It’s been quite the day. There are two big themes to discuss.

First, natural gas rallied again. I’m reading a lot of noise in the news, but I think this comes down to the question of “when does winter come?”.  We had some cold at the beginning of this month and that was in contrast to the forecast of a warm winter.  The market is now trying to decide what the path will be: colder temperatures and higher price, or warmer temperatures and lower prices.  I have to wonder if traders are looking at the forecast for a cold weekend and buying the market.  However, the forecast is for warmer temperatures for the rest of December.  One weather forecast I read said that if colder temperatures show up, it will be for the week ending January 10^th.  At that point, we will be trading the February contract.  By then, we will have a very good idea of what this winter will be and how much gas we will have left in the ground by April 1^st. The result is that spot prices are getting close to the highs recently seen.

Second theme involves interest rates. The US Federal Reserve cut rates by .25% as expected. However, they highlighted a concern with inflation and indicated that they will cut rates only once or twice next year.  This is a big change in tone from what Chairman Powell was saying before.  Powell is concerned with two things. First, his term will be over in early 2026 and he does not want his legacy to be like Arthur Burns, who let inflation get away from him in the 1970’s.  Second, Powell is concerned with the impact of these tariffs and what they might do to prices.  Tariffs will act like a supply shock and cause inflation, and the only tool the Federal Reserve has to combat inflation is to raise rates.  He is trying to get ahead of this process. The result of his change in tone is that the Equity markets sold off and the currency rallied.  The CAD/USD broke 70 cents.