Authorities said yesterday that they will step up financial support for restaurant and tourism companies hit hard by the pandemic.

On Tuesday, Tesla's setbacks in China hit the Nasdaq 100, which fell 1.48%, while the Dow Jones gained 0.11%. This week of December is traditionally quiet on stock markets. The few participants are more busy preparing balance sheets for the current year or forecasts for the next. This is precisely the program I have in store for you this morning. We are going to talk about commodities, which is the best performing asset class for the second year in a row.

Below, I'll give you the performance since January 1 of the main commodities, which I've classified into four categories - energy, industrial metals, precious metals and then agricultural commodities.

Let's start with some contextualization. With the exception of precious metals, commodity prices overall have risen in 2021 by significant, often double-digit, amounts as global economies reopen. That said, we can look back in the rearview mirror to 2022 and see that the annual performance of the various commodities reveals many disparities, both between and within compartments.  Despite a rise in the greenback this year, boosted by the hawkish policy of the Federal Reserve, commodities are doing quite well compared to the performance of the equity indices.

Unsurprisingly, the best-performing segment is energy. North Sea Brent crude has risen by around 9% since January 1, a performance that nevertheless conceals a significant distortion in the evolution of oil prices, which soared during the first six months of the year before beginning a deep decline until now. In a nutshell, energy crises and geopolitical tensions dragged energy prices to new highs in the first half of the year, before recession fears wiped out the copious gains accumulated since January 1.

Industrial metals, on the other hand, were the losers of the year. The evolution of the copper price bears witness to this, as the so-called barometer of the world economy has fallen by nearly 13% this year. The reasons for this debacle? The economic health of China, which is struggling to restart its economy and boost its industrial production. Nickel is the only commodity to have performed spectacularly, rising 36% to USD 29,600 per ton. Again, this is a far cry from the USD 101,365 reached on March 8, 2022 on the London Metal Exchange (LME), following a historic short squeeze that could have imploded the London stock exchange. As for precious metals, gold is not far from its levels at the beginning of the year. The barbaric relic has returned to the forefront thanks to central banks, which have amassed a colossal amount of gold during the third quarter. To give an order of magnitude, nearly 400 tons of gold were purchased, mainly by the central banks of Turkey, Uzbekistan, India but also Qatar, which are seeking to diversify their foreign exchange reserves.

In soft commodities, inflation also affected foodstuffs, as evidenced by the jump in corn and soybean prices. The war in Ukraine has taken a toll on global production and has severely disrupted crucial shipping lanes for grain. However, the agreement reached between Kiev and Moscow thanks to the coordination of Turkey on the export of Ukrainian grain has helped to calm things down. As a result, wheat prices are trading around their January 1 level. Finally, cotton and coffee prices have eased this year, but this is a far cry from the sell-off in lumber prices, which are down almost 70% this year. This weakness is largely due to the deceleration of the US housing market, which is being hit hard by the surge in mortgage rates. This is seriously undermining the confidence of homebuilders and the price of building materials.

Let's return to equity markets. Futures on all three Wall Street indexes were up, with +0.2% for both the Dow Jones and the S&P 500 and +0.1% for the Nasdaq.

 

Economic highlights of the day:

In the United States, Pending Home Sales is the main indicator. All the macro agenda is here. Earlier, Japan announced a decline in industrial production in November (-0.1%).

The dollar is unchanged at EUR 0.9400. The ounce of gold is trading slightly above 1800 dollars. Oil is taking a pause with North Sea Brent at USD 84.40 per barrel and US WTI light crude at USD 79.08. The yield on 10-year US debt is stabilizing at 3.75% on 10-year. Bitcoin is trading at 16650 dollars a coin.

 

In corporate news:

* Tesla's stock is expected to recover after falling sharply the day before on reports that the automaker will slow production at its Shanghai, China, plant in January.

* Southwest Airlines drew the wrath of the U.S. government on Tuesday, as the winter storm that hit the United States highlighted major dysfunctions within the group, which was responsible for 90% of all flight cancellations by U.S. airlines. Southwest lost 0.7% in pre-market trading

 

Analyst recommendations:

  • Citigroup: Oppenheimer Lowers Citigroup's Price Target to $87 From $90, Keeps Outperform Rating
  • Diageo: Goldman Sachs on Wednesday lowered Diageo's (DGE.L) price target to 47.00 pounds sterling from 48.00 pounds and reiterated its buy rating.
  • Roblox Corporation: GF Securities is long but lowers its target from USD 35.13 to USD 26.94.
  • Tesla: Baird Cuts Price Target on Tesla to $252 From $316, Maintains Outperform Rating
  • US Bancorp: Oppenheimer Trims US Bancorp's Price Target to $70 From $71, Keeps Outperform Rating