Good morning. Here are the updated risk metrics as at Friday, January 6, 2023.

The US Fed minutes from December suggest that more belt-tightening to control inflation will come, well into 2023. The ECB is making similar noises about rates peaking by summer. Although this will be bad news for many as rates remain high and unemployment rises, this should remove some uncertainty from many economies allowing decision-makers to plan accordingly. Meanwhile, some higher prices, such as iron and steel, seem to have settled in over the past few weeks.

Not sure of how to use these metrics in your risk analysis? I just published the draft users' guide. Read it here

Relative Values (90-Days)

Turn your phone for a better view ⟳

Trends (21-days)

Turn your phone for a better view ⟳

Commentary and Evaluation

Brent Crude

Brent Crude is very low for this 90-day interval having dropped back after some sharp spikes over the last three weeks.

What to Watch

Market commentary and analysis vary wildly about what oil will do in 2023. However, taking out the wildest spikes brings us back to the analysis I shared earlier in the week that ‘prices will peak around $95 with an average of around $90, a drop from previous 2023 estimates which reflects a gloomy outlook for the year’.

See Reuters for more

However, within that range, the opportunity for significant movements remains. Russia’s progress - or lack thereof - in Ukraine and any additional US or EU sanctions may lead to additional manipulation of the oil price. Meanwhile, China’s plans for a great economic boom are delayed but not abandoned so demand there will increase at some time this year as they bring COVID under control. Both situations need to be watched as should Iran, which may seek to raise regional tensions as internal dissent continues. This is more of an outlier but worth tracking nonetheless.

Iron and Steel

Iron and Steel continue to be very high for this 90-day interval with prices remaining stable.

What to Watch

(No change) The Chinese construction and manufacturing boom that many expected in 2023 is off to a very unsteady start as COVID spreads rapidly after December’s relaxations. Sectors that had struggled under the strict COVID restrictions are suffering just as much in the current laissez-faire environment. This will delay the expected economic boom into mid- to late-2023 and it seems that the Chinese economy will continue to suffer through Q1 and into Q2, postponing with associated pressure on steel, iron, oil and shipping.

See the FT for more

Market Volatility (VIX-US)

Market Volatility (VIX-US) is low for this 90-day interval. Volatility decreased moderately over the last 21 days with some fluctuations but noting as wild as the run up to the new year.

What to Watch

This week’s release of the minutes from the US Fed meeting in December has clarified its position and plans for the year which should remove a great deal of uncertainty over how the US Central Bank will behave in 2023. The ECB has made similar clarifications which should help clarify the situation in. Although this will be bad news for many as rates remain high and unemployment rises, this should remove some uncertainty from many economies allowing decision-makers to plan accordingly.

See Bloomberg for more

The pace of announcements from large firms conducting layoffs and how retailers - like Bed Bath and Beyond - fair over the next few months should give a sense of how things are moving and indicate when things have stabilized.

The wildcard is the US House of Representatives, where the GOP remains unable to elect a speaker. This will be resolved at some point, but the willingness of a very small minority to block routine Congressional business suggests a lot of turbulence ahead.

Wheat

Wheat is low for this 90-day interval and prices have remained stable over the last 21 days

What to Watch

(No change) Despite agreements brokered by Turkey, Russia could still impose a complete blockade on Ukrainian grain exports to exert pressure on Kiev and her allies. Meanwhile, even strict controls and inspections for outbound shipments mean that exports remain slowed. Moscow could also conduct military operations to disrupt spring planting meaning that prices could rise again next spring and summer.

Read more in AGWeek.

Ocean Freight (FBX)

Ocean Freight (FBX) is very low for this 90-day interval although prices increased moderately over the last 21 days.

What to watch

(No change) China’s reopening and the effects of recessions on demand in the US and elsewhere remain the biggest issues to track but there are no definitive signs to watch at the moment.

Up-to-date shipping data supplied by our partner Freightos

COVID - Three Years On

On Jan 7 2020, the Chinese National Health Commission isolated a new coronavirus strain. What happened over the next three years is well understood but the WHO just warned that a new, highly transmissible variant of COVID-19 has emerged, noting that "Every week, approximately 10,000 people die of #COVID19, that we are aware of. The true toll is likely much higher".

Chart and data from the WHO

In the UK (where I am now), there’s a general acceptance of COVID and, most people have largely reverted to how they behaved in 2019. But China’s experience after they relaxed their tight controls should be a reminder that COVID is still contagious, deadly, and disruptive. So it’s important that COVID remains something you consider in your assessments and decision-making in 2023 as the immediate and secondary effects of the virus will be with us for some time, even if we’re not masking up and isolating as we were in 2020.

Random Stat

Eight months, 27°F, 1 BPM

Awww. Look at this little guy! Photograph, Mary Webb in Wired.

The Arctic ground squirrel hybernates for eight months of the year. “During that span, the animal's internal temperature falls to below 27 degrees Fahrenheit, literally as cold as ice. Its brain waves become so faint that they're nearly impossible to detect, and its heart beats as little as once per minute. Yet the squirrel remains very much alive. And when spring comes, it can elevate its temperature back to 98.6 degrees in a couple of hours.”

Read more at Wired

More commentary? Less commentary? Let me know what you think about these updates.