Ongoing weakness in China was a base case for many heading in 2024. Sales at the 100 largest homebuilders fell 46% y/y in March. However, new orders and new export orders both jumped in March, according to the NBS manufacturing PMI. Electricity consumption also climbed 11.0% y/y in the first two months of this year. The synchronised, global manufacturing upswing has been supportive of commodities more broadly. The India manufacturing PMI rose to a 16-year high last month.
Both China and India lifted imports of seaborne thermal coal to 3-month highs in March. Coal-fired output surged 14.7% in India last year, outpacing renewable energy output for the first time since 2019, and India will increase coal-fired capacity in 2024 by the most in six years. According to the Global Energy Monitor, 20 new oil and gas fields worldwide were approved last year.
Power demand is climbing, globally. One of the reasons is an explosion in the number of data centres. Oil & gas executives are predicting that artificial intelligence will usher in a ‘golden era’ for natural gas. Rising oil prices will feed through to the CPI prints in the coming months. In the US, durable goods prices have already stopped falling, up for a second straight month in February (+0.19% m/m).
Expectations for aggressive rate cuts this year have been priced out. Markets may yet move to price out all rate cuts for this year, but the gap between market rate expectations, and the likely path of the federal funds rate this year, has narrowed. The larger discrepancy in the bond market is in long-dated Treasuries, where the normalisation of term premia is yet to take place. Both the 10- & 30-year Treasury yields climbed to YTD highs of 4.36% and 4.51% yesterday and have further room to rise.
