Stock Markets

Major stock markets indexes ended slightly lower this week, most possibly due to the release of relatively little economic data to give investors reason to take strong positions in the market. The Dow Jones Industrial Average dipped lower by 0.17% while to total stock market pulled back slightly by 1.43%. The S&P 500 Index also retreated by 1.11%. The tech-heavy Nasdaq Stock Market Composite showed the largest movement, declining by 2.41%, while the NYSE Composite took a nudge down by 0.55%. CBOE Volatility, the indicator of risk perception among investors, advanced by 12.00%.

Most of the sectors within the S&P 500 performed similarly, with energy stocks noticeably outperforming the others while communications services underperforming the rest. There is a recent pattern of short covering, where certain stocks were being bought back by hedge funds and other participants to cover bets that the shares would fall. The stock-specific event that proved most significant in moving the market was the rapid sell-down of the shares of Google’s parent, Alphabet. The counter lost roughly $100 billion in market capitalization on Wednesday as it lost 10% of its value during the week. In its first public demonstration on Monday, Google’s new artificial intelligence (AI)-based chatbot, Bard, make a mistake in identifying the first satellite to take a picture of an exoplanet. The debuts of ChatGPT and Perplexity, Bard’s rival chatbots, have raised concerns among investors regarding the ability of Google to maintain its dominance in AI and internet search. Microsoft invested heavily in ChatGPT creator OpenAI and unveil on Monday a prototype of the two companies’ combined search engine.

U.S. Economy

Statements from Federal Reserve officials have sent stocks in a roller coaster ride on Tuesday and Wednesday this week. Tuesday saw stocks rally after Fed Chair Jerome Powell repeat an earlier reference to the disinflation process having started. Investors were concerned that the unanticipated upward figures in the January payrolls report that was released on Friday may cause Powell to reverse his stance and consider hiking interest rates aggressively again. The following day, however, other Fed officials released a series of apparently hawkish comments that appeared to send stocks back lower.

After the big payrolls report, the few reports released during the week were mostly consistent with expectations. The weekly jobless claims came in at 196,000, which is slightly higher than consensus estimates although it is still close to recent nine-month lows. The University of Michigan’s preliminary assessment of February consumer sentiment, which was released on Friday, moderately exceeded expectations and approached its highest level (664) since January 2022.

Regarding inflation, the consumer price index, the key indicator for inflation in the U.S., has receded for six straight months and has remained mostly in line with forecasts, or, alternatively, surprised to the downside, for the last three months. Market forecasts now expect headline inflation to fall under 4.0% by the end of 2023, and closer to 2.5% by 2024. The current trend has alleviated pressure from the Federal Reserve and global central banks that have been aggressively raising interest rates in an attempt to bring inflation under control.

Metals and Mining

According to updated research from the World Gold Council, the past year was a record year for central bank gold demand. This data indicates the presence of significant bullish factors that are currently supporting the gold market. While a record for central bank gold buying is not expected to break any records, it does indicate that they are likely to continue to be net buyers. There is consistent demand from the People’s Bank of China, which bought 15 tonnes of gold last month according to released data. This is the third straight month that China increased its gold reserves, and the trend is likely to continue in the near term.

In this past week, gold prices closed at $1,865.57 per troy ounce, up by 0.03% from the previous week’s close at $1,864.97. Silver, which closed a week ago at $22.35, ended this week at $22.00 per troy ounce, down by 1.57%. Platinum came from its price last week at $976.78 and closed this week at $949.55 per troy ounce, down by 2.79%. Palladium previously closed at $1,631.77 but closed this week at $1,545.67 per troy ounce, lower by 5.28%. The three-month futures LME prices for base metals were mostly down. Copper ended one week ago at $8,980.50 and this week at $8,857.50 per metric tonne to chart a decline of 1.37%. Zinc, the price of which was $3,241.50 one week ago, ended this week at $3,042.50 per metric tonne, a slide of about 6.14%.  Aluminum dropped 5.02%, from its week-ago price of $2,569.50 to this week’s price of $2,440.50 per metric tonne. Tin fell 3.63% week-on-week, from $28,379.00 to $27,349.00 per metric tonne.

Energy and Oil

The introduction of the oil products price cap has brought the spirit of the stock market to life after months of macro-driven price swings and has at last brought fundamentals back into the spotlight. As a reaction to sanctions, Russia announced that it would curb output, which is arguably the first major supply disruption of 2023. According to Russia’s deputy prime minister Alexander Novak, Russia will cut oil production by 500,000 barrels per day (b/d) in March 2023 in reaction to the recently introduced product price cap and EU import ban, pledging not to sell its exports to members of the price cap coalition. This happened as Colombia failed to trigger any notable market reaction.

Natural Gas

For the week beginning Wednesday, February 1, and ending Wednesday, February 8, 2023, the Henry Hub spot price fell by $0.24 from $2.66 per million British thermal units (MMBtu) at the start of the week to $2.42/MMBtu at the end of the week. Regarding Henry Hub futures prices, the price of the March 2023 NYMEX contract decreased by $0.072, from $2.468/MMBtu at the beginning of the week to $2.396/MMBtu at the end of the week. The price of the 12-month strip averaging March 2023 through February 2024 futures contracts declined by $0.072 to $3.196/MMBtu.

International natural gas futures prices decreased during this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $1.13 to a weekly average of $18.30/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $0.21 to a weekly average of $17.83/MMBtu. In the corresponding week last year (the week from February 2 to February 9, 2022), the price in East Asia was $24.96/MMBtu, and the price at TTF was $26.44/MMBtu.

World Markets

European shares grew weaker on worries that overly aggressive central bank policy might prolong an economic downturn. In local currency. The pan-European STOXX Europe 600 Index closed the week 0.62% lower. The major stock indexes in the region ended mixed. Germany’s DAX Index lost by 1.09%, Italy’s FTSE MIB Index rose by 1.18%, and France’s CAC 40 Index slid by 1.44%. The UK’s FTSE 100 Index dipped by 0.24%. Several European Central Bank (ECB) policymakers announced their commitment to a hawkish stance in light of the most recent rate-setting meeting where they reiterated that the ECB must not be complacent in reining in runaway inflation. Executive Board Member Isabel Schnabel’s comments caught the attention of the market at the start of last week. She said that the recent weakening of inflation was not due to ECB policy, and stressed that the underlying inflation was still exceptionally high. Other central bank officials from Germany, Latvia, and the Netherlands all suggested that rates needed to ascend further after the next anticipated half-point increase in March.

Japan’s equities markets gained some strength over the week. The Nikkei 225 Index gained 0.59% and the broader TOPIX Index was up 0.85%. There was robust speculation about the potential nominees to be the next governor and deputy governor of the Bank of Japan (BoJ). The Nikkei news agency reported after the markets closed on Friday that the government is planning to appoint economist Kazuo Ueda, who is also a former member of the BoJ Board, as the next governor of the central bank. Ueda had not been mentioned as a shortlisted candidate. Throughout the week, the expected nominee of the government for the position was Deputy Governor Masayoshi Amamiya, thus the news concerning Ueda came as a surprise to many. For the week, the yen strengthened to approximately JPY 130.5 against the U.S. dollar, from around JPY 131.2 per greenback the week before. The yen surged on Friday due to reports of Ueda’s potential appointment, as well as investor expectations that the central bank may adjust its monetary policy. The yield on the 10-year Japanese government bond (JGB) was mostly unchanged during the week, remaining at the 0.50% level at which the BoJ strives to cap JGB yields.

China’s stock markets retracted due to the spy balloon controversy. The issue sparked tensions between China and the U.S. and somewhat slowed the expected faster economic growth that China was expecting after it exited from the Covid-19 restrictions. The Shanghai Stock Exchange Index and the CSI 300 Index both registered modest declines for the second consecutive week as investors were reminded about the geopolitical risks of investing in China. The spy balloon incident reignited the likelihood of sanctions on China from the U.S.,  Last October, the Biden administration announced a sweeping ban on U.S. companies selling advanced semiconductors and certain chip manufacturing equipment to China, and the spy balloon event resurfaced the fragility of the Chinese economic recovery. Possible measures that the U.S. could take in the next two years include outbound investment screening for investments in China and other export controls.

The Week Ahead

In the coming week, important economic data that are scheduled to be released include CPI inflation data, retail sales growth, and leading economic indicators.

Key Topics to Watch

• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• NFIB small-business index
• Consumer price index
• Core CPI
• CPI (year-over-year)
• Core CPI (year-over-year)
• Retail sales
• Retail sales excluding motor vehicles
• Empire state manufacturing index
• Industrial production index
• Capacity utilization rate
• NAHB home builders’ index
• Business inventories
• Initial jobless claims
• Continuing jobless claims
• Producer price index final demand
• Building permits
• Housing starts
• Philadelphia Fed manufacturing survey
• Household debt (SAAR)
• Impact price index
• Index of leading economic indicators

Markets Index Wrap Up

Stock Markets

In the week just ended, the new year’s stock rally continued, driven in part by a deceleration in the rate of Federal Reserve rate hikes. Stocks rallied after the Fed announced a 25-basis point (0.25%) rate increase, marking a downshift in the pace of rate hikes, as the previous six rate increases were 0.5% or higher. The S&P 500 is now almost 8% up this year, while interest rates fell through the week due to expectations that the Fed policy will become less restrictive. A strong jobs report released on Friday, however, rekindled expectations that rate hikes will again be increased to stave off a strengthening economy.

During the past week, the Dow Jones Industrial Average dipped by 0.15% while the total stock market index went in the opposite direction and rose by 1.89%. The S&P 500 Index also gained by 1.62%, while the technology-heavy Nasdaq Stock Market Composite surged ahead by 3.31%. Meanwhile, the NYSE Composite rose by 0.23%. The CBOE Volatility, which tracks risk investor risk perception in the stock market, ticked down by 0.97%. Most of the major indexes appear to extend their winning streaks, particularly after the release of encouraging economic data that defied expectation towards the week’s end. The rally was also helped by stellar earnings reports, with Facebook’s parent company, Meta Platforms, beating revenue expectations for the fourth quarter. Meta’s positive news was behind the Nasdaq’s outperformance, even after disappointing results and outlooks from Apple, Google’s parent company Alphabet, and Amazon.com.

U.S. Economy

On Friday, the January employment report was released, showing that an impressive 517,000 jobs were added to the economy. This is more than double the consensus forecast. Other parts of the economy are showing signs of slowing, but the healthy labor market is likely to provide support for economic spending and thus soften a potential downturn. The slowdown in rate hikes is an implicit admission on the part of the Fed that disinflationary forces are taking effect and the Fed’s efforts are bearing fruit, even if it is still “at an early stage,” according to Fed Chair Jerome Powell.

Despite positive news in some aspects of the economy, inflation is still a major force, impacting the pocketbooks of consumers. A broader look at the economy may point to the fact that the inflation rate has fallen noticeably from its peak, and is expected to continue in its decline toward a more manageable point. Key factors that drove the inflation rate up last year have now changed course and appear to justify continued consumer price moderation. As inflation gradually falls further, real wages (adjusted for inflation) are expected to rise and offer support to consumer spending as well as help ease prospects of an economic slowdown.

As for the labor market’s strength, it may be tested in the future as large layoffs by big companies are just getting started. Spiking unemployment will likely bring a recession, albeit a mild one light of this week’s unemployment and jobs reports. Unemployment fell to 3.4%, a level last touched in the late 1960s. Payroll gains for January were significant with a strong performance in the leisure and hospitality, retail, manufacturing, health care, and construction sectors.  

Metals and Mining

For the past weeks, analysts believed that the gold market was likely to undergo a pullback, and this week it occurred. In January, Gold saw the best start in a year going back ten years, but the momentum reversed as February began. Gold prices ended the week’s trading at a loss after a six-week winning streak. The selloff began on Thursday, but prices plunged sharply on Friday after pronouncements by the Bureau of Labor Statistics that the U.S. economy added on 517,000 jobs in January, beating expectations by a significant margin, as economists were predicting a job gain of only 193.000 for the month. Gold price’s reaction suggests that it is still tied to the Federal Reserve and the U.S. dollar. If the labor market remains strong, economists expect that the U.S. central bank will be compelled to maintain its aggressive monetary policy stance longer than expected. In the meantime, the World Gold Council underscored the growing depth of the gold market as physical demand for gold grew 18% in 2022, led by solid bullion purchases from retail investors. Central banks also hiked the demand for gold in the second semester of last year.

The spot prices for precious metals were soft for the week. Gold came from $1,928.04 the previous week and ended at $1,864.97 per troy ounce this week, closing lower by 3.27%. Silver’s week-ago price was $23.60 and this week it was at $22.35 per troy ounce, losing 5.30%. Platinum ended last week at $1,015.74 and this week at $976.78 per troy ounce for a loss of 3.84%.  Palladium did better, ending this week at $1,631.77 per troy ounce, 0.50% higher than the previous week’s close at $1,623.59.  The three-month London Metal Exchange (LME) futures prices for base metals also experiences a price correction. Copper, which ended trading last week at $9,263.50, closed this week at $8,980.50 per metric tonne, down by 3.06%. Zinc came from $3,413.50 last week to close at $3,241.50 per metric tonne this week, for a price drop of 5.04%. Aluminum price, which was at $2,627.00 one week ago, is now $2,569.50 per metric tonne, a decline of 2.19%. Tin was at $30,838.00 last week, but traded this week at $28,379.00 per metric tonne, for a weekly loss of 7.97%.

Energy and Oil

Oil prices took a sudden direction change this week, even though trading might not have been as volatile as it was for most of 2022. Several events during the week exerted further downward pressure on oil markets. Amidst crude stock refinery woes, the repeated crude stock continues to build, while industrial activity slows down, and the U.S. dollar appreciates, all combining to impact WTI and bringing it back below $76 per barrel. The G7 product price cap may exert some upward correction, but presently no clear indication exists as to whether the Price Cap coalition had effectively managed to settle their differences on Friday, the last working day before the February 5 deadline. On Wednesday, the Joint Ministerial Monitoring Committee of OPEC+ met for less than 30 minutes. During that time, they endorsed the current production policy of the oil group and left output targets unchanged, overshadowed by the specter of demand increases from the recovering Chinese economy.

Natural Gas

In the United States, natural gas prices decline in warm weather. The Henry Hub futures prices have plunged to their lowest level since April 2021, impacted by a much smaller than usual inventory draw (151 billion cubic feet) and forecasts of warm weather throughout the U.S. until mid-February. It is now at its lowest level since April 2021, selling at $2.45 per million British thermal units (MMBtu) on Thursday. In 2024-25, fewer global LNG export capacity additions are expected than in previous years. U.S. LNG export capacity is expected to grow as three projects are currently under construction and will soon be completed.

In the market highlights during the report week from Wednesday, January 24, to Wednesday, February 1, 2023, Henry Hub spot prices fell by $0.42 from $3.09/MMBtu at the start of the week to $2.66/MMBtu by the week’s end. The February 2023 NYMEX contract expired on Friday at $3.109/MMBtu[, up by $0.04 from Wednesday. The March 2023 NYMEX contract price decreased to $2.458/MMBtu, down by $0.45 from the start to the end of the week. The price of the 12-month strip averaging March 2023 through February 2024 futures contracts declined by $0.25 to $3.268/MMBtu.

International natural gas futures prices declined for this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $2.99 to a weekly average of $19.43/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $1.64/MMBtu to a weekly average of $18.04/MMBtu. In the corresponding week last year, (i.e., for the week ending on February 2, 2022), the price in East Asia was $24,94/MMBtu, while that at the TTF was $27.80/MMBtu.

World Markets

European shares were elevated this week on expectations that central banks may be approaching the end of the most restrictive stage of the monetary tightening cycle. The pan-European STOXX Europe 600 Index closed the week higher by 1.23%. The major stock markets of the region also ended on the plus side. Germany’s DAX Index climbed by 2.15%, Italy’s FTSE MIB Index gained 1.95% and France’s CAC 40 Index added 1.93%. The UK’s FTSE 100 Index gained by  1.76%, driven partly by the depreciation of the pound against the U.S. dollar after the Bank of England (BoE) suggested that interest rates might peak at a lower level than expected by the market. European government bond yields declined broadly, which can be attributed to investors perceiving that the major central banks could shift their monetary policy later this year. Despite the European Central Bank (ECB) raising interest rates by 0.05% and signaling that it will do the same in March, Germany’s 10-year sovereign bond yield fell toward 2%. Similarly, and for the same reason, French and Swiss government bond yields declined. In the UK, despite the BoE hiking rates, the yields on the benchmark 10-year debt tracked their global counterparts and approached 3%.

Japanese stock markets’ performance this week ended mixed. The Nikkei 225 Index rose 0.46% while the broader TOPIX Index declined 0.63%. Expectations that the U.S. Federal Reserve’s monetary policy tightening cycle may be nearing its peak have boosted investor sentiment. The Bank of Japan (BoJ), in the meantime, has reiterated its ultra-loose monetary policy. The yield on the 10-year Japanese government bond (JGB) climbed to 0.49%, from 0.47% at the end of the week before. According to figures released by the BoJ, the central bank’s JGB purchases reached a record high in January as it sought to defend its wider 0.50% yield cap  The yen strengthened to around JPY 128.58 against the U.S. dollar, from the prior week’s JPY 129.89, supported by the Fed’s moderation of its rate hikes and some anticipation of potential change in the BoJ’s easing stance.

After the week-long Lunar New Year holiday, China’s stock markets fell in the first full week of trading due to some profit-taking from the recent rally by investors, who turned cautious about the strength of the country’s recovery. The broader capitalization-weighted Shanghai Composite Index eased by 0.04%, while the blue-chip CSI 300 Index dipped by 0.95%. In Hong Kong, the benchmark Hang Seng Index retreated 4.5%, its biggest decline since the end of October. In economic developments. China’s official manufacturing Purchasing Managers’ Index (PMI) advanced to 50.1 in January from December’s 47.0. This signaled a return to growth for the first time since September, indicating that domestic activity improved after Beijing exited its coronavirus restrictions at the end of the year. The nonmanufacturing PMI climbed to a better-than-expected 54.4 from 41.6, its highest level since June. Meanwhile, the IMF raised its annual growth forecast for China as the economy rebounds after the removal of the pandemic protocols. The IMF projected that the economy of China would grow 5.2% this year, up from its October forecast of 4.4%, and maintained its 2024 estimate at 4.5%.

The Week Ahead.

Among the important economic data scheduled for release this week are the wholesale inventories report, consumer credit, and the Federal budget balance.

Key Topics to Watch

• International trade deficit
• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• Consumer credit
• Wholesale inventories (revision)
• Initial jobless claims
• Continuing jobless claims
• UMich consumer sentiment index (early)
• UMich 1-year inflation expectations (early)
• UMich 5-year inflation expectations (early)
• Federal budget balance

Markets Index Wrap Up

Stock Markets

The new year 2023 registered a strong showing in its first month, a welcome development after a challenging 2022. In its last full week of trading for the month, the stock markets recorded a solid week of gains. This is the third weekly gain of the last four, buoyed by a series of corporate earnings announcements and encouraging economic reports. So far this year, stocks have gained by approximately 6%. This is encouraging since strong returns in January are typically accompanied by positive full-year returns. A mild economic downturn is still possible, though even in such a case, the markets will not likely breach last October’s low levels. Markets may experience bouts of volatility as the markets discount the coming earnings and economic data.

Despite continued recession worries, investors nevertheless appear hopeful that the economy might avoid a recession altogether in 2023. Consumer discretionary stocks were particularly strong, partly due to a rally in Tesla shares over the week after CEO Elon Musk released a favorable outlook. Stocks that underperformed included the usually defensive consumer staples, health care, and utility segments. Overall, value stocks lagged behind growth shares. The weekly WSJ recap shows that the Dow Jones Industrial Average inched upward by 1.81% while the total stock market rose by 2.58%. The S&P 500 Index gained by 2.47% while the technology-heavy Nasdaq Stock Market Composite added 4.32%. The NYSE Composite also rose by 1.17%. The risk perception tracker CBOE Volatility Index declined by 6.75%.

U.S. Economy

Contrary to speculation, the country is not yet out of the woods regarding its economic recovery, despite fairly solid GDP growth by the close of 2022. Last week, the fourth-quarter GDP and household spending reports were released. The GDP grew by 2.9% in the first quarter; however, the headline GDP figure was supported by gains in the inventory and trade categories, the smaller and less sustainable drivers of the U.S. economy. The underlying trends still suggest that consumer spending may be showing signs of fatigue and losing momentum, possibly signaling a soft economic recession. The lagged effects of restrictive U.S. Federal Reserve policy may well produce a mild economic downturn this year.

Nevertheless, the economy should find support from the strong starting point for the labor market that is further underscored by another job in initial jobless claims. The Fed may also implement more rate hikes that should be smaller than the 0.75% adjustments of the past year. After a few such hikes, the Fed will move to the sidelines. Monetary policy will not quickly resume its stimulus stance, however, diversified portfolios should benefit in the year after the greater part of the Fed’s rate-hiking cycle.

Metals and Mining

The gold’s bull run appears to be slowing down after the last two months of solid gains. Gold prices appear to be hitting resistance on its rise to $2,000 per troy ounce, but this may be a welcome consolidation before it could again challenge this resistance level. The recent run-up has shown some welcome developments for the yellow metal. As the price tested resistance around $1,940, it rose 20% above its lows in November and as a result, entered into a technical bull market. The market has risen by approximately $100 this month, its best start to the year since 2012. Gold notched its sixth consecutive weekly gain despite the muted market response; nevertheless, this marks its longest winning streak since the summer of 2020.

The spot prices for precious metals continued to consolidate this past week. Gold rose above last week’s close of $1,926.08 by 0.10% to close this week at $1,928.04 per troy ounce. Silver, whose previous close was at $23.93, slid by 1.38% to close this week at $23.60 per troy ounce. Platinum, formerly ending at $1,045.88, lost 2.88% to end this week at $1,015.74 per troy ounce. Palladium, which ended the previous week at $1,735.81, slumped by 6.46% to close this week at $1,623.59. The three-month LME prices for base metals generally moved sideways. Copper came from last week’s price of $9,324.00 to close at this week’s price of $9,263.50 per metric tonne, slightly lower by 0.65%. Zinc ended this week at $3,413.50 per metric tonne, lower by 0.20% from last week’s closing price of $3,420.50. Aluminum ended this week at $2,627.00 per metric tonne, slightly increasing by 0.63% from the previous week’s price of $2,610.50. Tin came from its week-ago level of $29,536.00 to close this week at $30,838.00 per metric tonne, a gain of 4.41%.

Energy and Oil

Despite being weighed down by high inflation, rising interest rates, and other economic shocks, the stronger-than-expected GDP data released this week sparked hopes of market bulls that the fears of a long-term sluggish economy may have been exaggerated. Macroeconomic events are still correlated with the oil markets. Going almost unnoticed is how U.S. refining is still below 15 million barrels per day (bpd) and is on its way toward a massive round of maintenance. On the European front, EU officials are hinting that they would seek to set the price cap of high-value Russian products at $100 per barrel and of low-value ones at $45 per barrel. The EU governments should now decide whether or not to approve the measure before the February 5 deadline.

Natural Gas

For this report week starting Wednesday, January 18, and ending Wednesday, January 25, 2023, the Henry Hub spot price fell by $0.03 from $3.11 per million British thermal units (MMBtu) at the start of the week to $3.08/MMBtu at the week’s end. The price of the February 2023 NYMEX contract decreased by $0.244, from $3.311/MMBtu to $3.067/MMBtu week-on-week. The price of the 12-month strip averaging February 2023 through January 2024 futures contracts declined by $0.142 to $3.411/MMBtu. International gas futures prices decreased for this week. the weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $2.43 to a weekly average of $22.42/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid gas market in Europe, decreased by $0.42 to a weekly average of $19.67/MMBtu. In the corresponding week last year (the week ending January 25, 2022), the price in East Asia was $22.99/MMBtu, and at the TTF was $27.67/MMBtu.

World Markets

European shares gained ground as positive economic reports overcame concerns about the current stance of central banks toward monetary policy tightening. The pan-European STOXX Europe 600 Index closed the week higher by 0.67%. Major stock indices across Europe also moved higher. Germany’s DAX Index advanced by 0.77%, France’s CAC Index rose by 1.45%, and Italy’s FTSE MIB Index surged by 2.56%. The UK’s FTSE 100 Index registered a modest loss. In the UK, benchmark 10-year yields closed near their recent highs ahead of a Bank of England policy meeting. Meanwhile, European Central Bank (ECB) Governing Council member Klaas Knot called for half-point interest rate increases at the next two policy meetings, causing French and Swiss bond yields to rebound from midweek lows. ECB President Christine Lagarde, fellow Governing Council member Olli Rehn, and Knot reiterated calls for significant rate increases in February and March, but Executive Board member Fabio Panetta announced to the press that there was a great deal of economic uncertainty to pre-commit to a specific policy stance beyond February.

The Japanese stock markets advanced this week, with the Nikkei 225 Index recording a 3.12% gain and the broader TOPIX Index rising by 2.90%. Investor sentiment was optimistic after the report of a solid, albeit slower, growth rate by the U.S. economy, ahead of expectations over the final quarter of 2022. A 2.9% expansion is anticipated, raising hopes of a soft recession. Tokyo’s core consumer price inflation, a leading indicator of nationwide trends, also attracted investors’ attention. The inflation indicator rose 4.3% year-on-year in January, exceeding the Bank of Japan’s (BoJ) inflation target for the eighth straight month. This increased the pressure on the BoJ to tighten its ultra-loose monetary policy. The yield on the 10-year Japanese government bond (JGB) climbed to 0.47% from 0.40% by the end of the previous week. The yen softened slightly to approximately JPY 129.91 against the U.S. dollar, compared to JPY 129.56 versus the greenback the week before.

The mainland Chinese financial markets were closed for the week in celebration of the Lunar New Year holiday, from January 21. They will reopen on Monday, January 30. The Hong Kong stock exchange resumed trading on Thursday; the benchmark Hang Seng Index climbed 2.96% during the holiday-shortened week. During the weeklong holiday, China’s domestic activity accelerated significantly on the back of pandemic restrictions being lifted, driving optimism that the economy will recover faster than anticipated. Mobility returned, with 95.9 million trips estimated to be taken via road, rail, air, and waterways in the first four days of the holiday. Total box office sales reached RMB 3.62 billion, outbound air tickets more than quadrupled for the full year, and hotel bookings doubled. Spending by Chinese consumers, however, is expected to remain restrained in the short term while the country continues to recover from three years of pandemic restrictions.

The Week Ahead

Included among the important economic data to be released this week are consumer confidence, unit labor costs, and job openings reports.

Key Topics to Watch

• Employment cost index
• S&P Case-Shiller home price index (SAAR)
• FHFA home price index (SAAR)
• Chicago business barometer
• Consumer confidence index
• Rental vacancy rate
• ADP employment report
• S&P manufacturing PMI (final)
• ISM manufacturing index
• Job openings
• Quits
• Construction spending
• Federal funds rate
• Federal funds projection
• Fed Chair Jerome Powell news conference
• Motor vehicle sales (SAAR)
• Initial jobless claims
• Continuing jobless claims
• Productivity, first estimate (SAAR)
• Unit labor costs, first estimate (SAAR)
• Factory orders
• Core capital goods orders (revision)
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor-force participation rate, 25 to 54-year-olds
• S&P U.S. services PMI (final)
• ISM service index

Markets Index Wrap Up

Stock Markets

Since the beginning of the year, the markets have rallied partly due to the better inflation outlook in the United States and around the world. The past week, however, equities appeared to hesitate and move sideways as investor sentiment seemed mixed. Economic data released midweek caused some negativity among investors when they pointed to a weaker U.S. consumer and manufacturing sector. Also weighing on the markets was the uncertainty over the ongoing U.S. debt ceiling debate and the mixed earnings results from listed stocks.

The Dow Jones Industrial Average (DJIA) lost 2.70% for the week while the DJ total stock market slid 0.62%. The broad S&P 500 Index came down 0.66% and the NYSE Composite Index gave up 0.88%. Bucking the trend is the Nasdaq Stock Market Composite, which tracks the technology sector closely, inched up 0.55%. CBOE Volatility gained 8.17% pointing to an increase in perceived risk by investors. The easing inflation fears enabled growth stocks such as those in the technology sector to outperform. The likelihood of lower interest rates hiked the implicit value of future earnings, giving growth stocks a push. Netflix’s earnings report on Friday that showed the company added more subscribers than was widely expected in the fourth quarter boosted sentiment. Google’s announcement that it will lay off about 6% of its workforce also hiked its parent Alphabet’s share prices, further pushing the broad indexes higher. The week was shortened by the observance of the Martin Luther King, Jr. holiday on Monday when the markets were closed.

U.S. Economy

The economy may potentially enter a downturn prompting the Federal Reserve to stall in its interest-rate hiking policy. There were several additional signals that the economy was significantly slowing in response to the Fed’s 2022 aggressive rate increases. On Wednesday, retail sales were reported to contract by 1.1% in December, amounting to roughly triple consensus estimates. Part of it was a drop in sales at gas stations, but there were also notable pullbacks in sales of furniture, electronics, and other discretionary purchases. The sales data for November was also adjusted downward. The encouraging development about the slowing economy was that the inflationary pressures were alleviating. According to the Labor Department, producer prices fell 0.5% in December, a welcome development since it is the biggest drop since early in the pandemic. Prices companies paid for goods, food, and especially energy all recorded declines.

Data released during the week also indicated that manufacturing output dropped by 1.3%, driving industrial production down by 0.7% in December, the most since September 2021. The industrial sector of the economy slowed at an annualized rate of 1.7% for the fourth quarter. Capacity utilization ended at 78.8% in December, its lowest level of 2022. It is also well below consensus expectations as well as its long-term average (79.6%). In this environment, the job market remained unusually light, with weekly jobless claims falling to their lowest level since April 2022. Also falling slightly below expectations were the housing starts and existing home sales.  

Metals and Mining

This far into the new year, precious metals have registered a solid performance, particularly the gold market as prices for the yellow metal ended the week close to a nine-month high. Gold has rallied for the fourth consecutive week as it moved up more than 5% in the first month of 2023. There appears to be a strong bullish sentiment among investors, although they have not yet fully jumped into the market, causing some concern among analysts. There is also some concern that silver has not yet seen the same strong rally as gold, considering that silver outperformed gold through November and December. The lack of momentum in silver contrasts with the performance of the markets in other industrial metals such as copper, which currently trades at a seven-month high of about $4.26 a pound. These market divergences will eventually work themselves out, providing greater incentives for investors to see value in holding precious metals.

Gold moved up 0.30% from its close one week ago at $1,920.23 to this week’s close at $1,926.08 per troy ounce. Silver moved down 1.36% from last week’s closing price of $24.26 to this week’s closing price of $23.93 per troy ounce. Platinum slumped 2.18% from its earlier price of $1,069.21 to the recent price of $1,045.88 per ounce. Palladium came from $1,792.81 one week ago to $1,735.81 this week for a loss of 3.18%. The three-month LME prices of base metals were mostly up. Copper closed last week at $9,185.50 and this week at $9,324.00 per metric tonne, up by 1.51%. Zinc went up by 2.90% from its week-ago price of $3,324.00 to this week’s $3,420.50 per metric tonne. Aluminum rose 0.60%       from $2,595.00 last week to $2,610.50 per metric tonne this week. Tin came from $28,756.00 one week ago to $29,536.00 per metric tonne this week, gaining 2.71%.

Energy and Oil

Discounting the massive inventory build-up in the United States, the market is beginning to factor in the imminent demand rebound brought about by China’s opening economy. The OPEC and International Energy Agency (IEA) both increased their 2023 global demand forecasts, confident that rapid growth in Asian buying would dominate the second semester of the year.  In its monthly oil report, the IEA took note of the easing of coronavirus restrictions in China and saw this as the catalyst that would propel global oil demand possibly to its highest level on record, surging from its current 100 million barrels per day (b/d) to nearly 104 million b/d as  2023 nears its end. The oil bulls have thus appeared to have gained the upper hand, undeterred by some concerning economic data and refinery problems in the U.S.                                                          

Natural Gas

The estimated total natural gas consumption in the U.S. lower 48 states attained a daily record high of 141.0 billion cubic feet (Bcf) on December 22, 2022, exceeding the previous daily record high of 137.4 Bcf set on January 1, 2018. Natural gas consumed in the residential, industrial, and power generation sectors comprises total consumption. There was increased demand for residential and commercial heating, as well as for electric power generation, due to below-normal temperatures in mid to late December. These developments contributed to a steep weather-related decline in natural gas production.

For the week beginning Wednesday, January 11, and ending Wednesday, January 18, 2022, the Henry Hub spot price fell $0.24 from $3.35 per million British thermal units (MMBtu) at the start of the week to $3.11/MMBtu by the end of the week. The price of the February 2023 NYMEX contract decreased by $0.36, from $3.671/MMBtu at the start of the week to $3.311/MMBtu at the week’s end. The price of the 12-month strip averaging February 2023 through January 2024 futures contracts declined $19.4 to $3.553/MMBtu. International gas futures prices decreased for this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia dropped by $2.82 to a weekly average of $24.85/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, slid by $1.92 to a weekly average of $20.10/MMBtu. During the corresponding week last year (week ending January 19, 2022), the prices in East Asia and at TTF were $27.38/MMBtu and $27.24/MMBtu, respectively.

World Markets

European equities softened after the European Central Bank (ECB) policymakers indicated that they would continue to hike interest rates aggressively despite contrary moves in the U.S. This sparked renewed fears of a prolonged economic slowdown in the region. The pan-European STOXX Europe 600 Index ended the week slightly lower in local currency terms. The major stock indexes generally weakened. France’s CAC 40 Index fell by 0.39%, Germany’s DAX Index eased by 0.35%, and Italy’s FTSE MIB Index moved sideways. The UK’s FTSE 100 lost 0.94%. Market speculation regarding the slowdown of monetary policy tightening was dismissed by ECP President Christine Lagarde this week in a speech at the World Economic Forum in Davos, Switzerland. She said, “Inflation, by all accounts, is way too high. Our determination at the ECB is to bring it back to 2% in a timely manner, and we are taking all the measures that we have to take in order to do that.” The minutes of the ECB’s December meeting also suggested that future rate hikes might be higher than the recent half-percentage point increases. Many of the members favored 0.75 percentage point increases moving forward.

Japan’s stock markets ascended for the week, with the Nikkei Index climbing by 1.66% and the broader TOPIX Index rising by 1.25%. The optimism was attributed to the prospects of China’s economic reopening boosting the global economy. Positive sentiment was also due to hopes that the major central banks were likely to slow the pace of their rate hikes as inflationary pressures eased. The focus of attention was on the Bank of Japan (BoJ), whose monetary policy remained unchanged at its January meeting after it surprised markets in December by tweaking its yield curve control (YCC) framework. Absent any further YCC modifications, the yield on the 10-year Japanese government bond (JGB) fell to 0.40% from 0.51% at the end of the week before. The yen softened to around JPY 129,81 versus the U.S. dollar, from about JPY 127.88 against the greenback the week before, on the BoJ’s commitment to its ultra-loose monetary stance.

China’s bourses rallied for the fourth straight week ahead of a weeklong Lunar New Year break, following reports of better-than-expected economic growth. The Shanghai Composite Index ascended by 2.18% and the blue-chip CSI 300 rose by 2.63%. The Hong Kong benchmark Hang Seng Index surged by 1.41%. China’s financial markets will be closed from January 21 and will reopen on Monday, January 30, in observance of the Lunar New Year holidays. The country’s gross domestic product (GDP) gained 2.9% in the fourth quarter of 2022 and expanded by 3.0% for the full year. The pace of growth missed the official annual target of approximately 5.5% set last March. It marked the second-worst year for economic growth, of which 2020 was the worst due to the pandemic, since 1976, the end of China’s Cultural Revolution that lasted a decade. Both growth rates still surpassed economists’ forecast following Beijing’s lifting of stringent COVID pandemic restrictions and beginning implementation of a series of pro-growth policies towards the end of 2022. Indicators of output and retail sales for December were better than expected, and fixed-asset investment rose broadly consistent with estimates.

The Week Ahead

The important economic data scheduled for release this week include the leading economic indicators index at the beginning of the week and personal income just before the weekend.

Key Topics to Watch

• Leading economic indicators
• S&P U.S. manufacturing PMI (flash)
• S&P U.S. services PMI (flash)
• Initial jobless claims
• Continuing jobless claims
• Real gross domestic product, first estimate (SAAR)
• Real final sales to domestic purchasers, first estimate (SAAR)
• Trade in goods (advance)
• Durable goods orders
• Core capital goods orders
• Chicago Fed national activity index
• New home sales (SAAR)
• Real disposable income (SAAR)
• Real consumer spending (SAAR)
• PCE price index
• Core PCE price index
• PCE price index, year-over-year
• Core PCE price index, year-over-year
• UMich consumer sentiment index (late)
• UMich 1-year inflation expectations (late)
• UMich 5-year inflation expectations (late)
• Pending home sales

Markets Index Wrap Up

Stock Markets

The stock market chalked up its second straight week of gains, with investors welcoming the good news that inflation data matched consensus estimates and that the quarterly earnings reporting season officially began on Friday. As reported by the Wall Street Journal, the technology tracker Nasdaq Stock Market Composite outperformed with a gain of 4.82%. The Dow Jones Industrial Average climbed 2.00% while the total stock market index ascended by 3.06%. The broad S&P 500 Index rose by 2.67%, and the NYSE Composite added 2.44%. CBOE Volatility descended by 13.16%, signaling investors’ perception of falling risks.

The rally by the Nasdaq Composite and growth-oriented sectors were supported by rebounds in certain mega-cap technology stocks such as Amazon.com, Tesla, and Microsoft. Sectors that lagged included consumer staples. Financial stocks JPMorgan Chase, Wells Fargo, and Bank of America released earnings Friday morning that beat consensus expectations, although cautious outlooks from the large banking corporations triggered a fall in their share prices in early trading.

U.S. Economy

The Labor Department’s report on consumer price index (CPI) inflation on Thursday morning was largely anticipated by investors during the early part of the week. The reports were viewed by Wall Street as benign. In December, headline prices dipped 0.1%, slightly lower than expected. It is also the first decline since May 2020, bringing the year-over-year increase to 6.5%, its lowest level since October 2021. Core consumer inflation, which excludes food and energy, dipped according to expectations, to 5.7%. This is also the slowest pace in more than a year. Largely accounting for the remaining inflation pressures are the ongoing increases in the calculation of shelter costs, which lag actual declines in home prices and rents.

Goods inflation likewise fell for the third straight month, largely driven by the sixth monthly decline in used car prices. This is also the first decline in new car prices in two years. Goods prices are likely to further descend as supply shortages get resolved, the cost of shipping falls, and consumer demand eases. Noticeable is the increase in services inflation, largely due to the increase in shelter, the biggest component of inflation as it accounts for about one-third of the overall index. This component increased the most in three months, although the strength of the movement may be expected to temper. Tending to lead the shelter inflation index by several quarters are new leases and home prices, and it is worthwhile to note that both have been descending in response to the sudden increase in borrowing costs. Housing inflation may be expected to start moderating later in the year, as the data appear to point out.

Metals and Mining

Gold and silver are starting the year on an upward trend, suggesting that bullish sentiment is prevailing in the marketplace. This week gold broke above the $1,900 level and ended the week at $1,920 per ounce, the highest level in nine months, bringing it to 5% higher since the year began, and $300 higher since the precious metal’s two-year low in November. Even now, some analysts and investors are setting their sights on the $2,000 target. At the same time, silver is solidly back above $24 an ounce. Some heavyweight analysts are anticipating that investors will flock to gold as several major threats are likely to descend on the global economy. Furthermore, both bond yields and the U.S. dollar have peaked, trends that supported the gold rally.

According to Bloomberg, gold spot price ended the week at $1,920.23 per troy ounce, an increase of 2.92% from the previous week’s close at $1,865.69. Silver, which closed one week ago at $23.83, ended this week at $24.26 per troy ounce to register an increase of 1.80%. Platinum lost 2.30% from the earlier week’s price of $1,094.33 to this past week’s price of $1,069.21 per troy ounce. Palladium also lost by 1.06%, from the week-ago close at $1,811.93 to this week’s close at $1,792.81 per troy ounce. The three-month LME prices of base metals generally rose for the week. Copper increased from the previous close at $8,589.50 to this week’s close at $9,185.50 per metric tonne, a weekly gain of 6.94%. Zinc ascended from last week’s closing price of $3,023.50 to this week’s closing price of $3,324.00 per metric tonne, a rise of 9.94%. Aluminum prices went up by 13.05% for the week, from $2,295.50 one week ago to $2,595.00 per metric tonne this week. Tin, which ended last week at $25,270.00, closed this week at $28,756.00 per metric tonne, for a gain of 13.80%.

Energy and Oil

Much uncertainty presently pervades the oil markets, especially concerning the timing of the demand recovery of China as it gradually moves away from its zero-Covid policy. Even in the face of this uncertainty, oil prices have risen on the back of the easing of U.S. inflation data and consumer prices descending for the first time in the last two and a half years. WTI is once more moving toward the $80 per barrel price threshold, and Brent is approaching $85 per barrel. In local news, the U.S. passed a broadly bipartisan bill that would limit direct sales of oil from the Strategic Petroleum Reserve to China, similar to what had taken place in the 180-million-barrel emergency release last year. Also developing are the plans by the U.S. National Highway Traffic Safety Administration to propose this April new fuel economy standards for 2027 and beyond.

Natural Gas

The U.S. natural gas production surged to its highest level on record in 2022. This is attributable to three causes: the continued decline in drilled but uncompleted wells; higher rig counts surpassing March 2020 levels; and, increased takeaway capacity to supply Gulf Coast liquefied natural gas (LNG) terminals. In the weekly report covering Wednesday, January 4, to Wednesday, June 11, 2023, the Henry Hub spot price fell by $0.46 from $3.81 per million British thermal units (MMBtu) at the start of the week to $3.35/MMBtu at the end of the week. The price of the 12-month strip averaging February 2023 through January 2024 futures contracts descended by $0.348 to $3.748/MMBtu.

International natural gas futures prices declined for this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia came down by $1.63 to a weekly average of $27.67/MMBtu.  Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $1.17 to a weekly average of $22.02/MMBtu. In the same week last year (the week ending January 12, 2022), the prices in East Asia and at TTF were $33.44/MMBtu and $28.18/MMBtu, respectively.

World Markets

European shares rallied for the second straight week due to the better-than-expected economic data that raised hopes of a brief and shallow recession. Market optimism was tempered, however, by sentiments of some central bankers that interest rates would need to be hiked further. The pan-European STOXX Europe 600 Index closed the week higher by 1.88% in local currency terms. Major stock indexes in the region surged. Germany’s DAX Index climbed by 3.26%, France’s CAC 40 Index ascended by 2.37%, and Italy’s FTSE MIB Index added 2.40%. The UK’s FTSE 100 Index advanced by 1.88%. The Eurozone unemployment rate remained steady at 6.5% in November, which is consistent with economists’ expectations. Investor morale, meanwhile, strengthened for a third straight month in January. The economic sentiment index compiled by Sentix rose to its highest level since June of 2022, although it remains in negative territory. Eurozone data published earlier this month showed economic sentiment improved in December for the first time since Russia first invaded Ukraine.

Japan’s equities climbed during the week, as investors’ risk appetite rose with the weakening momentum in the U.S. consumer price inflation. The Nikkei Index ascended by 0.56% and the broader TOPIX Index rose by 1.46%. The slowdown in the U.S. CPI announced during the week raised hopes that the U.S. Federal Reserve would slow the pace of its interest rate hikes. On the other hand, core consumer price inflation in Tokyo jumped by 4.0% year-on-year in December. This was the fastest rate increase experienced in the past 40 years, fueling speculation that the Bank of Japan (BoJ) may revise its inflation forecasts upward and evaluate the feasibility of further monetary policy adjustments when it next meets on January 17-18. Contrary to expectation, the BoJ adjusted its yield curve control (YCC) framework last month. As a result, the BoJ was again compelled to conduct unscheduled bond-buying operations to maintain the 10-year Japanese government bond (JGB) yield at around its new 0.50% cap, approximately at the level at which it ended this week. The yen firmed up to about JPY 128 versus the U.S. dollar, from around JPY 132 to the greenback the week before.

Chinese stocks gained ground upon the announcement of a lower-than-expected U.S. inflation rate even as optimism was boosted by the post-pandemic reopening outlook. The Shanghai Composite Index advanced 1.19% and the blue-chip CSI 300 gained 2.35%, the highest it has seen in four months. After Beijing abandoned its zero-covid policy in December and officials accelerated measures to support the troubled property sector, hopes increased that the domestic demand will recover in the coming months. China issued a large quota for crude oil imports earlier in the week to prepare for what they expect will be an increase in energy demand resulting from the economic recovery that follows the waning infection rate. Economists project that China’s economy will experience a swift rebound once infections peak, and foresee a 4.9% growth for 2023 as against an estimated growth rate of about 3% in 2022. China’s exports dropped 9.9% in December compared to one year earlier, due to softening global demand and rising infections disrupted activity. Inflation gained momentum, rising 1.8% in December. Core inflation, which excludes food and energy prices, rose slightly after it remained unchanged for three straight months.

The Week Ahead

The PPI Index, Retail Sales growth, and initial and continuing jobless claims are among the important economic data scheduled for release in the coming week.

Key Topics to Watch

• Empire State manufacturing index
• Retail sales
• Retail sales ex motor vehicles
• Producer price index, final demand
• Industrial production
• Capacity utilization
• NAHB home builders’ index
• Business inventories (revision)
• Beige book
• Initial jobless claims
• Continuing jobless claims
• Building permits (SAAR)
• Housing starts (SAAR)
• Philadelphia Fed manufacturing index
• Fed Vice Chair Lael Brainard speaks
• Existing home sales (SAAR)
• Fed Gov. Christopher Waller speaks at Council on Foreign Relations

Markets Index Wrap Up

Stock Markets

Over the past week, welcome economic news propped up the stock markets despite rising inflation and interest rate hikes. The stock markets rallied in reaction to an encouraging jobs report, sparking gains in the major indexes. According to the Wall Street Journal, the Dow Jones Industrial Average (DJIA) gained 1.46% while the total stock market index rose by 1.42%. The broad S&P 500 Index climbed by 1.45% and the technology-heavy Nasdaq Stock Market Composite increased by 0.98%. The NYSE Composite ascended by 2.34%. CBOE Volatility descended by 2.49%.

Outperforming the broad market are communication services stocks, helped by rallies in Netflix, Charter Communications, and Meta Platforms, the parent of Facebook. Trading volumes were noticeably low for this first trading week of the new year compared to the 2022 average volumes. The S&P 500 continued to traverse a relatively narrow band between 3,764 and 3,906 since December 16. The narrow trading may also be due to the shortened trading week, as the markets were closed on Monday in observance of the New Year holiday.

U.S. Economy

There were several closely watched reports during the week. Investors appear, through their reactions in the market, their preference for slowing growth and inflation rather than a robust economy. The Federal Reserve have signified its acceptance of such a trade-off. Reports released indicated a surprise increase in construction spending in December, which may partially explain the poor start of trading among the broad indexes on Tuesday. Tesla’s decline also played a role to weigh down the markets. The S&P 500 and Nasdaq 100 indexes also tumbled by 1% on Thursday morning due to payroll processing firm ADP’s tally of jobs in the private sector showing an increase of 235,000 in December. This number well exceeds expectations for approximately 150,000 and August’s recent low of 132,000. The weekly initial jobless claims likewise unexpectedly fell to 204,000, the lowest level this indicator has seen since September.

The official payrolls report released by the Labor Department on Friday seemed to reverse the negative sentiment in a positive direction. It raised the hopes that the economy may well be on its way to a so-called soft landing, or cooling inflation that avoids a significant recession. In December, non-farm payrolls increased by 223,000, the smallest increment in two years, but still above expectations. The separate household survey showed that the unemployment level returned to its post-pandemic low of 3.5% which was last recorded in September. The healthy job growth rate coincided with cooling growth in average hourly earnings, which rose by 0.3% in December, which is slightly below expectations. The November figure was revised lower; this brought the year-over-year increase down to 4.6%, its lowest level since September 2021. The labor participation rate climbed back to its recent high of 62.3%, indicating that the wage competition for workers might be easing. The level is still roughly a full percentage point below its pre-pandemic level of 67.3%, a peak reached in early 2000.

Metals and Mining

Gold prices returned to their six-month highs, thanks to the latest macro data out of the U.S., indicating that the economy is showing signs of cooling. At one point, the gold market was just $25 shy of its key $1,900 per ounce level on Friday, with the February Comex gold last at $1,873.40, for a weekly gain of 2.40%. The macroeconomic indicator that most impacted precious metals was the December U.S. job growth rate modestly slowing. Wage pressures coming down was the principal indicator that the economy was cooling and the significant driver for the strength in gold prices. The indicator was below the  market’s expectation of 5% and dovetailed November’s downwardly revised 4.8% gain.

Week-on-week, precious metals spot prices were generally up. Gold came from the previous week’s price of $1,824.02 and ended this week at $1,865.69 per troy ounce for a gain of 28%. Silver suffered a slight loss of 0.50% as it made its way from the previous week’s close at $23.95 to this week’s close at $23.83 per troy ounce. Platinum gained 1.87% from its start at $1,074.29 to this week’s closing price of $1,094.33 per troy ounce. Palladium made its way from its week-ago price of $1,792.68 to this week’s closing price of $1,811.93 per troy ounce, gaining 1.07%. The three-month LME prices of base metals were also mostly up. Copper came from $8,418.00 to end this week at $8,589.50 per metric tonne, gaining 2.04%. Zinc gained 1.31% from its week-ago close at $2,984.50 to this week’s close at $3,023.50 per metric tonne. Aluminum lost 4.55% from the previous week’s price of $2,405.00 to this week’s price of $2,295.50 per metric tonne. Tin, which closed one week ago at $24,915.00, ended this week at $25,270.00 per metric tonne for a gain of 1.42%.

Energy and Oil

Oil prices are losing ground, and are projected for a 7% week-on-week decline on the back of fears of a recession in the U.S. and a problematic economic reopening in China due to rising coronavirus cases. Some of the downward pressure appears to have been offset by lower gasoline and distillate stocks in the U.S. brought about most likely by the recent bomb cyclone. These latest developments have not, however, been strong enough to push Brent prices back to levels above $80 per barrel. In the meantime, OPEC production has swelled as Nigerian oil production rebounded to lift OPEC’s collective oil output in December. The group added 120,000 barrels per day from levels in November, chalking up 29 million barrels per day which is still 800,000 barrels per day below its production quota.

Natural Gas

Tokyo Gas, Japan’s largest gas company, is reportedly at the end of negotiations for the $4.6 billion purchase of Rockcliff Energy, a U.S. natural gas producer. The deal includes debt, boosting its portfolio with 1 billion standard cubic feet (Bcf) of gas per day of production in the Haynesville shale play. In another part of the world, pipeline gas exports of Gazprom, Russia’s gas major, to the European continent decreased by more than 50% last year. Russia’s gas export to Europe totaled just 86.9 billion cubic meters (bcm). Future deliveries are expected to remain subdued in light of the Nord Stream explosions.  

World Markets

European shares rallied on reports that the pace of inflation has slowed. The cost of natural gas has also receded to levels last seen before the Russian invasion of Ukraine. The pan-European STOXX Europe 600 Index closed the week higher by 4.6% week-on-week. Major stock indexes in the region also acquired significant gains. Italy’s FTSE MIB Index soared by 6.22%, France’s CAC 40 Index advanced by 5.98%, and Germany’s DAX Index climbed by 4.93%. The UK’s FTSE 100 gained 3.32%. Eurozone inflation descended below 10% for the first time in two months on the back of a decline in energy price increases. In December, consumer prices rose 9.2% year-over-year, which is below a FactSet consensus estimate of 9.7%. Nevertheless, core inflation (excluding volatile food, energy, alcohol, and tobacco prices) increased to 5.2% from only 5.0% in November.

Japanese stock returns turned southward for the week as the Nikkei Index slid by 0.46% and the broader TOPIX Index descended by 0.84%. Investors are worried about the global monetary policy tightening cycle and how this could lead to a recession. Sentiments were weighed down by the future trajectory of the Bank of Japan’s (BoJ’s) monetary policy, considering the surprise modification to its yield curve control announced in late December. Japanese authorities, meanwhile, continued to emphasize the importance of wage growth coming through, as Prime Minister Fumio Kishida urged companies to increase employees’ pay above the rate of inflation. Nominal wage growth in November was well below consensus expectations, drawing attention to the risks associated with inflation outpacing wage growth. This included the erosion of households’ purchasing power in an environment of low economic growth. Pay raises comprise a key pillar of the government’s “New Capitalism” agenda aimed at better distributing the fruits of economic growth.

Chinese stocks rallied amid reports that Hong Kong’s borders will reopen to the mainland and that Beijing was contemplating relaxing curbs on borrowing for the troubled property sector. The Shanghai Composite Index gained 2.21% while the blue-chip CSI 300 advanced by 2.82%, the highest index gains in weeks. Further support for property developers pushed investor sentiment after news emerged that Beijing may ease its stringent “three red lines” policy. Allegedly, the rule featured prominently in the government’s crackdown on the real estate sector in 2020. The policy included a series of debt thresholds that aimed at curbing leverage among developers intent on increasing borrowing. To boost demand, China is also considering a nationwide cap between 2.0% and 2.5% on real estate commissions. In a separate move, the People’s Bank of China announced that, if new home prices fall for three consecutive months, first-time homebuyers will be offered lower mortgage rates. To underscore its focus on prioritizing economic growth, the government has stepped up calls to expand fiscal spending while softening its policy stance for various industries, including internet platforms and coal imports.

The Week Ahead

Among the important economic data expected to be released this week are the CPI, hourly earnings growth, and initial and continuing jobless claims.

Key Topics to Watch

• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• Atlanta Fed President Raphael Bostic speaks
• Consumer credit
• NFIB small-business index
• Fed Chair Jerome Powell speaks to Sweden
• Wholesale inventories (revision)
• Philadelphia Fed President Patrick Harker speaks
• St Louis Fed President James Bullard speaks
• Consumer price index
• Core CPI
• CPI (year-over-year)
• Core CPI (year-over-year)
• CPI excluding shelter (3-month SAAR)
• Initial jobless claims
• Continuing jobless claims
• Federal budget
• Import price index
• UMich consumer sentiment index (early)
• UMich 1-year consumer inflation expectations
• UMich 5-year consumer inflation expectations

Markets Index Wrap Up

Stock Markets

Stocks closed the year down on thin trading volumes ahead of the long New Year’s holiday weekend. The Dow Jones Industrial Average (DJIA) is down for the week by 0.17%, while the total stock market index lost 0.09%. The S&P 500 Index slid by 0.14% while the Nasdaq Stock Market Composite fell by 0.30%. The NYSE Composite Index lost 0.03% of its value. CBOE Volatility rose by 3.83%, indicating that investors perceive greater risk during the week’s trading. The S&P 500 Index remained above its intraday low seen the week before. Underperforming the most were consumer staples and materials shares. Thanks in large part to the strength of Target and several other retailers, consumer discretionary shares were resilient. Shares of Southwest Airlines plummeted when trading opened on Tuesday due to a highly publicized wave of flight cancellations. However, the airline recovered some ground for the remainder of the week. Bond trading closed early on Friday ahead of the holidays, and both equity and bond markets are scheduled to be closed on Monday in observance of New Year’s Day.

U.S. Economy

There were few economic reports released during the week to provide much impetus for strong market movement. As expected, many investors remained sidelined as a prudent move before the start of 2023. Investors and analysts are keeping a close watch on the global impact of China’s relaxation of COVID containment rules even as the data shows that concerns of rising infection rates might usher back loosened pandemic restrictions.

Despite the relatively little data that came out during the week, these were suggestive of improving economic conditions. The Richmond Fed’s index of manufacturing activity in the Mid-Atlantic region recorded its first positive reading in eight months, which indeed ushered in the good news. Wages continued to increase at a solid pace in December. Supply chains also eased, suggesting lower prices paid and received, suggesting that inflation expectations for the coming year may be much lower than current price trends. Weekly jobless claims increased from 215,000 to 225,000, which is still in line with expectations and below their mid-November peak of 241,000.  

Metals and Mining

Gold and silver prices remain largely unchanged in quiet early U.S. trading this week. A possible explanation for the light volumes and thin conditions is that many traders are already on holiday during the week. For the year, the gold market had a solid end to 2022 and its momentum in the fourth quarter should continue into 2023. Analysts see gold prices pushing above $1,900 per ounce next year, with the positive outlook encouraging some firms which had been building a bullish position starting November this year. The Federal Reserve’s monetary policy is expected to peak while persistently high inflation and global economic uncertainty may incentivize support for safe-haven assets such as gold through the new year. There may likewise be increased physical demand driven by central bank purchases.

This past week, spot prices for precious metals climbed to end the week marginally up. Gold rose by 1.44%, from the week-ago close at $1,798.20 to this week’s price at $1,824.02 per troy ounce. Silver came from its previous price of $23.73 to this week’s price of $23.95 per troy ounce for an increase of 0.93%.  Platinum ended this week at $1,074.29 per troy ounce, which is 4.60% above the previous week’s price of $1,027.01. Palladium closed one week ago at $1,754.28 and this week at $1,792.68 for a price increment of 2.19%. The three-month LME prices of base metals were also slightly up for the week. Copper ended the week at $8,418.00 per metric tonne,             0.82% higher than its closing price the previous week at $8,349.50. Zinc went from last week’s price of $2,965.00 to this week’s close at $2,984.50 per metric tonne, up by 0.66%. Aluminum ended this week at $2,405.00 per metric tonne, up by 0.65% from the previous week’s price of $2,389.50. Tin, which closed the week before at $23,934.00, ended this past week at $24,915.00 per metric tonne for a gain of 4.10%.

Energy and Oil

A large number of gas-producing basins have reduced production by as much as 30% due to periods of extremely cold weather. Top among them was the Appalachian Basin, which will likely take several weeks to rebound to pre-freeze levels. Given that U.S. production seasonally dips in the new year, the worst-case scenario is that it may take months before production recovery returns to normal levels. On a more positive note, refiners on the U.S. Gulf Coast may resume operation at a dozen facilities where production was halted due to the recent freeze. This involves a total operable capacity of 3.6 million barrels per day, with Deer Park and Port Arthur taking at least one to two weeks before they fully return.

Natural Gas

U.S. LNG developer NextDecade announced that it will increase the volume of liquefied natural gas provided under a term agreement with China’s ENN Natural Gas, from 0.5 million tons per annum (mtpa) to 2 mtpa, to be sourced from the upcoming RGLNG Project. In other news, the U.S. LNG company Excelerate Energy has delivered Finland’s first-ever floating storage and regasification unit (FSRU) Exemplar, rated at 5 billion cubic meters (bcm) per year capacity. It was delivered to the port of, Inkoo, one of the 19 new FSRU projects to be commissioned over the next few years in Europe.

World Markets

Equities pulled back in European stock markets, not surprisingly during a week of thin trading ahead of the New Year’s holiday weekend. The pan-European STOXX Europe 600 Index slid by 0.60% over the five trading days ending on December 30. France’s CAC 40 Index lost by 0.48% while Italy’s FTSE MIB Index dipped by 0.71%. Germany’s DAX Index came down modestly. The UK’s FTSE 100 Index declined by 0.28%. Members of the European Central Bank’s (ECB) Governing Council expressed sentiments that there may be additional monetary policy tightening in the next five policy meetings. There was a possibility of continued half-percentage point increases in response to further inflation rate increases. Any recession was expected to be short and shallow, as the recent economic data of some eurozone countries like Germany were already showing signs that the worst was already behind them.

Japanese equities were positive at the start of the final trading week for the year, recording early gains despite thin trading volumes. By Thursday, the Nikkei 225 fell to three-month lows only to claw back some of its lost ground on Friday. The index ended down by 0.54% for the week and also down by 9.37% for the year. This is the Nikkei’s first annual loss in four years. In currencies, the yen rebounded in late-week trading after the Bank of Japan (BoJ) announced a series of unscheduled bond purchases. The markets found some encouragement in signs that the U.S. inflation rate may be coming down, as well as from comments from BoJ Governor Haruhiko Kuroda that the central bank does not intend to change its customary easy monetary policy stance. Additional optimism came from China’s announcement that it would drop quarantine requirements for international arrivals starting January 8, which is seen as a first step towards reopening its borders.

China’s stock market rose in response to Beijing’s continued easing of coronavirus pandemic restrictions, despite a surge in cases. The Shanghai Composite Index climbed by 1.42% and the blue-chip CSI 300 gained 1.13%, seen as a reversal of several weeks of losses. In Hong Kong, the benchmark Hang Seng Index ascended by 1.61%. Regarding the country’s coronavirus status, the National Health Commission (NHC), the country’s health regulator, downgraded the management of the pandemic response from the highest to the second-highest level starting January 8, 2023. The focus will remain on vaccinating the elderly, ensuring medical supply availability, and tiered medical treatment. Almost all standard restrictions, however, will be lifted, according to a statement b the NHC over state-run media. In other news, economic activity picked up across several cities in China where COVID-19 virus cases have shown signs of peaking. Reports showed that traffic congestion, movie sales, and air travel have increased in some areas.

The Week Ahead

Among the important economic news expected to be released in the coming week are job openings, jobless claims, trade deficit, and construction spending.

Key Topics to Watch

•  S&P U.S. manufacturing PMI (final)
• Construction spending
• ISM manufacturing index
• Job openings
• Quits
• FOMC minutes
• Motor vehicle sales (SAAR)
• ADP employment report
• Initial jobless claims
• Continuing jobless claims
• Trade deficit
• S&P U.S. services PMI (final)
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor force participation rate, ages 25-54
• ISM services index
• Factory orders
• Core equipment orders

Markets Index Wrap Up

Stock Markets

Trading during the week was light ahead of the Christmas weekend and typically light holiday season market activity before the New Year. The major indexes were mixed, with the Dow Jones Industrial Average chalking up a 0.86% gain and the total stock market down by 0.26%. The Nasdaq Stock Market Composite dipped 1.94%, despite recording its best daily gain since November on Wednesday. The S&P 500 Index slid by 0.20% and the NYSE Composite rose by 1.13%. CBOE Volatility came down by 7.74%. Over the past week, hawkish comments from the Federal Reserve and other global central banks appear to weigh heavily on the markets. Jitters of an impending recession ran through the equities market after former New York Fed President William Dudley commented on Monday that optimistic markets could end in more aggressive central bank tightening.

As U.S. oil inventories came in well below consensus expectations, energy stocks outperformed other sectors. Underperforming all sectors were consumer discretionary shares, plummeting as a result of a steep decline in Tesla following that company’s announcement of increased price discounts. On Thursday, chipmaker Micron Technology reported falling global demand, triggering a sell-down of semiconductor stocks. Bond trading ended early on Friday. Next week’s trading week will be shortened as both the equity and bond markets will be closed on Monday in observance of the Christmas holiday.  

U.S. Economy

Positive economic growth signals during the week may have set off new fears of future interest rate hikes. On Thursday, the Commerce Department raised its third-quarter economic growth estimate from 2.9% to 3.2% due to increased revenues in healthcare spending and investment in equipment and intellectual property. Simultaneously, weekly jobless claims modestly fell while continuing claims recorded their first weekly drop since October. Personal incomes rose by 0.4% since October which is slightly above expectations. Spending, however, increased by only 0.1%, which is relatively flat when adjusted for inflation, indicating that Americans cut back on purchases of autos and other goods. The personal consumption expenditure (PCE) price index also inched up by 0.1% in November, for a year-over-year increase of 5.5%, the lowest since October 2021. This probably contributed to a Friday mid-morning rally in the markets. The 12-month rise in the core PCE index (excluding food and energy) fell to a four-month low of 4.7%. The core PCE index is considered the Fed’s preferred inflation gauge.

Housing data was mixed as existing home sales fell slightly less than expected in November, although new home sales rose 5.8% in contrast to consensus expectations of a roughly 4.7% drop. Forward-looking data were less encouraging, as building permits slumped to 10.6% and hit their lowest levels since June 2020. Durable goods orders came down by 2.1% in November, their biggest decline since April 2020. The reduction was, however, caused by an unexpected plunge in highly volatile aircraft orders. The Conference Board’s index of consumer confidence reversed two months of declines and registered 108.3, indicative of consumer resilience. The reading was much higher than expected and its best level since April. It was noted, however, that the expectations index remained around 80 which is typical of recession levels.

Metals and Mining

One week before the start of the new year, gold is down by just 1% year-to-date after a highly volatile year that saw gold prices rise higher than $2.000 per ounce in the spring and touch lows slightly above $1,630 per ounce in the fall. February Comex gold futures closed Friday at approximately $1,809 per ounce, an increase of 0.5% on the week. Gold may have established a robust price bottom in 2022 at the $1,800 level, and looks primed to be a top performer in 2023 when it could move to challenge or exceed $2,000.

This week, gold closed at $1,798.20 per troy ounce, 0.29% higher than the week-ago price of $1,793.08. Silver, which was $23.22 one week ago, ended at $23.73 per troy ounce this week, for an increase of 2.20%. Platinum rose by 3.27% from its price last week of $994.53 to this week’s price of $1,027.01 per troy ounce. Palladium came from $1,720.75 to end this week at $1,754.28 per troy ounce for a gain of 1.95%. The three-month LME prices of the base metals ended sideways. Copper rose by 1.00% from the previous week’s price of $8,266.50 to this week’s price of $8,349.50 per metric tonne. Zinc began at $3,018.00 and closed at $2,965.00 per metric tonne for a loss of 1.76%.  Aluminum, which was priced at $2,375.00 one week ago, ended this week at $2,389.50 per metric tonne for a slight increase of 0.61%. Tin rose 1.70% from its week-ago price of $23,535.00 to this week’s close at $23,934.00 per metric tonne.

Energy and Oil

Oil prices pushed higher this week due to a supportive weekly report from the Energy Information Administration (EIA) and worries about the big freeze likely to force production shut-ins. News of better-than-expected third-quarter economic performance in the U.S. has, however, raised prospects of further monetary policy tightening through interest rate hikes. Concerns about a possible economic slowdown weighed on oil prices, both the WTI and Brent rallied on Friday morning with the return of more bullish sentiment before the Christmas holidays.

Natural Gas

For the report week starting Wednesday, December 14, and ending Wednesday, December 21, 2022, the Henry Hub spot price fell by $0.46 from $6.60 per million British thermal units (MMBtu) at the start of the week to $6.14/MMBtu at the end of the week. The price of the January 2023 New York Mercantile Exchange (NYMEX) contract decreased by $1.098, from $6.430/MMBtu at the beginning of the week to $5.332/MMBtu at the week’s end. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts declined $0.618 to $4.872/MMBtu. International natural gas futures price movements were mixed for the report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.96 to a weekly average of $34.42/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $7.47 to a weekly average of $34.99/MMBtu.

World Markets

European share prices rose amid signs of slowing inflation and more positive consumer confidence. The pan-European STOXX Europe 600 Index closed higher by 0.64%, together with major European indexes. France’s CAC 40 Index rose by 0.81%, Italy’s FTSE MIB Index gained 0.80%, and Germany’s DAX Index ticked up by 0.34%. The UK’s FTSE 100 Index ascended by 1.92%, partly supported by the depreciation of the British pound against the U.S. dollar. Weakness in the pound provides some strength to equities since many of the listed companies are multinationals that generate significant revenues overseas. Business and consumer confidence in Germany and Italy improved in December, In the U.K., the economy contracted more than initially estimated in the third quarter, for which September growth figures were revised lower.

In Japan, stock markets fell over the week. The Nikkei 225 Index came down by 4.69% while the broader TOPIX Index descended by 2.68%. The Bank of Japan (BoJ) announced that it would revise its policy of yield curve control (YCC), allowing 10-year Japanese government bond yields to rise as high as 0.50% which is double its previous implicit cap of 0.25%. The timing of this announcement was a surprise, as most market participants had not expected a shift in the BoJ’s YCC until next year. In light of this move, the JGB yield ended the week at approximately 0.40%, sharply up from 0.25% one week earlier. The policy adjustment by the BoJ impacted currencies, with the yen strengthening to JPY 132.55 against the U.S. dollar, from the previous week’s exchange rate of JPY 136.71 to the greenback.

In China, the coronavirus once again reared its head as new cases weighed on the country’s growth forecasts. The Shanghai Composite Index plummeted by 3.85% while the blue-chip CSI 300 sank by 3.19%. In Hong Kong, the benchmark Hang Seng Index inched up by 0.7%. The resurgence of COVID-19 and China’s ongoing property market slump prompted the World Bank to cut its China economic growth forecast for this year and the next, The Bank projected China’s economy to grow by 2.7% this year and 4.3% next year, compared to its previous forecast of 2.8% and 4.5% for 2022 and 2023 respectively. The World Bank released its report China: Domestic and External Conditions are Leading to a Weakened Economic Outlook dated December 20, 2022. In it, the Bank noted that China’s economy remains “subject to significant risks, stemming from the uncertain trajectory of the pandemic, of how policies evolve in response to the COVID-19 situation and the behavioral responses of households and businesses.”

The Week Ahead

Economic reports scheduled in the coming week include the home price index and jobless claims.

Key Topics to Watch

• Trade in goods, advance report
• S&P Case-Shiller U.S. home price index (SAAR)
• FHFA U.S. home price index (SAAR)
• Pending home sales index
• Initial jobless claims
• Continuing jobless claims
• Chicago PMI

Markets Index Wrap Up

Stock Markets

In the week just concluded, equities fell by more than 2.0% as market sentiment went southward in reaction to a more hawkish Federal Reserve meeting and weakening retail-sales data, despite higher than consensus November CPI inflation data. The Dow Jones Industrial Average (DJIA) dipped by 1.66% as the total stock market index fell by 2.04%. The broader S&P 500 declined by 2.08% while the Nasdaq Stock Market underperformed even more with a 2.72% loss and the NYSE Composite slid by 1.78%. CBOE Volatility came down slightly by 0.92%. As inflation comes under control, the economy is likely to soften in the months ahead and may require less restrictive policy. This tends to create a more volatile market in the near term on its way to greater stability in the long term.

In the meantime, fears intensified over the unexpectedly higher interest rates imposed by the Fed. This pushed the S&P 500 lower for the second straight week, returning it to the levels it had last visited about six weeks ago. Almost all sectors in this index registered sharp dives, except for energy shares which were sustained by a partial increase in oil prices. Additional volatility was sparked by the expiration of approximately $4 trillion in options contracts on Friday. Trading in exchange-traded funds (EFTs) approached record levels by midweek, suggesting that investors were moving in and out of stocks in general in reaction to broader economic signals.

U.S. Economy

The release of data regarding the Consumer Price Index on Tuesday indicated that headline inflation increased only by 0.1% from October to November, resulting in a year-on-year gain of 7,1%. This remains well above the long-term Fed inflation target of 2%, but optimistically, it is the lowest level since December 2021. Core inflation, which excludes food and energy, rose 0.2%, slightly below consensus expectations. This was largely driven by housing costs which are already showing signs of cooling. In 2023, policymakers expect the federal funds rate to expand to about 5%.

The 50-basis-point increase announced by the Fed this week fell in line with expectations, which should be a positive development given that the four previous meetings set 75-basis-point increases. Fed Chair Jerome Powell rattled the markets with his announcement that further aggressive rate hikes are expected. Thursday’s data on retail sales dropped 0.6% in November, contrary to the small increase expected by analysts in the post-Thanksgiving Black Friday and Cyber Monday sales season. Sales in the preceding two months were also revised downward.

Also, this past week, the Bank of England (BoE) and the European Central Bank (ECB) raised their policy rates by 0.50%. This brought the BoE’s and ECB’S target rates to 3.5% and 2.0% respectively. These central banks, like the Fed, announced that further rate hikes are likely into the New Year since inflation rates remain well above their targets. Some analysts see the global economy falling into a downturn in the first semester of 2023, with Europe likely to enter into a deeper recession that the U.S. due to its exposure to oil and energy markets and continuing decline in consumer confidence. Against this scenario, the global central banks may likely halt their rate-hiking policies, possibly by the end of the first quarter. The pause in rate increases may be taken to alleviate the pressure on the economy and determine whether inflation will continue to further slow down.

Metals and Mining

The precious metals prices continue to remain steady with gold holding on to the $1,800 per ounce support level. It appears that the gold market is taking the Fed’s hawkish stand in stride even as equities corrected sharply on the central bank’s signal that the key interest rate will peak at above 5% in 2023. There are a few reasons why gold is showing relative resiliency in light of the Fed’s announcement. One possibility is that investors are growing less worried about inflation and shifting their concern to a possible recession. A slowing U.S. economy is suggested by the disappointing holiday retail sales data announced this week. Another likelihood is that although the Fed continues in its restrictive policy, much of this information is already discounted in the current gold prices. The U.S. dollar also appears to have peaked as the Fed begins to slow the pace of its rate hikes.

Gold moved slightly downward by 0.24%, from the previous week’s price at $1,797.32 to this past week’s close at $1,793.08 per troy ounce. Silver followed suit with a correction by 1.07%, sliding from the week-ago price of $23.47 to this week’s close at $23.22 per troy ounce. Platinum began at $1,027.58 at the end of the week earlier and decreased to $994.53 per troy ounce this week for a loss of 3.22%. Palladium, which closed at $1,956.76 a week ago, ended at $1,720.75 per troy ounce this week, descending by 12.06%. The three-month LME prices for base metals also lost some ground. Copper closed at $8,266.50 per metric tonne this week, down by 3.24% from the previous week’s price of $8,266.50. Zinc, which formerly was priced at $3,240.50, lost 6.87% of its value week-on-week to end at $3,018.00 per metric tonne. Aluminum ended this week at $2,375.00 per metric tonne, down by 4.25% from the week-ago price of $2,480.50. Tin began at $24,290.00 and ended this week at $23,535.00 per metric tonne, down by 3.11%.

Energy and Oil

The price of oil has experienced its much-awaited rebound from its crash the week before, however, the downside pressures remain very much active. The BoE and the ECB hiked interest rates on Thursday, halting the upward momentum of oil prices that had been accumulating. Some hope to bulls may be provided by the ongoing halt in Keystone deliveries as it has created a tightness in the oil supply to the continent that has had a relatively secure year up to now. The traditional 2022 volatility may be expected in light of the uncertainty remaining to hover over China’s post-Covid reopening for the rest of the year. In the meantime, the International Energy Agency forecasts that next year will see further growth in oil demand by 1.7 million barrels per day. The push will be driven by China as it rebounds from this year’s contraction, adding 1 million barrels per day and reaching a new all-time high of 101.6 million barrels per day.

Natural Gas

For the report week spanning Wednesday, December 7, to Wednesday, December 14, 2022, the Henry Hub spot price rose by $2.07 from $4.53 per million British thermal units (MMBtu) to $6.60/MMBtu. The price of the January 2023 NYMEX contract rose by $0.707, from $5.723/MMBtu last Wednesday to $6.430/MMBtu week-on-week. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts, rising $0.458 to $5.490/MMBtu. International natural gas futures price movements were mixed. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.48 to a weekly average of $33.46/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $0.50 to a weekly average of $42.46/MMBtu.

World Markets

European shares plunged after central banks in the region signaled that interest rates would need to be further raised and for longer periods than the markets previously expected. The pan-European STOXX Europe 600 Index closed the week 3.28% lower than the week previously in local currency terms. Major stock indexes mirrored this trend, with Germany’s DAX Index sliding 3.32%, France’s CAC 40 Index dropping 3.37%, and Italy’s FTSE MIB Index slipping 2.43% for the week. The UK’s FTSE 100 Index lost 1.93%. The ECB raised its key interest rate by 50 basis points to 2.0%. The increase was better than the 75-basis point hike in two previous rate increases. Nevertheless, ECB President Christine Lagarde said that the rate “will still rise significantly at a steady pace to reach levels that are sufficiently restrictive” for inflation to be reined in to reach the central bank’s target of 2%. Furthermore, the ECB indicated that it planned to shrink, by an average of EUR 15 billion per month, the portfolio accumulated as part of its Asset Purchase Programme. This will begin next March and run through the end of the second quarter of 2023.

Japan’s equities market lost ground over the week. The Nikkei 225 Index declined by 1.34% while the broader TOPIX Index declined by 0.58%. Investors lost their appetite for risk as a result of the Fed adopting a more hawkish stance on their monetary policy than was expected. There were concerns that continued monetary tightening by the major central banks could nudge the economy into a recession. The government finalized its tax revision package; meanwhile, the latest PMI data highlighted the divergence between a shrinking manufacturing sector and an expanding services sector. The yield on the 10-year Japanese government bond (JGB) generally remained unchanged week-on-week at 0.25%. It remains at the level at which the Bank of Japan (BoJ) implicitly caps JBG yields, in response to ongoing speculation that the BoJ may abandon its policy of yield curve control by early 2023. At its December 19-20 meeting, the central bank is widely expected to leave its monetary policy setting unchanged. The yen weakened to approximately JPY 137.1 against the greenback, from around JPY 136.5 per U.S. dollar the week before. The currency has come under pressure from the Fed’s restrictive policies.

As with their European and Japanese counterparts, Chinese stocks succumbed to selling pressure as weaker-than-expected economic data weighed on investor sentiment. The Shanghai Composite Index descended by 1.22% and the blue-chip CSI 300 Index dipped by 1.1%, reversing several weeks of gains. Investors got their cue from remarks made by Vice President Liu He indicating that Beijing is considering new measures to support the real estate industry, thus lifting property stocks. However, a trio of key economic indicators came in weaker than expected for November, weighed down by pandemic-related disruptions. Industrial production rose by 2.2% year-on-year in November, the softest growth since May. Retail sales declined by 5.0%, and fixed asset investment for the year through November likewise came short of forecasts. While China had recently begun to lift its more burdensome coronavirus restrictions, the country’s economic reopening is expected to be volatile. Recent reports described China’s economic activity as being depressed since the possibility of coronavirus cases spreading has discouraged the resumption of normal economic activity. Rising infections have left many businesses impacted by labor shortages.  

The Week Ahead

Scheduled for release in the coming week are the leading economic indicators and the core PCE deflator.

Key Topics to Watch

• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Current account deficit
• Consumer confidence index
• Existing home sales (SAAR)
• Initial jobless claims
• Continuing jobless claims
• Real gross domestic product revision (SAAR)
• Real gross domestic income revision (SAAR)
• Real final sales to domestic purchasers (SAAR)
• Chicago Fed national activity index
• Index of leading economic indicators
• PCE price index
• Core PCE price index
• PCE price index (year-on-year)
• Core PCE price index (year-on-year)
• Real disposable income (SAAR)
• Real consumer spending (SAAR)
• Durable goods orders
• Core capital equipment orders
• UMich consumer sentiment index (late)
• UMich 5-year inflation expectations (late)
• New home sales (SAAR)

Markets Index Wrap Up

Stock Markets

In the week just ended, stocks fell for all major indexes, halting the rally that began in mid-October. Ironically, the current pessimism hinges on the perception of coming economic weakness driven by evidence of ongoing economic strength in the economy itself. These data consist of elevated wage gains, robust job growth, and resilient consumer spending trends, all leading to the likelihood that the Federal Reserve’s attempts to control inflation are not likely to slow down. The economy will likely decline as collateral damage from continuing aggressive rate hikes. The Dow Jones Industrial Average (DJIA) lost 2.77% and the Dow Jones Total Stock Market Index fell by 3,60%. The S&P 500 Index descended 3.37%, while the Nasdaq Stock Market Composite declined 3.99%, and the NYSE Composite fell by 3.02%. The CBOE Volatility Index ascended by 19.78%, suggesting that investors see greater risk in the stock market.

Not everything is bleak in the future of equities. The markets have rallied impressively in the past weeks as stocks rose approximately 11% since October. Bonds have likewise rebounded as interest rates fell significantly from their peak two months ago. The negative prognosis about the economy notwithstanding, the gains in both stocks and bonds are most welcome and provide opportunities for gains even in a pessimistic market. While the declines may be the function of technical factors, it is some concern that the S&P 500 Index recorded its worst return in five weeks even as the small-cap Russell 2000 Index suffered its worst week since late September. The decline in the S&P 500 is a breakdown of its 200-day moving average following the rally. Within this market, the sectors that performed best were health care, consumer staples, and utilities which comprise the defensive stocks. Energy shares sharply fell due to international oil prices descending to their lowest levels since January. Communication services stocks also underperformed due to weakness in Google’s parent Alphabet. Financial shares dropped as a result of negative outlooks offered by several bank executives.

U.S. Economy

The Institute for Supply Management’s (ISM’s) index of services sector activity, which was expected to slightly decrease, defied expectations and rose to 56.5, close to its highs over the past several months. This is a positive indication because readings over 50 suggest expansion in the activity of the services sector. The ISM observed that there is a particular rise in business activity, particularly in real estate and food services and accommodation.

On Friday, the producer price inflation (PPI) data were released, providing a modest surprise on the positive side. The PPI figures rose 7.4% year-over-year, an improvement over consensus expectations of approximately 7.2%, causing stock futures to plunge sharply. The details of the report appear to broadly confirm a continued deceleration in trend inflation, particularly for consumer goods. On the same day as the release of the PPI report, the University of Michigan published its preliminary survey of consumer sentiment for December. The survey results added to the implications from hard data that there is general stability in the near-term outlook for the U.S. consumer. Long-term inflation expectations are unchanged at 3%, which is at the higher end of the historical range for this data, however, short-term inflation expectations had descended further.

The yield on the benchmark 10-year U.S. Treasury note reached close to the three-month intraday low on Wednesday. It closed higher at the end of the week, driven by the PPI data and news that China is easing its strict pandemic restrictions. The strong surge in yields was tempered by the weaker-than-expected unit labor cost data and comments by Russian President Vladimir Putin regarding the mounting risks of nuclear engagement.

Metals and Mining

Some follow-through buying in the gold market is materializing after November’s massive rally. Gold prices end the week close to their four-month high above $1,800 per ounce. While it is not entirely clear of risks, many investors and analysts are considering gold to now be a “buy the dip” asset. It is a marked change from the summer sentiment of gold being a “sell the rally” asset. The short squeeze in November was followed by gains in December, suggesting that gold prices are now in neutral territory for the year with a slight 1% loss. This compares favorably against the S&P 500 which is charting a year-to-date loss of 17%. Most gold investors still consider 2022 a disappointing year, because even in light of the significant rise in inflation, the performance of gold was lackluster. Although gold is an inflation hedge, the headwinds of a strong U.S. dollar overcame the inflation effect as the Federal Reserve was compelled to raise interest rates at the fastest pace in more than four decades. This fact notwithstanding, gold has performed its role as a portfolio diversifier.

Gold moved sideways for the week, beginning at $1,797.63 and ending hardly changed at $1,797.32 per troy ounce (a slide of 0.02%). The same is true with silver which moved up by 1.43% from $23.14 to $23.47 per troy ounce. Platinum, which ended the previous week at $1,019.11, closed trading this week at $1,027.58 per troy ounce, a modest rise of 0.83%. Palladium ended the week before at $1,901.40 and this past week at $1,956.76 per troy ounce, up by 2.91%. The three-month LME prices of base metals ended mostly up. Copper, which was $8,336.00 the week before, closed at $8,543.00 per metric tonne this week for a slight increase of 2.48%. Zinc rose by 5.23% from the week-before close at $3,079.50 to this week’s ending price of $3,240.50 per troy ounce. Aluminum began at $2,485.00 and ended this week at $2,480.50 per metric tonne, sliding 0.18% for the week. Tin, which closed at $23,331.00 one week before but ended this week at $24,290.00 per metric tonne, inched up by 4.11% for the week.

Energy and Oil

The news for the week provided reasons to expect an uptick in oil prices, but due to thin liquidity, the surge did not materialize. The easing of coronavirus restrictions in China should have hinted at a strong economic recovery that will increase demand, and a U.S. oil spill halting pipeline deliveries from Canada would have added to concerns of constricting supply. Additionally, there is a massive queue of tankers that is unable to pass the Turkish Straits, halting deliveries in some areas.  A protracted disagreement between Turkish authorities and maritime insurance providers had cast a shadow over the launch of the Russian oil price cap this week, and almost two dozen tankers were stalled on their southbound voyage out of the Black Sea for not having the required P&I insurance documents. Oil prices will likely be unable to close the year on a renewed growth trajectory. It is unlikely that investors who realized profits over the year will risk taking a position in this uncertain environment. Brent may be stalled at $75 to $78 per barrel for longer than expected.

Natural Gas

For the report week beginning Wednesday, November 30, and ending Wednesday, December 7, 2022, the Henry Hub spot price dropped by $2.27, from $6.80 per million British thermal units (MMBtu) at the start of the week to $4.53/MMBtu by the week’s end. The price of the January 2023 NYMEX contract descended by $1.207, from $6.930/MMBtu to $5.723/MMBtu week-on-week. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts slid by $0.677 to $5.032/MMBtu. Also, this report week, international natural gas futures prices increased. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia climbed by $1.97 to a weekly average of $32.98/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $2.94 to a weekly average of $42.95/MMBtu.

World Markets

Renewed fears of a recession sent European shares southward as central banks further tightened monetary policy to bring inflation under control. The pan-European STOXX Europe 600 Index closed the week 0.94% down in local currency terms. The trend was replicated by major indexes in the region. Italy’s FTSE MIB Index dropped by 1.40%, Germany’s DAX Index descended by 1.09%, and France’s CAC 40 Index dipped by 0.96%. UK’s FTSE 100 Index slid by 1.05% for the week. Economic data revised growth in the eurozone economy to 0.3% from 0.2% sequentially in the third quarter, boosted by increases in household spending and business investment.

In Japan, modest positive returns over the week were realized by the country’s stock markets. The Nikkei 225 Index rose 0.44% and the broader TOPIX Index increased by 0.39%. To some extent, investor sentiment was impacted by economic data showing that the Japanese economy contracted less than first estimated in the third quarter of 2022. Market gains were capped, however, by uncertainty about the trajectory of U.S. monetary policy. the yield on the 10-year Japanese government bond (JGB) closed the week unchanged at 0.25%, although it touched 0.26% briefly due to speculation that the Bank of Japan (BoJ) may abolish its JBG yield cap as soon as next year. The yen slid from JPY 134.3 to about JPY 136.2 against the U.S. dollar week-on-week, due to the continued divergence in the monetary policies of the U.S. Federal Reserve and the BoJ. The Fed is widely expected to continue increasing interest rates while the BoJ has consistently affirmed that it will continue with its ultra-loose policy position.

Chinese equities climbed on the back of Beijing’s rapid easing of coronavirus pandemic restrictions, in turn bolstering investor sentiment despite expectations that infections will rise in the coming months. The Shanghai Composite gained 1.6% and the blue-chip CSI 300 Index ascended 3.3% in its biggest weekly gain since early November. Chinese officials released a 10-point guideline for their new COVID prevention and control measures. These included a vaccination program for the elderly, home quarantine for people with mild symptoms, and reducing mass testing requirements in many cities. In high-risk areas, if no new cases appeared for five consecutive days, lockdowns will be lifted. Analysts and investors remain cautious, however, that China’s quick shift from zero-COVID policies might increase business uncertainty and hamper the economy further if infections and deaths begin to increase.

The Week Ahead

The CPI index, retail sales growth, and jobless claims are among the important economic data scheduled for release this week.

Key Topics to Watch

• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• Federal budget (compared with Nov. 2021)
• NFIB small-business index
• Consumer price index
• Core CPI
• CPI (year-on-year)
• Core CPI (year-on-year)
• CPI excluding shelter (3-month rolling annualized rate)
• Import price index
• Federal funds rate announcement
• SEP median federal funds rate for end of 2023
• Fed Chair Jerome Powell news conference
• Initial jobless claims
• Continuing jobless claims
• Retail sales
• Retail sales excluding motor vehicles
• Empire state manufacturing index
• Philadelphia Fed manufacturing index
• Industrial production index
• Capacity utilization rate
• Business inventories
• S&P U.S. manufacturing PMI (flash)
• S&P U.S. services PMI (flash)

Markets Index Wrap Up