driven by expectations that the Federal Reserve will implement interest rate cuts in the coming year. In early December, the Federal Reserve indicated plans for three interest rate cuts in 2024, with additional reductions anticipated in 2025 and 2026 due to a decrease in inflation over the past year. According to the FedWatch tool from CME Group, the market is currently pricing in an expectation of no rate change at the January Federal Reserve meeting. However, there is a 75% likelihood of a 25-basis-point rate cut in March, reflecting the market's anticipation of future monetary policy adjustments.
ERP Phase 2 payments continue edging higher…Total payments under the Emergency Relief Program (ERP) total $8.31 billion as of Dec. 26, up from $8.29 billion the prior week. ERP Phase 2 payments are now at $854.57 million to 10,182 recipients, up from $837.5 million to 10,152 recipients the prior week. Phase 1 payments remained at $7.45 billion.
USDA reopens comment period for GMO exemption proposal…USDA's Animal and Plant Health Inspection Service (APHIS) announced the reopening of the comment period for its proposal regarding exemptions to regulations governing the movement of GMO products. The proposal aims to include five new genetic modifications that can be exempt from these regulations if they can be achieved through conventional breeding methods. Interested parties now have until Jan. 19 to provide their comments on this matter.
