Stock Markets

U.S. stock markets are now down for the seventh consecutive week. On Wednesday, equities saw the biggest one-day decline in the history of the S&P 500 index since June 2020. The S&P 500 fell 20.9% from its intraday high last January. Thereby exceeded the technical 20% pullback indicative of a bear market, but barely recovered to close the week down approximately 18% year-to-date. Despite the sell-down, trading was remarkably subdued with volumes more than 10% below recent 20-day averages as well as below every day of the preceding week. The cause for the continued downward pressure was disappointing earnings and revenue results from many of the country’s major retailers which contributed to the broader market pessimism. Most notable was the 25% loss in Target shares after the announcement that the company’s earnings missed estimates by almost a third. The company attributed its underperformance to a combination of reduced sales of discretionary items such as televisions, and higher costs. Also falling short of expectations were earnings results from Lowe’s, Walmart, and Home Depot. Costco shares also suffered a sell-off partly due to rumors that it was increasing the price of its popular café hot dog. Investors also appeared to be concerned that major retailers may be compelled to pass on to their consumers more of their higher input costs in the coming months, maintaining inflation at elevated levels.

U.S. Economy

Although the markets appear to have priced in about a 75% chance that a recession will take place, this does not appear to be a base-case scenario over the next 12 months. Solid economic fundamentals continue to underlie this economy, particularly healthy consumer appetite, a tight labor market with low unemployment, rising wages, and continued corporate earnings growth although the latter will likely remain in the mid-single digits. April retail sales figures released during the past week exceeded expectations, together with industrial production that also expanded at a monthly rate of 1.1%, well above the forecasted 0.4%.

Analysts point to the likelihood that the current pullback is a non-recessionary market correction. Recovery may take some time, however, because of the continuing elevated inflation and increasingly restrictive policies being adopted by the Federal Reserve. On Wednesday, Fed Chair Jerome Powell remarked in an interview that policy formulators will not hesitate to raise rates as much as necessary due to the “unconditional need” to tame inflation, even if it may be viewed as painful by some market players.

Economic data released this past week provided mixed signals concerning an imminent recession, On Tuesday, investors viewed with optimism the news that retail sales, excluding auto sales, rose more than expected in April (0.6% against 0,4%), and March’s gain was revised upward to 2.1%. Also surprisingly exceeding expectations are reports for industrial production, manufacturing production, and capacity utilization.

Metals and Mining

The Federal Reserve is walking a tightrope between ensuring economic growth and controlling inflation. Despite the nervousness among investors, the gold market continues to hold steady in a volatile market. Reports indicate that investors are fleeing equities, as may be seen in the deep dives of stock prices in the past week. In contrast, the gold market is maintaining a neutral stance for the year so far, making it the outperforming asset to date. Federal Reserve Chair Powell points to rocky weeks ahead as he expressed his commitment to bringing inflation down to the extent of adopting more aggressive measures such as increasing interest rates. In light of current developments, the strong U.S. dollar poses greater challenges for the gold market. This past week, however, the price of gold bounced below $1,800 per ounce, indicating that this level provides strong support for the precious metal and that it is again perceived by investors as a safe-haven asset.

Precious metals spot prices strengthened this week with modest gains. Gold prices moved from last week’s close of $1,811.79 to this week’s $1,846.50 per ounce, a gain of 1.92%. Silver, which previously ended at $21.11, landed at this week’s close of $21.78 per ounce, an increase of 3.17%.  Platinum also gained, this time by 1.15% from the previous week’s close of $946.30 to this week’s $957.17 per ounce. Palladium rose slightly by 0.96% from the preceding week’s $1,946.30 to the recent close at $1,964.92 per ounce. The 3-month base metal prices also followed precious metals. Copper moved from $9,159.00 to $9,422.00 per metric tonne, an increase of 2.87%. Zinc moved within the week from $3,489.50 to its close at $3,707.00 per metric tonne for a 6.23% appreciation. Aluminum went up from the preceding week’s $2,788.00 close to last week’s $2,946.00 per metric tonne for a 5.67% gain. Tin ascended by 3.88% from $33,370.00 the week before to the recent week’s close at $34,665.00 per metric tonne.

Energy and Oil

During the past weeks, India had been the strongest purchaser of Russian crude oil whose continued transactions gave the markets some reason to believe that Russia may comprehensively pivot towards Asia. This past week, however, China emerged as the country which may give Russia a stronger foothold in the Asian market. Beijing launched direct government-to-government talks concerning the purchase of discounted crude to replenish its strategic stocks. Despite the prospect of an impending Chinese reopening, this news added some downward pressure to oil prices as ICE Brent moved around $112 per barrel by Friday. Concurrently, the European Union launched its $220 billion plan to terminate its reliance on Russian fossil fuels by 2027. The plan calls for investing $120 billion in new renewable energy projects, $30 billion in power grids, and $59 billion in energy savings and heating pumps. In the meantime, the United Nations Secretary-General Antonio Guterres called for all governments to end fossil fuel subsidies, which have risen to $500 billion worldwide. The move was intended to exert pressure on polluting nations ahead of the COP27 climate conference in Egypt that is slated for November of this year.

Natural Gas

This report week, May 11 to May 18, natural gas spot prices rose at most locations. The Henry Hub spot price ascended to $8.45 per million British thermal units (MMBtu) from $7.51/MMBtu. This is the highest daily price since a winter storm accounts for the close to record-high spot prices last seen in February 2021. International spot prices were mixed as LNG cargoes in Asia fell by $0.11/MMBtu to an average of $23.51/MMBtu for the week. At the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, the day-ahead price rose by $0.10/MMBtu to average at $28.11/MMBtu for the week. By comparison, in the same week last year, the average prices in the TTF and in East Asia were $9.17/MMBtu and $9.48/MMBtu, respectively.

Along the Gulf Coast, prices rose as temperatures remained warmer than normal. Prices in the Midwest increased with the national average as temperatures also rose above normal. As temperature remained moderate, prices across the West followed major hub prices higher. In the Northeast, warmer temperatures moved into the region and cooling demand increased, nudging prices higher. The U.S. natural gas supply decreased slightly week over week, and U.S. natural gas demand fell as temperatures rose across many major metropolitan areas. This week from last week, U.S. LNG exports decreased by two vessels.

World Markets

Amid growing concerns of slowing economic growth and accelerated interest rate increases, shares in Europe pulled back for the week. The pan-European STOXX Europe 600 Index dipped 0.55% in local currency terms. France’s CAC 40 Index gave up 1.22% while Germany’s Xetra DAX slid 0.33%. Italy’s FTSE MIB Index bucked the trend and advance modestly. UK’s FTSE 100 Index absorbed a loss of 0.24%. Core eurozone government bond yields were volatile, ending roughly sideways. Several officials of the European Central Bank (ECB) made some hawkish pronouncements, such as the possibility of a 50-basis point interest rate hike in July, that caused yields to rise early in the week. Subsequently, yields pulled back in light of the weak retail earnings in the U.S. that intensified concerns of an economic slowdown. Peripheral eurozone yields broadly tracked core markets over the week and ended slightly higher. UK gilt yields ascended on the prospect of inflation reaching its highest level in four decades, better-than-expected employment data, and hawkish pronouncements from the Bank of England economist Huw Pill.

Japan’s stock market realized positive returns for the week. The Nikkei 225 Index gained 1.18% while the broader TOPIX Index rose 0.71%. Positive regional sentiment due to China’s action to support its property sector gave investors some buying motivation in the latest of a series of monetary easing measures intended to boost the coronavirus-locked down economy. Also providing some support was the announcement by Japan’s government that its strict border control measures would be further eased. In light of these developments, the yield on the 10-year Japanese government bond descended to 0.23% from the previous week’s 0.24%. The yen gained ground against the U.S. dollar to JPY 127.98 from JPY 129.27 one week earlier. Japan’s economy contracted in the first quarter and consumer price inflation exceeded the Bank of Japan’s 2% target in April.

Chinese stocks climbed higher in response to the interest rate cut announced by the central bank in support of its property sector. The slight gain in equities was welcome despite negative economic data weighing on investors’ sentiment. The broad, capitalization-weighted Shanghai Composite Index gained 2.0% while the blue-chip CSI 300 Index which tracks the largest listed companies in Shanghai and Shenzhen also gained 2.2%. Earlier, the People’s Bank of China (PBOC) reduced the five-year loan prime rate (LPR) by a significantly sizeable 15 basis points to 4.45%. The rate cut followed the move by the PBOC to cut the lower limit of mortgage rates for first-time homebuyers. The rate cuts were a response by the central bank to data indicating that home sales in April plunged. The reduction in the five-year LPR sends the signal that the government seeks to encourage homebuying demand. In the meantime, economic data released during the week points to slowing growth amid pandemic lockdowns. The yield on China’s 10-year government bond moved higher to 2.836% from 2.834% a week earlier. The yuan firmed to 6.68 from 6.80 per U.S. dollar.  

The Week Ahead

Economic data expected in the week ahead include the PMI composite, consumer expenditures, and real gross domestic income.

Key Topics to Watch

• S&P Global U.S. manufacturing PMI (flash)
• S&P Global U.S. services PMI (flash)
• New home sales (SAAR)
• Durable goods orders
• Core capital equipment orders
• FOMC minutes
• Initial jobless claims
• Continuing jobless claims
• Real gross domestic product revision (SAAR)
• Real final sales to domestic purchasers revision (SAAR)
• Real gross domestic income (SAAR)
• Pending home sales index
• PCE inflation
• Core PCE inflation
• PCE inflation (year-over-year)
• Core PCE inflation (year-over-year)
• Real disposable income
• Real consumer spending
• Nominal personal income
• Nominal consumer spending
• Advance trade in goods
• UMich consumer sentiment index (final)
• 5-year inflation expectations (final)

Markets Index Wrap Up

Stock Markets

Since the markets hit an all-time high on the first trading day of the year, the benchmark indexes have been on a steady decline and hit a new one-year low in the past week. The financial markets around the world are contending with an environment defined by rising inflation, tightening monetary policies, and growing political risks. Investors locally are growing increasingly doubtful that the Federal Reserve will be able to tame inflation without causing a recession and thereby achieve a “soft landing” for the economy. The Cboe Volatility Index, which is an indicator of the market’s expectation of higher forward-looking returns, remains elevated but below its May 2 intraday high. Exchange-traded funds achieved higher volumes, indicating higher hedging activity levels. Investors are growing increasingly risk-averse, and the strong risk-off environment is evident in the plunge in the value of many cryptocurrencies.

Last week marked the sixth consecutive weekly decline for both the Nasdaq Composite and the S&P 500 Index and the seventh for the Dow Jones Industrial Average (DJIA). The S&P 500 descended to almost 18% off of its peak at its low point on Thursday. This level confirms that the market is well into correction, and is only 2% above the performance threshold of a bear market (i.e., -20%). The benchmark indexes recovered somewhat their losses by Friday, on the back of a rally in Tesla shares when CEO Elon Musk announced that his deal to buy Twitter was “on hold.” This purchase is going to be partly funded by a sale of a portion of Musk’s considerable stake in the electric car manufacturer.

U.S. Economy

Inflationary pressures continue to remain one of the fundamental concerns that moved this week’s markets, and it is possible but still uncertain that inflation has peaked. The Fed is currently hiking interest rates at the fastest pace in twenty years, to soften the landing. The central bank is intent on raising borrowing costs sufficiently to slow growth to tame inflation, but not to push the economy into a recession. There may be a need to encounter several months of moderating inflation before the monetary policy may comfortably ease restrictions. Protracted periods of moderating inflation may be the principal catalyst to stabilize bond yields and rally equities.

The present economic data shows that there is a chance for slowing but continued economic growth. If this resiliency can be maintained, then economic contraction in the form of a recession may be averted. Currently, several indicators are showing this. The manufacturing and services Purchasing Managers’ Indexes (PMIs) have shown that they are still expanding, there is still positive momentum in the labor market, and despite the sharply tightening financial conditions, credit continues to flow to the real economy. Corporate profit margins have likely peaked, but the benchmark S&P 500 earnings are still expected to expand by 9% over the 50% increase last year. As the economy slows, these estimates can be expected to be revised lower, earnings growth can still be expected to remain positive for 2022 and 2023.  

Metals and Mining

The price of gold has dropped by 4% this past week, the worst selloff experienced for this precious metal in the last year. Gold is now at its lowest level in three months after four consecutive weekly losses, and with the continued pessimism in the market, it may struggle to hold its price above the $1,800 per ounce support level. The price of precious metals is not responding as it normally does to the disappointing economic news: U.S. consumer price index (CPI) shows annual inflation rose by 8.3% in April, gasoline prices are hitting record highs, consumer sentiment is at its lowest in 11 years, and equities are sinking. These indicators would have traditionally sent gold higher as a flight-to-safety asset; instead, gold continues to descend. The explanation may be traced to the rising U.S. dollar and bond yields due to the restrictive policies adopted by the Fed. Attractive bond yields attract investor interest away from non-yielding assets such as precious metals.

In the past week, gold lost 3.92% from its previous close at $1,883.81 to its recent close at $1,811.79 per troy ounce. Silver, which began the week at $22.36 and ended at $21.11 per troy ounce, descended by 5.59%. Platinum ended the week before at $962.24 and this week at $946.30 per troy ounce, shedding off 1.66%. Palladium, which previously ended at $2,051.92 and closed this week at $1,946.30 per troy ounce, lost 5.15%. Even the 3-month price of base metals followed the direction of the precious metals. Copper went from $9,414.50 to $9,159.00 per metric tonne for the week, down by 2.71%. Zinc slid from $3,772.00 to $3,489.50, per metric tonne for a loss of 7.49% of its value. Aluminum, which previously closed at $2,842.00, ended the week at $2,788.00 per metric tonne, down slightly by 1.90%. Tin lost 15.18% week-on-week, from $39,340.00 to this week’s $33,370.00 per metric tonne.

Energy and Oil

The news of the week for oil markets is the falling demand as several reports indicate slashing demand forecasts for the remainder of 2022. The key factors driving this prediction are the soaring inflationary pressures and supply chain disruptions which are expected to take their toll. Most notable of the revised forecasts are those released by the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC). There have been no further developments regarding the European Union’s (EU’s) oil ban on Russia nor China’s Covid lockdown measures which are projected to significantly impact supply-demand scenarios if ever they materialize. While these uncertainties continue, volatility in oil prices is expected to prevail. Meanwhile, chances for a successful Iran Nuclear Deal are fading as the U.S. Congress expresses strong opposition to the idea of lifting sanctions on the Iran Revolutionary Guard (IRGC).

Natural Gas

At most locations this report week (May 4 to May 11), natural gas spot prices fell. The Henry Hub spot price slid from $8.30 per million British thermal units (MMBtu) to $7.51/MMBtu within the week. International spot prices for natural gas also fell for the week, for both the Title Transfer Facility (TTF), the most liquid natural gas spot market in Europe, and the East Asia market. In the U.S. domestic market, prices along the Gulf Coast fell despite the rise in both temperatures and demand for air conditioning. Prices in the Midwest followed the same direction, as well as prices along the West which were consistent with the national average. In the Northeast, prices declined due to less heating demand. The U.S. natural gas supply increased week-over-week and demand for natural gas fell in line with moderate temperatures across many major metropolitan areas. Exports of U.S. LNG decreased by four vessels this week from the week before.

World Markets

European shares exhibited early weakness but later rebounded to end the week higher, even though inflationary pressures, increasingly restrictive monetary policies, and an increasingly pessimistic economic outlook continued to prevail. The pan-European STOXX Europe 600 Index closed 0.83% higher in local currency terms. The major stock indexes followed this lead, with Germany’s Xetra DAX Index advancing 2.59%, Italy’s FTSE MIB Index adding 2.44%, and France’s CAC 40 Index climbing 1.67%. The UK’s FTSE 100 Index gained 0.41%. Core eurozone government bond yields decreased amid a broad developed market bond rally led by U.S. Treasuries. Peripheral eurozone and UK government bond yields followed the lead of yields in core markets. The European Central Bank (ECB) has announced the end of its bond-buying program by early in the third quarter, to be followed by a rate increase soon after. In the UK, the gross domestic product contracted 0.1% in March contrary to expectations, after it stagnated in February. The contraction was attributed mainly to a decline in service sector activity.

In Japan, stock markets fell in weekly trading due to the U.S. Fed’s adoption of restrictive monetary policies, worries of a slowdown in global economic growth, and concerns about the repercussions of the Russia-Ukraine hostilities. Some support was provided by broad positive earnings reports and renewed expansion in the service sector business activity. The Nikkei 225 Index dropped by 2.13% while the broader TOPIX Index also descended by 2.70%. The yield on the 10-year Japanese government bond ended the week hardly changed at 0.24%. On the other hand, the yen rose against the U.S. dollar, ending at around JPY 128.12 per USD from its previous level at JPY 130.41; still, the currency remained at depressed levels.

Chinese equities rallied on the back of improved investor sentiment due to falling coronavirus cases and positive comments from the securities regulator. The broad, capitalization-weighted Shanghai Composite Index gained 2.7% while the blue-chip CSI 300 Index, which is comprised of the largest listed companies in Shenzhen and Shanghai, rose by 2.1%. The China Securities Regulatory Commission indicated that it shall increase the participation of institutional investors in the country’s equities markets. It also aims to expand the investible universe of the exchange link with Hong Kong. The yield on the 10-year Chinese government bond slid to 2.834% from 2.848%, in reaction to reassurances from the People’s Bank of China (PBOC) that it will maintain reasonably sufficient liquidity and stable credit growth in its first-quarter monetary policy report. The yuan weakened against the U.S. dollar, to CNY 6.80 per USD from CNY 6.67 the week earlier. This marks a 5% slide against the U.S. currency in the last three weeks. The principal factors driving the yuan’s slump are the rising U.S. interest rates, the Russia-Ukraine war, and slowing domestic growth.

The Week Ahead

Retail sales, manufacturing production, and jobless claims are among the important economic data being released this week.

Key Topics to Watch

• Empire state manufacturing index
• Retail sales
• Retail sales excluding vehicles
• Industrial production index
• Capacity utilization
• NAHB home builders’ index
• Business inventories (revision)
• Building permits (SAAR)
• Housing starts (SAAR)
• Philadelphia Fed manufacturing index
• Initial jobless claims
• Continuing jobless claims
• Existing home sales (SAAR)
• Advance services report

Markets Index Wrap Up

Stock Markets

Amid extreme volatility, benchmark indexes absorbed their fifth straight week of losses, borne down by the twin concerns of rising inflation and interest rates. Growth stocks in particular took the brunt of the price declines. The Dow Jones Industrial Average (DJIA) was temporarily dragged into correction territory, roughly 10% below its recent peak where it joined the S&P 500 and S&P MidCap 400 indexes. Faring worse were the Nasdaq Composite and the small-cap Russell 2000 Index which closed the trading week down by more than 25% and well into the bear markets. Although the Cboe Volatility Index (VIX) continued to stay well below the intraday levels it briefly reached in late January, the markets were unusually volatile late this week. Investors exited their leverage positions and caused record flows of exchange-traded funds. Despite the apparent rush of activity, Wall Street had anticipated the Federal Reserve’s announcement of a 50-basis-point (0.50 percentage point) increase in the Federal fund’s target rate to a range of 0.75% to 1.00%. This is the largest Fed rate hike in 22 years.

U.S. Economy

Coming into the past week, it appeared as if inflation may continue to rise unabated. After the week’s events, however, it is likely that inflation, though still heated, may already be reaching its peak and can be expected to head lower in the future. The Fed remains at the early stage of its tightening campaign that is aimed at curbing the rising inflation. This week’s 0.50% interest rate hike may be only the first of several such outsized escalations, but the policy authorities are not likely to impose larger hikes (e.g., 0.75% or higher), nor it is likely to pursue an even more aggressive pace of monetary tightening.

Despite these developments, the economic foundation remains sound in light of the historically tight labor market and robust consumer finances. Headwinds remain in the form of the ongoing supply disruptions primarily caused by the lockdowns in China and elevated consumer prices due to the high cost of oil. Nevertheless, conditions in the employment arena support a positive outlook for consumers. The rising-cost environment remains a challenge for corporate earnings, but profits continue to remain resilient. Furthermore, while the markets appear to be pricing in a possible recession, analysts are still hopeful that an impending recession is hardly certain The labor market, which historically is the most powerful driver of economic activity, continues as a source of optimism.

Metals and Mining

Another week of lackluster performance transpired for gold as its price hit but did not penetrate the $1,900 per ounce resistance level. Selling pressure mounted as the U.S. dollar approached its highest level in two decades as a result of the Federal Reserve’s aggressive move to raise interest rates. Although gold lost its momentum for the moment, analysts remain optimistic that the precious metal continues to remain healthy and appears merely to go through a consolidation phase following its strong performance in the year’s first quarter. Continued rate increases are unlikely to push gold further down as there is a limit to how far the Fed can raise its rates.

Gold began the week at $1,896.93 and ended at $1,883.81 per troy ounce, lower slightly by 0.69%. Silver slid by 1.84% week-on-week, from the previous close at $22.78 to its recent close at $22.36 per troy ounce. Platinum ended one week ago at $939.32 and closed this week at $962.24 per troy ounce for a marginal gain of 2.44%. Palladium closed the prior week at $2,326.92 but ended this week at $2,051.92 per troy ounce, falling by 11.82%.  Three-month prices of base metals likewise sustained losses. Copper, which closed the week before at $9,769.50, ended this week at $9,414.50 per metric tonne, declining by 3.63%.  Zinc came from $4,107.00 and ended at $3,772.00 per metric tonne for a drop of 8.16%.  Aluminum began the week at $3,052.50 and closed at $2,842.00 per metric tonne, falling by 6.90%. Tin, which previously closed at $40,259.00, ended the week lower by 2.28%, at $39,340.00 per metric tonne

Energy and Oil

The past week, the European Union remained unable to reach an agreement regarding a comprehensive Russia crude oil embargo, as the member states continue to be plagued with internal differences on the timeline of the phasing out. If the draft is adopted, this may result in another supply shortage as the OPEC+ has already expressed its preference for consistency rather than abrupt changes. The willingness of the oil consortium to meet global demand may fall even further if the United States proceeds with its NOPEC bill.

In the meantime, during its meeting that lasted for a mere 30 minutes, the OPEC+ countries concurred to increase their June 2022 production target by 432,000 barrels per day. They had foregone any discussion about sanctions on Russia, indicating that the global oil supply-demand situation is more or less balanced. In the U.S., a Senate committee passed the NOPEC bill with bipartisan support. This potentially revokes the sovereign immunity protecting OPEC countries and Middle Eastern National Oil Companies (NOCs) from lawsuits.

Natural Gas

At most locations this report week, April 27 to May 4, natural gas spot prices rose, with the Henry Hub spot price ascending from $6.94 per million British thermal units (MMBtu) at the start of the week, to $8.30/MMBtu by the week’s end. The price is at its highest level since February 2021 when a winter storm nudged natural gas to its highest spot price on record. International spot prices, on the other hand, descended during this report week.

In the country, prices along the Gulf Coast climbed consistently with the higher temperatures and increased demand for air conditioning. In the Midwest, prices ended higher, but during the week they fluctuated with the weather even as production from North Dakota continued to increase. Across the West, prices rose in line with the national average as temperatures remained normal. In the Northeast, prices were mixed this week. The U.S. natural gas supply remained largely unchanged from the previous week to this week, and demand by sector is mixed. U.S. LNG exports increased by two vessels from last week to this week.

World Markets

European equities markets plummeted amid concerns that central banks may need to adopt more stringent policies to respond to inflationary pressures, in the course of which economic growth may be compromised. The spread of the coronavirus in China and the lockdowns the Chinese government has imposed to curb the spread of the virus, coupled with the Ukrainian conflict, have further exacerbated the economic uncertainties. The pan-European STOXX Europe 600 Index lost 4.55% in local currency terms. Germany’s DAX Index dropped 3.00%, Italy’s FTSE MIB Index gave up 3.20%, and France’s CAC 40 Index lost 4.22%. The UK’s FTSE 100 Index lost 2.08%, less than the other three country indexes. The core eurozone bond yields followed the lead of U.S. Treasury yields, rising after the Fed’s 50-basis point increase was announced. The peripheral eurozone government bond yields largely tracked the core market yields. After the Bank of England (BoE) raised rates, UK gilt yields fell; however, the BoE also lowered its economic growth forecast and issued a warning that a recession may be imminent.

In Japan, trading was truncated in light of the holiday-shortened week (markets were closed from May 3 to 5), but nevertheless, there was a modest rise in Japanese equities. The Nikkei 225 Index inched higher by 0.58%, while the broader TOPIX Index gained 0.86%, even though the U.S. Federal Reserve’s decision to hike interest rates by 50 basis points (the first such hike since 2000) triggered strong volatility in markets domestically and globally. The yield on the 10-year Japanese government bond rose to 0.24%, up from the previous week’s close at 0.21%, in tandem with the move in U.S. Treasuries. The yen weakened slightly to around JPY 130.51 against the U.S. dollar, from approximately JPY 129.76 the week earlier. The latest level is still hovering at the lows of the past two decades. The weakness in the Japanese currency, however, triggered optimism among exporters as it boosted the value of their overseas earnings.

Chinese markets slumped in response to the signs that Beijing shall continue to pursue its zero-tolerance assault on the coronavirus. This raised worries among investors about the toll the economy is taking with the continuous lockdowns. The broad, capitalization-weighted Shanghai Composite Index slid 1.5% while the blue-chip CSI 300 Index sank 2.7%, the latter tracking the largest listed companies in Shanghai. In a statement issued by the Chinese Communist Party’s policy-making arm, the Politburo, any effort that relaxes virus prevention and control measures is perceived to lead to large-scale infections, serious illnesses, and deaths. The recent pronouncements made no mention of reconciling virus control measures with economic growth or reducing the damage to the economy, unlike previous statements. Although the city appears to relax restrictions and the rate of infections has declined, most of Shanghai’s 25 million residents are still under various degrees of lockdown. Beijing, on the other hand, announced mass testing and increased restrictions given a growing outbreak. As a result, domestic consumer spending over China’s five-day Labor Day holiday plunged 43% from that of the past year.  

The Week Ahead

Inflation, hourly earnings growth, and jobless claims are among the important economic data expected to be released in the week to come.

Key Topics to Watch

• Wholesale inventories (revision)
• Consumer 1-year inflation expectations
• Consumer 3-year inflation expectations
• NFIB small-business index
• Real household debt (SAAR)
• Consumer price index
• Core CPI
• CPI (year-over-year)
• Core CPI (year-over-year)
• Federal budget
• Initial jobless claims
• Continuing jobless claims
• Producer price index (final demand)
• Import price index
• UMich consumer sentiment index (preliminary)
• UMich 5-year inflation expectations

Markets Index Wrap Up

Stock Markets

Concerns about inflation that dominated much of April were generally ignored in the past week while the focus shifted to announcements of corporate earnings and what is generally seen as a deterioration of the global growth for the rest of the year. The ongoing war in Ukraine remains to be the overriding threat to European economic activity. In China, the pandemic continues to impact the country’s growth rate, while in the U.S. the key worry revolves around the slowdown in economic momentum. Due to these uncertainties, stocks treaded lower this week to revisit their lowest levels in the year’s trading range.

The S&P 500 is down 14% from its recent peak. Meanwhile, the technology-heavy Nasdaq Composite and the small-cap Russell 2000 Index succumbed to bear markets, both of which are down approximately 24% from their highs. This was the indexes’ fourth consecutive weekly loss. Disappointing earnings reports from Amazon.com weighed down most of the indexes. Earnings reports from Microsoft and Alphabet, Google’s parent company, offset each other for the most part during Wednesday’s trading, as positive guidance from Microsoft helped to compensate for the poor earnings report from Alphabet.

During Friday’s trading, a similar situation developed between Amazon and Apple. Weak online sales caused Amazon shares to dive 14% due to the company’s first quarterly loss since 2015. Apple stock initially rose on the news of record first-quarter revenues, but cautious guidance for the second quarter regarding supply chain problems dampened the fledgling rally somewhat.  Within the S&P 500, the energy sector outperformed, gaining strength after Russia announced that it was banning gas exports to Bulgaria and Poland.

U.S. Economy

The economic data that emerged during the week appeared to draw the prospect of a possible “stagflation,” but there is sufficient information to support the easing of inflationary pressures in the coming months. Topping the list of surprising economic data was the advance estimate of the Commerce Department that indicated that the economy contracted at an annualized rate of 1.4% for the first quarter. This fell way below the 1% economic expansion analysts expected for 2022 Q1. Mostly to blame for this underperformance were falling inventory investment and a record trade deficit. Optimism was supported, however, by what economists saw as solid consumer spending (higher by 2.7%) and an increase in business investment by 7.3%, which was well above expectations. It is therefore premature to conclude that the economic data are signaling the start of a recession, which is technically defined as an economic contraction for two consecutive quarters.

Other reports point to continued expansion. Personal spending rose 1.1%, higher than expected by 0.7%, while core capital goods orders (excluding defense and aircraft) increased by 1.0% in March, which is double the consensus expectation. The increase in the core personal consumption expenditures (PCE) price index, which is the preferred inflation gauge of the Federal Reserve, slid to 5.2% year-over-year. The year-over-year headline PCE measure surged to 6.6%, a 40-year high, but it also missed estimates. The employment cost index rose 1.4% in the first quarter, above analysts’ expectations and reflective of the tight labor market.

Metals and Mining

The week was disappointing for the gold market since spot prices fell below the $1,900-per-ounce support level. After it was unable to break above $2,000 an ounce, gold fell roughly 5%. There still appears to be some buying momentum among the gold bulls as the market continues to challenge the $1,900 during the end of trading for the week. The selling pressure exerted upon gold is a result of the strength in the U.S. dollar, which pushed it to almost a 20-year high. The unusually bullish momentum of the greenback is a result of traders and investors preparing for the Federal Reserve’s monetary policy meeting in the first week of May. The U.S. central bank will likely raise interest rates aggressively, which markets expect will amount to three 50-basis point hikes in the next three meetings. Interest rates are expected to end the year above 3%, with some betting that this may be an overestimation.

Gold, which ended the previous week at $1,931.60, closed this past week at $1,896.93 per troy ounce, for a slide of 1.79%.  Silver went from $24.14 to $22.78 per troy ounce last week, falling by 5.63%.  Platinum gained slightly from the earlier week’s close at $931.38 to last week’s $939.32 per troy ounce, inching up by 0.85%.  Palladium moved from the previous week’s $2,378.75 to last week’s $2,326.92 per troy ounce, losing 2.18%. The three-month base metal prices did not do much better. Copper, which used to be $10,110.00 in the week prior, ended at $9,769.50 per metric tonne in the week just concluded, a loss of 3.37%. Zinc began at $4,434.50 and dropped by 7.39% to close last week at $4,107.00 per metric tonne. Aluminum also lost 5.95%, from $3,245.50 to $3,052.50 per metric tonne. Tin, formerly at $42,165.00, lost 4.52% week-on-week when it ended at $40,259.00 per metric tonne last week.

Energy and Oil

The OPEC+ meeting scheduled for next week has raised the question among investors and market players whether it remains necessary to formally “rubber stamp” the OPEC+ members’ monthly production quotas. Russia’s production is now down by almost one million barrels per day (b/d) compared to its levels in February, and Libya is constantly plagued by supply disruptions against which it is constantly contending. Against this backdrop, the oil group’s compliance rate is only going to increase. Although the demand from China has significantly dropped, the price of oil is headed towards a fifth consecutive monthly gain, with ICE Brent hovering at approximately $110 per barrel. OPEC+ is expected to greenlight another 432,000 b/d monthly increase for June when they once more meet on June 5, even as Russia and Kazakhstan further reduce their oil production, and the OPEC+ is on its second year of supply discipline.

Natural Gas

Spot prices of natural gas increased at most locations during the report week beginning April 20 and ending April 27. From the beginning to the end of the week, the Henry Hub spot price fell from $7.04 per million British thermal units (MMBtu) to $6.94/MMBtu. International gas prices were mixed for this report week. In East Asia, the swap prices for liquefied natural gas (LNG) cargoes fell by $4.43/MMBtu to a weekly average of $25.39/MMBtu. The day-ahead prices at the Title Transfer Facility (TTF), the most liquid natural gas spot market in Europe, increased by $0.50 to average $30.94/MMBtu for the week. This is the second week in a row that the TTF price average higher than the East Asia price, which is notable since historically, the natural gas prices in East Asia average higher than the natural gas prices in Europe. At about the corresponding time last year, for the week ending April 28, 2021, the prices at the TTF and in East Asia were $7.48/MMBtu and $8.58/MMBtu, respectively.

Domestically, the prices along the Gulf Coast rose due to forecasts of higher temperatures and rising air conditioning demand. In the Midwest, prices increased as temperatures shifted from above-normal to below-normal during the report week. Prices rose across the West as mid-continent production fell. In New England, prices increased in tandem with the lingering lower-than-normal temperatures in the region, and as pipelines experienced outages and maintenance. U.S. natural gas supply decreased slightly and natural gas consumption decreased in all sectors this report week. U.S. LNG exports decreased by three vessels this week from the previous week.  

World Markets

In Europe this past week, shares pulled back due to worries that economic growth will slow down while high inflation and tightening monetary policy will prevail. Moderating this dire outlook were the encouraging quarterly earnings reports which somewhat offset the losses. The pan-European STOXX Europe 600 Index ended the week lower by 0.64% while major market indexes were mixed. Italy’s FTSE MIB Index moved sideways while France’s CAC 40 Index lost 0.72% and Germany’s DAX Index slid by 0.31%. The FTSE 100 Index, on the other hand, gained 0.30%. Core eurozone bond yields dipped as concerns grew about inflationary pressures and weakening economic growth caused demand for high-quality government bonds to increase. UK government bond yields followed the trend of core markets and peripheral bond yields rose in general.

Over the week, stocks fell in Japan. The Nikkei 225 Index lost 0.95% while the broader TOPIX Index slid 0.29%. The Bank of Japan (BoJ) continued with its accommodative policies at its April monetary policy meeting, causing interest rates to remain unchanged at near-zero levels and maintaining the current scale of its asset purchases. The BoJ remained committed to its easing stance by declaring that it will carry out fixed-rate bond-buying every business day rather than on an ad hoc basis. This pushed the 10-year Japanese government bond yields downward, falling to 0.21% from 0.24% at which level it closed during the previous week. The central bank’s pronouncement signaled that it will continue its divergence from the other major central banks’ monetary tightening, thus sharply weakening the yen, from the prior week’s JPY 128.47 to this week’s JPY 130.39 per U.S. dollar. This is the lowest level the currency has seen in 20 years. With these developments, the BoJ revised its inflation estimate to rise by a median of 1.9% from 1,1% in its consumer price index (CPI) for the year 2022. It revised its downward forecast for economic growth from 3.8% to 2.9% year-on-year. The factors cited were the coronavirus resurgence, rising prices of commodities, and the slowdown in economies overseas.

China’s stock markets ended mixed on reports that the country’s Politburo pledged to boost economic stimulus and called for its technology sector to undergo a “healthy development.” The broad Shanghai Composite Index dipped 1.3% while the blue-chip CSI 300 Index that tracked Shanghai’s and Shenzhen’s largest listed companies ended mostly unchanged. The markets appeared to recover their earlier losses that were caused by the zero-tolerance approach of the government to the coronavirus. The Politburo meeting did not elaborate further on how China will support its economy, although it was consistent with recent reports regarding infrastructure, consumption support, and tax cuts. China’s government bonds firmed on expectations of easing liquidity. The yield on the 10-year Chinese government bond declined to 2.854% from the previous week’s 2.88%. The yuan weakened to 6.6143 per U.S dollar, compared to 6.47 one week earlier. In April, the yuan fell approximately 4.2% against the dollar, its biggest monthly drop on record, as a result of foreign investors selling Chinese assets in favor of higher-yielding U.S. bonds.   

The Week Ahead

Important data scheduled for release in the coming week include the unemployment rate, hourly earnings growth, and the manufacturing index.

Key Topics to Watch

• S&P Global U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Job openings
• Quits
• Factory orders
• Core capital goods orders (revision)
• Motor vehicle sales (SAAR)
• ADP employment report
• International trade balance
• S&P Global U.S. services PMI (final)
• ISM services index
• FOMC statement
• Fed Chair Jerome Powell news conference
• Initial jobless claims
• Continuing jobless claims
• Productivity (SAAR)
• Unit labor costs (SAAR)
• Nonfarm payrolls
• Employment rates
• Average hourly earnings
• Labor force participation rate, 25-54
• Consumer credit

Markets Index Wrap Up

Stock Markets

At the forefront of investors’ attention in recent weeks is the volatility in the equities market particularly with the S&P being subjected to its first 10% correction in two years in March. The uncertainty continues to ward off buying interest as the major U.S. stock indexes plunged lower during the week. Growth stocks underperformed their value counterparts as evidenced by the drop in the Russell 1000 Growth Index. Furthermore, the large-cap S&P 500 Index registered greater losses than the S&P SmallCap 600 Index and the S&P Midcap 400 Index. The communication services sector declined more steeply than the other stocks within the S&P 500. Netflix succumbed by more than 35% during the week in response to the dismal report of its quarterly performance underscored by the massive shrinkage of its global subscriber list. Of all the sectors, only the consumer staples sector realized gains.

U.S. Economy

Growth in business activity appeared to have slowed in April but remains robust, as may be gleaned from the preliminary data for the S&P Global US. Composite PMI Output Index, the indicator that tracks the manufacturing and services sectors. The widely tracked Purchasing managers’ indexes (PMI) registered 55.1 compared to 57.7 in March, which is not too discouraging given that PMI readings north of 50 still signify an expansion in business activity. The April S&P Global Services PMI dropped to 54.7 which is lower than its corresponding level in March, while the counterpart indicator for manufacturing activity expanded. This suggested that as the coronavirus pandemic restrictions were relaxed, new orders for the manufacturing and services businesses increased, and demand strengthened. Both segments of the economy appeared, however, to struggle with the increasing labor and input costs by registering the steepest uptick in output charges ever recorded.

The economy will likely continue to expand despite the pending increase in interest rates, albeit at a slower rate within the 2%-3% range for this year compared to last year’s 6%. Approximately $2 trillion in accumulated savings still backs consumer purchasing power, even as wage growth is still running above 5%.  Household consumption, which accounts for 70% of GDP, is not completely dependent on borrowing. Household debt-servicing costs as a percentage of disposable income continues to remain close to 9%, its historic low in comparison with the mid-1980s (12%) and mid-2000s (13%).  

Metals and Mining

Gold has shown resilience in recent weeks as investors appear to retain an interest in the precious metal despite the market treading a consolidation pattern. The past week showed much promise as the price of the yellow metal tested the $2,000 per-ounce resistance level. It immediately became evident, however, that the precious metal did not have the momentum to break out of this resistance, faced with rising bond yields and a strengthening U.S. dollar. After touching its peak late Monday, gold hit a selling wall and receded 1.7% for the week. All is not lost for gold, however, since it still holds critical support as the U.S. dollar reaches a two-year high. Analysts remain optimistic that gold will continue above the $1,900 level and may test the year-end target price range of $2,000-$2,100 per ounce. As for base metals, copper suffered a significant decline this week from concerns of rising inventories as China’s protracted COVID lockdowns and U.S. monetary tightening threaten to hinder demand.

During the past week, gold slid from its previous weekly close of $1,978.25 to end at $1,931.60 per troy ounce, a drop of 2.36%. Silver began at $25.55 and closed at $24.14 per troy ounce for a weekly decline of 5.52%. Platinum lost 6.20% when it dipped from $992.89 to $931.38 per troy ounce for the week. Palladium, which ended at $2,372.95 the previous week, closed this week at $2,378.75 per troy ounce for a slight appreciation of 0.24%. Base metals’ three-month prices were also generally lower. Copper ended the week at $10,110.00 per metric tonne from the earlier week’s close at $10,315.00, losing 1.99%. Zinc registered a slight gain of 0.51%, beginning at $4,412.00 and ending at $4,434.50 per metric tonne. Aluminum went from $3,285.50 to $3,245.50 per metric tonne for the week, a dip of 1.22%. Tin, which closed the week prior at $43,043.00, ended this week at $42,165.00 per metric tonne, a drop of 2.04%.

Energy and Oil

Supply risks still abound that could propel oil prices higher, nevertheless, some bearish sentiment has permeated the oil markets in the past week as a result of falling demand in China and the likelihood of a global economic slowdown. A slowing economy worldwide is a reason for negative sentiment to weigh crude prices down due to the prospect that the demand for fossil fuel energy may not be sustained. The U.S. Federal Reserve suggested that they may raise interest rates by half a point in the May policy meeting, while Shanghai announced a new round of lockdowns that will extend China’s more recent COVID restrictions. On the other hand, the effect of these headwinds may be offset to some degree by recent moves by the European Union to possibly impose oil sanctions against Russia and Libya. In the meantime, U.S. refiners receive their last Russian cargoes as the April 22 wind-down deadline to halt the purchase of Russian crude and product comes into effect.

Natural Gas

Spot prices for natural gas climbed at most locations this report week, April 14 to April 20. The Henry Hub spot price ascended to $7.04 per million British thermal units (MMBtu) from $6.70/MMBtu. Going in the opposite direction were the international natural gas spot prices, with prices at the LNG spot market in Europe falling $2.39 to a weekly average of $30.45/MMBtu at the Title Transfer Facility (TTF) in the Netherlands. Swap prices for LNG cargoes in East Asia likewise declined $3.39/MMBtu to average the week at $29.83/MMBtu. On the domestic front, prices along the Gulf Coast rose with the national average, while prices in the Midwest were volatile during the week. In the West, prices rose with mixed weather along the coast, while prices in the Northeast rose due to increased demand resulting from a late-season winter storm and colder-than-normal temperatures. The U.S. supply of natural gas remained unchanged for the week while total consumption increased. U.S. LNG exports increased by six vessels week-on-week.

World Markets

European equities fell over the week due to worries concerning the war between Russia and Ukraine and the growing tendency of central banks towards more restrictive monetary policies. The pan-European STOXX Europe Index closed 1.42% down in local currency terms while main market indexes were mixed. Italy’s FTSE MIB Index fell 2.34% while France’s CAC 40 Index and Germany’s DAX Index moved sideways. The UK’s FTSE 100 Index retreated 1.24%. The core eurozone bond yields moved higher, driven by policymakers’ hawkish comments at key central banks. A massive sell-off in high-quality bonds ensued. Peripheral eurozone and UK government bond yields mostly followed the lead of core markets. European Central Bank (ECB) President Christine Lagarde once more emphasized that the ECB’s asset purchase program will end in the third quarter, and interest rate moves will be determined by the incoming data.

In Japan, the stock markets experienced moderate gains for the week. The Nikkei 225 Index slipped 0.04% while the broader TOPIX Index climbed 0.47%. Japan’s consumer price inflation is still lower than other major developed economies since the core consumer price index was up by only 0.8% year-on-year in March. This is the main reason in support of the Bank of Japan’s (BoJ’s) continuation of its ultra-loose monetary policy. Meantime, the yen remained close to a two-decade low against the U.S. dollar. According to the BoJ’s Governor, Haruhiko Kuroda, the adverse effects of a weak currency and the greater difficulty in companies’ business planning need to be accounted for. The yen closed at around JPY 128.49 per USD for the week, compared to JPY 126.44 one week earlier. To defend the upper limit of its interest rate target range, the BoJ bought Japanese government bonds, and it thereafter announced further plans to buy bonds. The yield on the 10-year JGB ended the period unchanged at 0.24%.

Chinese markets lost ground due to investor concerns regarding the economic pullback resulting from the coronavirus lockdowns. Government officials announced the continued imposition of tougher restrictions. The CSI 300 Index fell 4.2% this week. This indicator tracks the largest listed companies in Shanghai and Shenzhen, and this week, it experienced its worst five-day performance since mid-March. The yield on the 10-year Chinese government bond went up to 2.88% from 2.818% the week before. The yuan fell to 6.47 versus the US dollar, the currency’s seven-month low, and down by 1.8% week-on-week. When the Federal Reserve meets in May to announce its expected half-point U.S. rate hike, added pressure is expected to weigh on China’s bonds and currency.

The Week Ahead

Housing Starts, the Markit PMI Index, and Real Gross Domestic Product are among the important economic data to be released in the coming week.

Key Topics to Watch

• Durable goods orders
• Core capital equipment orders
• S&P Case-Shiller U.S. home price index (year-over-year)
• FHFA U.S. home price index (year-over-year)
• Consumer confidence index
• New Home sales (SAAR)
• Advance report on international trade in goods
• Pending home sales index
• Home ownership rate (NSA)
• Initial jobless claims
• Continuing jobless claims
• Real gross domestic product (SAAR) (first estimate)
• Employment cost index
• PCE price index
• Core PCE price index
• PCE price index (year-over-year)
• Core PCE price index (year-over-year)
• Nominal personal income
• Nominal consumer spending
• Real disposable incomes
• Real consumer spending
• Chicago PMI
• UMich consumer sentiment index (final)
• UMich 5-year inflation expectations

Markets Index Wrap Up

Stock Markets

Over the holiday-shortened week, the benchmark indexes closed mixed, with the first corporate earnings reports of 2022 being released. Growth stocks continue to be outperformed by their value counterparts, although the small-caps recovered territory lost during the previous week to large-caps. Within the S&P Index financials fell behind, weighed down by JP Morgan Chase which missed the targets set for it by Wall Street. On the other hand, energy shares outperformed the market during the truncated four-day trading week. Markets were closed on Friday as the world observed Good Friday. Investors’ attention was likely drawn to their holiday plans as the markets saw below-average trading volumes for the entire week.

One factor that may be dragging investor sentiment down is the expectation that earnings growth for most of the larger counters may experience a sharp deceleration. Compared to the preceding quarters, analysts’ projections regarding earnings growth and expected profits for the S&P 500 have been adjusted downward. On average, year-on-year earnings growth figures have been adjusted to mid-single-digit percentages, which measure up to the slowest pace since late 2020. Typically, companies exceed analyst estimates by a slight margin, but this might not materialize for this year’s first quarter.

U.S. Economy

Two important inflation readings for March were announced during the week just ended, namely the U.S. consumer price index or CPI, and the producer price index or PPI. Both indexes showed highs going back decades. The CPI year-over-year reading was 8.5% which is in pace with expectations and at a 40-year high, while the core CPI, which excludes food and energy, was 6.5%, slightly short of the 6.6% forecasted by analysts. On the other hand, the PPI, which indicates the prices paid by domestic producers, registered 11.2% year-over-year, a record high. While these indicators tread highs going back decades, it is possible that early signals that inflation is reaching its peak in the coming weeks. For one, the upward pressure on energy and commodity prices that have largely driven inflation appears to be lessening even though the Ukrainian crisis is still ongoing. Noticeably, the average price of WTI crude oil price in April so far appears to have settled at $99 although the same was $108 in March.

It appears that headline inflation may further moderate in the weeks or months to come, but the other key component of inflation, core inflation, progresses more slowly. The shelter component of inflation, in particular, accounts for approximately a third of the CPI basket. Currently, this component remains stubbornly high since rents and home prices have increased in the U.S. While demand for housing remains steady, housing supply continues to remain low. As mortgage rates rise, however, demand may soften to provide some reprieve in shelter pricing. It may take some time, though, for this effect to become evident in inflation rate figures.

Metals and Mining

Prices showed some recovery during a holiday week. The gold-to-silver ratio has returned to conservative territory while platinum has retraced back closer to the psychological $1000/oz level from its recent lows of $951.50/oz. Gold ended the week at $1,978.25 per troy ounce, up by 1.58% from the previous week’s $1,947.54. Silver also gained by 3.15%, from the earlier $24.77 to the recent close at $25.55 per troy ounce. Platinum settled at $992.89 per troy ounce at week’s end, up by 1.40% from the prior week’s close at $979.16. Palladium lost ground from $2,431.46 to $2,372.95 per troy ounce, down by 2.41%. For the three-month prices of basic metals, closing prices were mixed. Copper moved largely sideways from $10,323.50 to $10,315.00 per metric tonne, shaved by 0.08%.  Zinc, which previously closed at $4,254.50, this week ended at $4,412.00 per metric tonne for a gain of 3.70%.  Aluminum lost 2.64%, from the previous close of $3,374.50 to this week’s $3,285.50 per metric tonne. Tin  began at $43,710.00 and closed at $43,043.00 per metric tonne, down by 1.53%.

Energy and Oil

The rise of COVID cases in China caused an unexpected return to pandemic lockdowns, triggering a large-scale oil demand roadblock, the first in 2022. Some 45 cities succumbed to some form of mobility curtailment, affecting 40% of the country’s economic output. Since the start of the pandemic in early 2020, Chinese refiners have cut refinery runs by 900,000 barrels per day in April. This is equivalent to 6% of domestic demand.

The European Union, on the other hand, continues to consider banning Russian oil imports. This has caused the Brent complex higher compared to other regional benchmarks. ICE Brent front-month futures have ended the week slightly north of $110 per barrel, In the meantime, uncertainties about the demand and supply of oil will continue to keep prices volatile.

Natural Gas

For this report week, April 6 to April 13, natural gas spot prices rose at most locations, with the Henry Hub spot price rising from $6.25 per million British thermal units (MMBtu) at the start of the week to $6.70/MMBtu at the end of the week. International natural gas spot prices decline for the week but continue at elevated levels since February 24, the date Russia invaded Ukraine. In the United States, the prices of gas increased along the Gulf Coast with increasing temperatures. In the West, prices increased with mixed weather along the coast. Prices in the Northeast were mixed during the week but remain elevated. The total supply of natural gas in the U.S. declined slightly this week while consumption went down across most sectors. U.S. LNG exports decreased by four vessels this week compared to last week.

World Markets

Equities in the European markets ascended amid improved sentiment that the European Central Bank did not adopt a more aggressive monetary policy at its weekly meeting. During the holiday-shortened trading week, the pan-European STOXX Europe 600 Index ended 1.09% higher in local currency terms. Italy’s FTSE MIB rose 2.66%, France’s CAC 40 advanced 2.11%, and Germany’s DAX Index inched up 0.62%. The UK’s FTSE 100 dipped by 0.79% on weakness among the energy stocks while the UK pound strengthened vis-à-vis the U.S. dollar. When the pound appreciates against the dollar, the stock index moves down because many of the listed companies are multinationals that earn revenues overseas, thus their earnings soften when converted to pounds. The core eurozone bond yields experienced greater volatility but ended higher in light of speculation around the ECB policy meeting. The UK and peripheral eurozone bond yields followed the direction of the core markets.

Japan’s equities markets gained during the four-day trading week. The Nikkei rose 0.69% while the broader TOPIX Index climbed 0.62%. The country was assured by Bank of Japan (BoJ) Governor Haruhiko Kuroda of the continued recovery of the national economy even in the face of surging commodity prices, although he emphasized the need for the central bank to maintain its massive monetary stimulus to support the still struggling post-pandemic recovery. The ultra-accommodative policy stance of the BoJ, when viewed in contrast to the increasingly hawkish monetary tightening adopted by the central banks of other countries, is the cause of Japan’s currency weakness. The yen is teetering around its lowest levels against the U.S. dollar in the last two decades. It ended Thursday at JPY 125.36 to the dollar from JPY 124.30 at the close of the previous week. The yield on the 10-year Japanese government bond remained unchanged at 0.23%.

The Chinese stock markets pulled back during the four-day trading week in reaction to the fresh coronavirus surge in Shanghai, further fueling concerns that supply chains are likely to be disrupted once more. The broad capitalization-weighted Shanghai Composite Index slid 0.8%, while the blue-chip CSI 300 Index which tracks the largest listed companies in Shanghai and Shenzhen declined by 0.92%. More than 27,000 coronavirus cases were reported in Shanghai on Thursday. This sets the record as the worst outbreak in the city since the Wuhan episode first came to light in 2019. Since March 28, the city’s 26 million residents have been under lockdown. China’s manufacturing sector is gripped by supply chain paralysis as more and more Chinese cities reimposed pandemic restrictions to eradicate the virus. Among the companies that suspended production are Tesla, Volkswagen, Bosch, and domestic auto manufacturers Nio and SAIC Motors. Also suspending production in eastern China are more than 30 Taiwanese companies, many of which are electronics parts manufacturers.

The Week Ahead

Important economic data expected to be released in the coming week include Housing Starts, Initial and Continuing job claims, and the Markit PMI Index for manufacturing and services.

Key Topics to Watch

• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Existing home sales (SAAR)
• Federal Reserve releases Beige Book
• Initial jobless claims
• Continuing jobless claims
• Leading economic indicators
• S&P (Markit) manufacturing PMI (flash)
• S&P (Markit services PMI (flash)

Markets Index Wrap Up

Stock Markets

Small-caps and growth stocks led the markets considerably downwards as the manor indexes ended lower week-over-week. Within the S&P 500 Index, sector performance varied widely. Solid gains were charted by the historically defensive consumer staples and health care sectors, while steep losses in information technology, communication services, and consumer discretionary shares. For most of the week, volume was thin, possibly indicating that many investors were sidelined in anticipation of the start of the first-quarter earnings report season. One notable exception was the 27% jump in Twitter shares on Monday following the announcement that Elon Musk had acquired a 9.2% stake in the social media company. Other big stories that moved the markets involved the Federal Reserve policy and the evolving situation in Ukraine. On Tuesday morning stocks suddenly plunged after Fed Governor Lael Brainard announced that the Fed will rapidly reduce its balance sheet during its meeting in May. Brainard is considered one of the policymakers with the most accommodative stance, thus his statement weighed heavily on investors’ sentiments. The Fed’s mid-March policy meeting revealed that the central bank’s balance sheet is likely to be reduced by as much as $95 billion per month, considerably higher than the $80 billion that comprised the consensus estimate. Officials were also prepared to raise rates by 50 basis points or 0.50% in May.

U.S. Economy

The U.S. faces aggressive tightening monetary policy in the near future, suggesting that the economy will likely slow down as the impact of the withdrawal of Fed support and the rising borrowing costs kick in. Despite these developments, the fundamentals appear to remain resilient. The most optimistic indicator that the economy will remain durable comes from the labor market. In previous economic cycles, recessions were preceded by a rise in unemployment. Currently, however, the ratio of job openings to unemployed people remains at record-highs, and last week a drop in jobless claims to the lowest level since 1968 was announced. These comprise sufficient evidence that suggests consumer incomes will remain well-supported for the remainder of 2022. It is unlikely that the labor market will reverse anytime soon.

There has been a dent in consumer confidence due to high energy prices and widening inflation trends, posing a credible threat to the above-average economic growth for the year. However, savings remains elevated and debt is low. Spending remains robust despite the months-long slide in consumer confidence. Concerning the business side, the manufacturing Purchasing Managers’ Index (PMI) is presently signaling ongoing economic expansion. The PMI is a leading indicator of economic activity, and while its persistence at higher levels remains intact, the March reading fell to its lowest point since September 2020, and new orders and production noticeably slowed, an indication of weakening demand. The weakening of corporate activity may result in slower corporate earnings growth. The growth remains positive nonetheless as analysts’ forecasts remain strong despite the expectation of rising interest rates and the continued geopolitical uncertainty.

Metals and Mining

Precious metals continue to be impacted by rising bond yields, a trend that has been developing over the past weeks. This week, as 10-year yields surged to a three-year high above 2.6%, gold ends the week with a 1% gain and at the top of its range, near $1,950. The yield breakout suggests that this the possibly the start of the biggest bear market in bonds in 37 years. Traditionally, when bond yields rise, this is a negative indicator for gold since it raises the opportunity costs of holding gold, a nonyielding asset. The yields are trending upwards in anticipation of the Feds launching an aggressive tightening cycle. The hawkish stance adopted by the Fed this week would have traditionally sent gold prices lower, but such a move failed to materialize. Gold prices may move higher as more investors turn to this precious metal as an inflation hedge and safe-haven asset.

The spot price for gold closed this week at $1,947.54 per troy ounce, 1.14% higher than the previous week’s close of $1,925.68. Silver closed the week earlier at $24.63 but ended this week at $24.77 per troy ounce for a modest gain of 0.57%. Platinum closed this week at      $979.16 per troy ounce from last week’s $989.57, a correction of 1.05%.  Palladium proceeded from $2,276.50 last week to close this week at $2,431.46 per troy ounce for a gain of 6.81%. the three-month prices for the base metals were mostly down. Copper dipped from $10,353.50 the week earlier to close this week at $10,323.50 per metric tonne, dropping by 0.29%. Zinc closed this week at $4,254.50 per metric tonne, down by 1.95% from the earlier week’s close at $4,339.00. Aluminum ended last week at $3,450.00 and closed this week at $3,374.50 per metric tonne, a week-on-week loss of 2.19%. Tin closed this week at $43,710.00 per metric tonne which, compared to the previous week’s close of $44,767.00, is down by 2.36%.

Energy and Oil

There was relative stability in the oil prices this past week. ICE Brent remained constant above the $100 per barrel mark absent any impetus for volatility. Fears of Russian supply disruptions were allayed as a result of the substantial IEA-coordinated inventory release that effectively flattened the futures curves of all three of the major crude benchmarks. The bearish movement was also aided by the extensions of pandemic lockdowns in China, particularly in Shanghai. There remain concerns about the instability that continued disruption may bring to the oil market. The IEA is scheduled to release 60 million barrels of strategic stocks above and beyond the 180-million-barrel stock draw by the US. The IEA countries agreed to this release over the next six months. Japan pledged to release 15 million barrels and thereby takes a principal role in light of the diffident commitments of the other members.

Natural Gas

The spot price of natural gas climbed at most locations during the report week from March 30 to April 6, 2022. The Henry Hub spot price rose to $6.25 per million British thermal units (MMBtu) at the end of the week, from where it began at $5.34/MMBtu the previous Wednesday. International spot prices were mixed. Swap prices for LNG cargoes in East Asia fell $0.36/MMBtu for a weekly average of $34.05/MMBtu. In the Netherlands at the Title Transfer Facility (TTF), Europe’s most liquid natural gas spot market, the day ahead prices increased by $1.50 to a weekly average of $36.17/MMBtu.

Along the Gulf Coast, prices increased as temperatures rose. Prices in the Midwest rose together with the general price trend across the U.S. In the West, prices also rose in response to maintenance and warmer temperatures moving into the region. On the other hand, prices in the Northeast increased despite normal temperatures and lower local demand. The supply of natural gas in the U.S. rose slightly during the week as the demand for natural gas is down in almost all sectors. U.S. exports of LNG decreased by two vessels this week compared to last week.

World Markets

European equities registered modest gains amid concerns about central bank tightening, rising inflation, and the Ukrainian invasion by Russia. The pan-European STOXX Europe 600 Index gained 0.57% in local currency terms. The main continental stock indexes were marginally lower. France’s CAC 40 Index dropped b 2.04% due to election uncertainty, as polls showed that the gap between President Emmanuel Macron’s lead over the contender for the far-right opposition, Marine Le Pen, significantly narrowed.  Italy’s FTSE MIB Index lost 1.37% and Germany’s DAX slid by 1.13%. Trending in the opposite direction, however, is UK’s FTSE 100 Index which climbed 1.75%. Core eurozone bond yields rose in line with U.S. Treasury yields. A sell-off in core bonds was sparked by the imposition of additional sanctions on Russia, and in anticipation of U.S. Fed monetary tightening shortly. Yields were pushed even higher by the minutes of the meeting of the European Central Bank which likewise suggested greater hawkishness. The core markets were broadly tracked by peripheral eurozone and UK government bond yields.

Japan’s key equities benchmarks registered losses during the week. The Nikkei 225 Index dipped by 2.46% and the broader TOPIX Index declined by 2.44%. Although border restrictions were further eased, it failed to moderate the negative sentiment brought by inflationary pressures, the Russian-Ukrainian war, and the hawkish U.S. Federal Reserve. China’s market weakness also weighed on the markets. The yield on the 10-year Japanese government bond increased to 0.23% from 0.21% the previous week. The yen weakened from the prior week’s JPY 122.51 to approximately JPY 124.05 against the U.S. dollar, its lowest point in two years. The IMF downgraded its projection for the 2022 economic growth of Japan from 3.3% year-over-year to 2.4%.

The Chinese equities markets eased somewhat due to the coronavirus lockdown in Shanghai and fears of aggressive monetary tightening by the U.S. Federal Reserve. The broad benchmark Shanghai Composite Index slid 0.94% while the blue-chip CSI 300 Index, which tracks the Shanghai and Shenzhen large-caps, declined by 1.08%. Shanghai’s city-wide, two-stage lockdown that commenced on March 28 was a measure intended to stop or slow the spread of the coronavirus. About 23 Chinese cities are currently under total and partial lockdown, affecting an estimated 193 million people and accounting for 13.5% of the economy of China. The yield on the 10-year Chinese government bond descended this week and ended at 2.806% compared to 2.825% during the preceding week. The yuan depreciated to 6.3625 against the U.S. dollar from 6.3476 one week earlier as the yield gap between the Chinese government bonds and U.S. Treasuries narrowed to a record low.   

The Week Ahead

Core inflation, the Federal budget deficit, and retail sales are among the important economic data to be released this week.

Key Topics to Watch

• NY Fed median 1-year expected inflation
• NY Fed median 3-year expected inflation
• Chicago Fed President Charles Evans speaks
• NFIB small-business index
• Consumer price index (monthly)
• Core CPI (monthly)
• CPI (year-over-year)
• Core CPI (year-over-year)
• Fed Gov. Lael Brainard speaks at WSJ event
• Federal budget deficit
• Richmond Fed President Tom Barkin speaks to Money Marketeers
• Producer price index final demand
• Initial jobless claims
• Continuing jobless claims
• Retail sales
• Retail sales excluding motor vehicles
• Real retail sales
• Import price index
• UMich consumer sentiment index (preliminary)
• UMich 5-year inflation expectations (preliminary)
• Business inventories
• Cleveland Fed President Loretta Mester speaks on jobs
• Philadelphia Fed President Patrick Harker speaks
• Empire state manufacturing index
• Industrial production index
• Capacity utilization

Markets Index Wrap Up

Stock Markets

The major stock indexes closed mixed for the week. Despite the S&P 500 Index ending its best month since December, it has nevertheless closed its worst quarter since 2020 at a loss of 5%. It is optimistic, however, that the U.S. markets have recovered by 10% off their lows, despite numerous unresolved problems including high inflationary pressures, possibly increasingly aggressive monetary policy from the Fed, and the hostilities between Russia and Ukraine. Cyclically sensitive stocks registered their worst performance signaling investors’ expectations of a slowdown in growth stocks, particularly those in the financial services and industrial sectors. Concerns about interest rates moving higher in the future are reflected in the underperformance of the information technology sector. On the other hand, outperforming in the market were the usually defensive sectors such as consumer staples and utilities.

The past week’s volatility in stock prices was largely attributed to the fast-changing events in the Russian-Ukrainian war. Market performance was strong early in the week in response to reports that Russia was amenable to allowing Ukraine to join the European Union in return for a promise to stay out of NATO and the continuance of ceasefire talks. The four consecutive days of gains in the S&P 500 were only broken midweek when a Russian official stated no breakthroughs were foreseen in the talks with Ukraine and that Russia was regrouping its forces to complete the takeover of the eastern Donbas region. Sentiments turned more negative by Thursday when Ukrainian President Volodomyr Zelenskyy announced that Ukrainian forces are preparing for renewed Russian offensives.

U.S. Economy

During the week, reports were released tracking several closely-watched economic indicators. The economic developments were generally in line with consensus expectations. Foremost among these economic indicators was the March nonfarm payrolls that indicated that while the 431,000 newly created non-agricultural jobs fell below the expected 490,000 figure, the unemployment rate fell to 3.6%, a post-pandemic low, which is slightly more than expected. The monthly growth in average hourly earnings of 0.4% largely met forecasts, as did consumer income gains which were reported at 0.5%. Thursday’s personal spending report showed that consumer spending rose only by 0.2%, a lower-than-expected performance, although it may be taken to mean the increasing unwillingness to pay higher prices. The February job openings indicator was mostly unchanged and remained close to record highs. The labor force participation rate continues its upward trend and is now at 62.4%, indicative of the return to the workforce by the largely pandemic-sidelined labor supply. This signals a return to normality as the pandemic situation is seen to improve and the fiscal stimulus continues to wane.

Another noteworthy development is the resiliency seen in corporate balance sheets and earnings growth this year. Pending the first-quarter earnings season which will begin by mid-April, analysts continue to see earnings revisions for 2022 moving higher. In light of the headwinds posed by more restrictive monetary policy and the possible hike in interest rates, there have been no commensurate downward revisions in earnings growth that typically accompany such hawkish expectations. Instead, earnings are expected to rise above expectations, with the S&P 500 earnings growth now pegged at 9.1% rather than the 7.0% predicted on December 31 based on average historical growth rates. Although there may be some downward revision to these forecasts in the event of a deterioration of consumption patterns, positive earnings growth for the year is expected, which in turn will support market performance.

Metals and Mining

The global destabilization that the Russian invasion of Ukraine has created continues without mitigation and is beginning to have a significant impact on the global economy. Some economists have been so bold as to predict the impending end of globalization. Even if the conflict in Eastern Europe were to end soon, the lines between allies and opponents will not likely be easily undone. In this new environment, gold is seen to play an important role in the current weaponization of currencies and commodities. There appears to be a growing threat that Russia may weaponize its commodity markets as it demands “unfriendly nations” to pay for their energy in rubles. Russia has also indicated that it may accept gold and bitcoin as payment for its oil and gas. Should Russia decide to withhold its supply, Europe may inevitably fall into a full-blown recession. These developments, together with the implications of the geopolitical situation on the U.S. dollar, have made gold the most attractive asset at present because it is seen as a store of value without counter-party risk.

Over the past trading week, gold has corrected from its recent highs, closing at $1.925.68 per troy ounce from where it ended the previous week at $1,958.29, a dip of 1.67%. Silver followed the trend, moving down by 3.53% from $25.53 to the recent close at $24.63 per troy ounce. Platinum began at its previous close of $1,005.41 and recently ended at $989.57 per troy ounce, reflecting a price drop of 1.58%. Palladium also corrected by 2.18%, from $2,327.14 to $2,276.50. Base metals were somewhat more resilient. The three-month copper price previously at $10,267.00 gained slightly by 0.84% to close at $10,353.50 per metric tonne. Zinc, which previously ended at $4,066.50, closed this past week at $4,339.00 per metric tonne for a gain of 6.70%. Aluminum that traded the week earlier at $3,605.00 closed this past week at $3,450.00 per metric tonne, descending by 4.30%. Tin started the week at $42,283.00 and closed on Friday at $44,767.00 per metric tonne, for a week-on-week gain of 5.87%

Energy and Oil

During the past trading week, OPEC+ was seen implementing its latest production increases and the U.S. announced that it would undertake an unprecedented Strategic Petroleum Reserve (SPR) release, As expected, oil prices saw their most substantial weekly decline in more than two years in response to OPEC+ countries agreeing to add 432,000 barrels per day of production in May 2022. The OPEC+ decision was of course somewhat expected, given the circumstance, but few the effect of the Biden administration’s actions in trying to put runaway prices under control, which previously pushed Brent futures nearer the $100 per barrel level. Biden’s recent move, though large in scope and ambition, may not effectively keep the WTI (West Texas Intermediate) benchmark under $100 per barrel, as such a move cannot offset the sheer volume of potentially sanctioning Russian supply. The likely specter of Russia’s 3 million barrels per day seaborne flow being subject to sanction is still looms over the global oil markets. In the meantime, the Biden administration is contemplating the temporary removal of restriction on summer sales of higher-ethanol gasoline in attempting to temper fuel costs nationwide, This reverses a previous decision by the administration to ban E15 because it tends to contribute to smog during hot weather.

Natural Gas

For this report week, March 23 to March 30, natural gas spot prices ascended at most locations. The Henry Hub spot price increased from $5.26 per million British thermal units (MMBtu) on Wednesday, March 23, to $5.34/MMBtu by last Wednesday, March 30. In the international LNG market, Title Transfer Facility (TTF) prices averaged higher than East Asia spot prices for the first time since early March, as concerns about natural gas imports from Russia resulted in higher prices to attract flexible LNG cargoes. In the U.S., prices along the Gulf Coast rose in reaction to warming weather. The reverse appears to be taking place in the Midwest where prices rose in response to colder-than-normal temperatures. Prices in the West meanwhile increased in line with the general price trend across the U.S.A. The average gas supply over the country rose from all supply sources in the past week, and total consumption of natural gas likewise increased substantially over the U.S.A. The country’s exports increased by two vessels this recent week compared to the week before.

World Markets

European share prices rose in a volatile trading week as investors overcame concerns about the macroeconomic outlook among strong inflation concerns and uncertainties over the Russian-Ukraine hostilities. The pan-European STOXX Europe 600 Index gained 1.06% in local currency terms. Germany’s DAX Index ascended 0.98%, France’s CAC 49 Index gained 1.99%, and Italy’s FTSE MIB Index climbed 2.46%. In the same fashion, the UK’s FTSE 100 Index moved up 0.73%. Core eurozone bond yields fluctuated over the week but ended hardly changed from the week before. Expectations for even higher interest rate increases were boosted by the higher-than-expected inflation data, further driving yields higher. The trend reversed, however, when hopes for an early resolution to the East European conflict faded and European Central Bank (ECB) chief economist Philip Lane observed that the ECB should be prepared to revise its policy on the occasion that the macroeconomic conditions significantly worsen. Peripheral eurozone government bond yields broadly followed core markets. The UK gilt yields aligned with U.S. Treasuries, which declined due to geopolitical tensions and worries about a future recession.

In Japan, the stock markets fell week-on-week. The Nikkei 225 Index slipped downwards by 1.72% while the broader TOPIX Index lost 1.88%. Increasing pessimism about the peace talks between Ukraine and Russia compounded by concerns about the rising global inflation and likelihood of interest rate increases weighed down investor risk appetite. Big Japanese manufacturers registered declining sentiment in the first quarter for the first time since the pandemic began, as reflected by the Bank of Japan’s (BoJ’s)Tankan survey of business confidence. The yield on the 10-year Japanese government bond (JGB) dipped to 0.21% this past week from 0.24% the week before, as bond purchase operations by the BoJ pushed yields downward. The yen fell to its lowest level in more than six years, from JPY 122.08 the week earlier to JPY 122.66 versus the U.S. dollar in the week just concluded. The cause for the currency weakness was expectations of divergent monetary policy between the BoJ and other major central banks.

China’s stock markets gained over the past week as a result of investors anticipating that Beijing may intervene to support the country’s markets and economy. The broad, capitalization-weighted Shanghai Composite Index increased by 2.2%, and the CSI 300 Index climbed 2.4%, tracking the largest listed companies in Shanghai and Shenzhen. Technology stocks continued to be plagued by delisting concerns. Investors remain worried about the risk of dual-listed Chinese firms being forcibly removed from the U.S. stock exchanges. The U.S. Securities and Exchange Commission (SEC) on Wednesday announced the addition of five U.S.-listed Chinese internet companies to the growing list of companies facing possible delisting. The move is a result of China’s refusal to allow U.S. regulators to inspect their audits. Among those added to the list for possible delisting were China’s leading search engine Baidu and its video streaming unit iQiyi. These companies’ failure to comply with the audit requirements of the Holding Foreign Companies Accountability Act (HFCAA) for three straight years may render them liable for delisting from the U.S. exchanges.

The Week Ahead

Look forward to consumer credit, factory orders, and the foreign trade deficit being included among the important economic data to be released this week.

Key Topics to Watch

• Factory orders
• Core capital equipment orders
• Foreign trade deficit
• S&P Global (Markit) services PMI (final)
• ISM services index
• FOMC minutes
• Initial jobless claims
• Continuing jobless claims
• Consumer credit
• Wholesale inventories

Markets Index Wrap Up

Stock Markets

The benchmark stock indexes ended mostly positively, most notably the large-cap S&P 500 Index which reached its highest level since February 10 at the week’s end. The market rally was led by information technology stocks as Apple surged on news that analysts expect iPhone13 to bring in stronger sales. Many commodity prices continued to rise, helping the energy and materials sectors outperform. On the other extreme, health care shares underperformed, pulled down by a decline in the stock prices of big pharmaceutical Pfizer. Market activity was generally passive, although there was a perceived buy-on-the-close strategy taking place through most of the trading week, suggesting a gradual accumulation of fundamentally sound stocks. According to a report by Bloomberg, the S&P 500 experienced a gain of 0.33% during the last trading hour for five straight days. This is significant because it represented the longest streak in 20 years.

The sentiment of stock investors appeared to be weighed down early in the week by concerns that the Federal Reserve may take a hawkish turn in its policy ahead of expectations. The same worries also caused a sell-off in the bond market as Fed Chair Jerome Powell announced on Wednesday the possibility that the central bank may raise rates by more than 25 basis points (0.25 percentage points) in future meetings if it became necessary to control inflation. A contrary signal was sounded off by Atlanta Fed President Raphael Bostic earlier in the day when he announced that “elevated levels of uncertainty” has modified his previous stance that “an extremely aggressive rate path” is the proper step for the Fed to take. Investors likewise were cautious of the uncertainty about how the Russian war into Ukraine was developing.

U.S. Economy

Despite the continued uncertainties brought by the Russian-Ukraine conflict and the toll it would take on both warring countries, the economic data released in the U.S. shows an underlying resiliency with some of the indicators seemingly improving. IHS Markit’s gauge of manufacturing activity climbed much higher than expected, to its highest level since September 2020. Its service gauge also showed the most activity since July 2021. Weekly jobless claims also dropped significantly more than anticipated and descended to levels last encountered in September 1969. Nevertheless, there were also negative signals among the data. Durable goods orders fell 2,2% in February. This is the first time the measure fell in the last five months, and by a magnitude significantly exceeding the consensus drop of approximately 0.5%. New home sales declined 2.0% despite inventories rising to levels not seen since 2008. February pending home sales that were reported on Friday declined by 4.1%, a far cry from expectations that the indicator will rise by about 1%.

Probably impacting the housing industry is the jump in mortgage rates, now amounting to a full 1% since 2022 began. This may not necessarily sink the robust housing market, but it may curb the current level of price appreciation. The housing market may even do well to encounter a healthy breather for the meantime, as the S&P CoreLogic Case Shiller index points to housing prices rising at 18-20% year-over-year based on its recent pace, exceeding the increase from 2004-2006. There is still no sign of a bubble since current housing inventories for sale are still the lowest they have been in the last three decades, and below 20% of the inventory levels preceding the financial crisis. Thus, while mortgage costs are rising, leading housing indicators such as the anticipated new home sales surveys and building permits continue to be elevated and suggesting that the housing market continues to remain strong.

Metals and Mining

Gold prices are ending the week just slightly north of $1,950 per ounce, higher than the 1% gain from the previous Friday. Enticing as the market is, investors must look beyond the raw numbers and the kind of environment in which gold is being traded. As the U.S. dollar index is maintained at a level near its two-year high, gold prices are expected to tread a new range above $1,900. It is also remarkable that gold prices remain firm even as bond yields continue to move higher. Last Friday, the yield on 10-year notes surged to its highest level in three years at 2.5%. Even as bond yields have room to move higher, the gold market is not taking heed of these threats. It appears that in addition to monetary policy, another force driving the gold demand is the Russian war in Ukraine which, if it continues to be prolonged, will continue to support safe-haven demand.

Precious metals were mixed, as gold spot price began the week at $1,921.62 and ended at $1,958.29 per troy ounce for a gain of 1.91% for the week. Silver began at $24.96 and closed the week at $25.53 per troy ounce, a rise of 2.28%. Platinum price began the week at $1,026.97 and ended at $1,005.41 per troy ounce, a decline of 2.10%. Palladium started at $2,496.71 and descended to close at $2,327.14 per troy ounce, a loss in value of 6.79%. Among basic metals, 3-month prices were also mixed. Copper began at $10,331.00 and closed at $10,267.00 per metric tonne, representing a correction of 0.62%. Zinc started the week at $3,826.00 and ended at $4,066.50 per metric tonne, gaining 6.29% for the week. Aluminum commenced at $3,381.00 and ended at $3,605.00 per metric tonne for a weekly gain of 6.63%. Finally, tin slid from $42,305.00 to $42,283.00 per metric tonne at the week’s end, losing 0.05% of its value.

Energy and Oil

The past week proved the unpredictability of the oil market, quickly responding to stories that develop during the trading week. The week’s major development was that storms damaged export facilities of Kazakhstan’s flagship 1.2 million barrel-per-day CPC grade, which was expected to weigh down on oil prices by Friday as reloading began. The natural expectation is for the price of oil to move lower, but rather than Brent moving down from $120 per barrel, an oil storage facility presumably took a missile hit in Jeddah from Yemen’s Houthi militias, and the possibility of a disruption in the Saudi supply again loomed large. Other issues that continued to cloud the market were the dormant Iranian nuclear deal and the continued lack of consensus in Europe about how Russia should be sanctioned, as apparently the countries could not even agree on a coal embargo. The movement of global oil prices has become more difficult to forecast.

Natural Gas

At most locations, natural gas spot prices went up this report week March 16 to March 23. The Henry Hub spot price rose to $5.26 per million British thermal units (MMBtu) from $4.67/MMBtu. On the contrary, the international natural gas spot prices came down during the same report week, but remain elevated since the start of Russia’s further invasion into Ukraine on February 24. The mixed signals have increased the uncertainty surrounding the European natural gas markets.

In the United States, prices along the Gulf Coast rose as weather rapidly cooled. In the Midwest, prices rose together with the Henry Hub. So did prices in the West, which reflected the overall trend of prices for natural gas across the United States. The same uptrend was seen in the Northeast ahead of below-normal temperatures as the weekend approached. A decrease in imports from Canada offset the increase in U.S. natural gas production. The residential and commercial sectors led the decline in U.S. natural gas consumption. LNG exports from the U.S. increased by one vessel during the recent week compared to the week before.

World Markets

Share prices in Europe during the past week receded in response to the continued conflict between Russia and Ukraine, with the prospect of tighter monetary policy becoming more likely. The pan-European STOXX Europe 600 Index closed 0.23% lower over the past week, while the main market indexes ended mixed. France’s CAC 40 Index declined by 1.01% and Germany’s Xetra DAX Index slid by 0.74%, while Italy’s FTSE MIB Index climbed 1.39% and the UK’s FTSE 100 Index gained 1.06%.  Core eurozone bond yields followed U.S. Treasuries higher after the Federal Reserve announced the possibility of more aggressive rate hikes. Yields were pressured higher by stronger-than-expected eurozone purchasing managers’ surveys. The yield on the German 10-year bund increased to its highest level since 2018. The UK gilt yields also ended higher as it tracked U.S. Treasuries, although this trend was mitigated by news of a lower gilt supply for the next fiscal year.

Stocks in Japan were elevated for the week as the Nikkei 225 Index gained 4.93% and the broader TOPIX Index climbed 3.78%. Expectations of further economic stimulus as well as reassurances from the Bank of Japan that it will maintain accommodative monetary policies provided heightened investor sentiment in the markets. The yield on the 10-year Japanese government bond ascended to 0.24% which exceeded its six-year highs, compared to 0.21%, the yield over the previous week. This occurred in the midst of a global bond sell-off triggered by the increase in interest rates by major central banks. Regarding currencies, the yen lost ground and plummeted to levels beyond six-year lows, to JPY 121.58 per U.S. dollar from the earlier week’s JPY 119.23. due mainly to the divergent monetary policy outlooks of the U.S. and Japan.

In China, shares fell amid speculation that U.S.-listed Chinese companies may delist, as a result of continued bilateral disagreements concerning auditing standards. During the week, the large-cap CSI 300 Index dropped 2.1% and the Shanghai Composite Index lost 1.2%. Worries about the fate of dual-listed Chinese stocks have continued to cause jitters among investors. According to reports, Chinese regulators have instructed the U.S.-listed Chinese companies to prepare audit documents for financial year 2021. Among the companies involved are China’s top search engine Baidu, e-commerce platforms Alibaba and JD.com, and social media company Weibo. Rumors of these developments appear to suggest some willingness on the part of Beijing to agree to Washington’s demands to resolve once and for all the long-standing discrepancy over auditing standards.  

The Week Ahead

Inflation, hourly earnings growth, and unemployment are among the important economic data expected to be released in the coming week.

Key Topics to Watch

• Trade in goods advance report
• Case-Shiller national house price index (year-on-year)
• FHFA national house prices index (year-on-year)
• Consumer confidence index
• Job openings
• Quits
• ADP employment report
• GDP revision (SAAR)
• Gross domestic income (SAAR)
• Corporate profits (year-on-year)
• Initial jobless claims
• Continuing jobless claims
• Nominal personal income
• Nominal consumer spending
• PCE price index
• Core PCE price index
• PCE price index (year-on-year)
• Core PCE price index (year-on-year)
• Real disposable income
• Real consumer spending
• Chicago PMI
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor-force participation rate ages 25-54
• Markit manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Motor vehicle sales

Markets Index Wrap Up

Stock Markets

After a two-week losing streak, stocks, at last, surged for the week to recover much of the ground lost over the last month. Multiple factors accounted for the rally, among which are falling oil prices, news that Russia avoided default and instead made good on its sovereign debt, and an optimistic outcome of the monetary policy meeting conducted by the Federal Reserve. Investor sentiment was also lifted during the week, despite continued fighting in Ukraine, due to continued efforts at negotiations aimed at ending the conflict. The tech-heavy Nasdaq Composite exhibited the most robust gains even as positive results were widespread across all the major indexes.

At its March meeting, the Fed raised its short-term lending rate by 25 basis points, in line with the expectations of investors. This moves the fed funds target rate from almost zero to a range of 0.25% to 0.50%. The adjustment was the first interest rate hike taken by the Fed since 2018, signaling a departure from the ultra-accommodative monetary policy instituted by the central bank at the onset of the pandemic. In line with the shift, policymakers updated their economic forecast moving forward. According to the median projection, they expect to raise rates seven times in 2022; they also downgraded their economic growth forecast while revising inflation projections upward. The updated inflation predictions indicate that policymakers expect price pressures to expand beyond the pandemic-related disruptions that triggered the initial price spikes. The Fed intends to shift its monetary policy stance from accommodative to neutral, and from neutral to slightly restrictive before the end of 2023. It suggests that monetary policies will shift sooner and more aggressively to address inflation, an approach that the equity markets look favorably upon, prompting the rally after the Fed meeting.

U.S. Economy

With its initial rate hike in years, the Federal Reserve has embarked on a monetary tightening plan that expects to raise interest rates as high as 2.8%, although this is not on a fixed course. Rate hike expectations will fluctuate in tandem with the trajectory of inflation and economic growth. The present escalation of commodity prices has been exacerbated by the Ukraine crisis. It will act as a tax on the consumer, reducing purchasing power, and in all probability will temper spending in the coming months. Nonetheless, the economy will, from all indications, continue on its above-average growth rate for the remainder of 2022. The year-end GDP as forecasted by Fed officials will likely grow by 2.8%, a lower level than the estimate reached three months ago, but still higher than the 2% at which economic growth averaged over the last decade.

Even with the increase in interest rates, fundamentals suggest that the economic activity will not be dampened, given the low unemployment rate of 3.8% and job openings are exceeding the number of unemployed by the widest margin in two decades. Both indicators suggest a tight labor market and strengthening employment that supports consumer income. Although February’s retail sales were disappointing, January figures were revised upwards and continuing unemployment claims have fallen to their lowest level in 52 years. As a sign that inflation may be reaching its peak, the headline producer price index decelerated during February while the increase in core prices remained unchanged with January’s pace.

Metals and Mining

There is no sign that the war between Russia and Ukraine will be ending any time soon, and the humanitarian crisis continues to build. At this point, however, it appears that gold’s geopolitical safe haven premium is beginning to erode, as analysts conjecture that the conflict will be contained within Ukraine. Despite the waning of gold’s margin, there are still many reasons for investors to invest in gold. If the geopolitical order should shift with energy trade, supply chains will be reconfigured and payment networks become fragmented, raising risks of economic uncertainties. Analysts continue to point to the rising inflation rate as the biggest reason for retaining gold in one’s investment portfolio, suggesting an overweight position in gold in the range of 10% to 15%.

During the past week, the price of gold corrected by 3.36%, from the previous week’s close at $1,988.46 to this week’s close of $1,921.62 per troy ounce. Silver began at the prior close of $25.87 to end this week at $24.96 per troy ounce, or a loss of 3.52%. Platinum followed the same trend, dropping 5.09% from the earlier week’s close at $1,082.08 to Friday’s close at $1,026.97 per troy ounce.  Palladium slumped from $2,807.77 to $2,496.71 per troy ounce, a decline of 11.08%. While most precious metals fell, 3-mo base metal prices ended mixed.  Copper closed this week at $10,331,00 per metric tonne, down up by 1.45% from the previous week’s close at $10,183.50.  Zinc gained 0.29% from the prior close at $3,815.00 to the recent close at $3,826.00 per metric tonne. Aluminum lost 2.93%, from the previous week’s $3,483.00 to last week’s $3,381.00 per metric tonne. Tin began at $44,100.00 and ended at $42,305.00 per metric tonne for a decline of -4.07%.

Energy and Oil

Oil prices were sent back to above $100 per barrel when hopes began to dim about Russia and Ukraine agreeing to end hostilities any time soon. In the meantime, the International Energy Agency (IEA) announced that the developing energy crisis may grow more tumultuous in the coming weeks. The likely scenario is that consumers will have to absorb a three-million barrel-per-day supply shortfall if Russia does not desist from its invasion into Ukraine. If sanctions against Russia continue to remain in place, this will likely force the beleaguered country to cut three million barrels per day of oil production – 1.5 million barrels per day accounted for by shrinking marketing opportunities for crude and another 1 million barrels per day from falling product exports. The IEA suggested that consumers will need to adopt measures to mitigate the crunch by staying at home, avoiding air travel, and possibly even reducing speed limits until the dire situation would have been abated. The present volatility in oil prices is likely to prevail for longer than originally anticipated. Furthermore, at the OPEC+ front, a widening discrepancy between production targets and the actual output from the oil consortium’s members rose to a new high in February as participating states underperformed their quota by 136%, amounting to almost 1 million barrels per day.

Natural Gas

Over the report week, March 9 to March 16, 2022, natural gas spot prices fell at most locations. The Henry Hub spot price climbed from its price on March 9 at $4.56 per million British thermal units (MMBtu) to its close on March 16 at $4.67/MMBtu. At major hubs, the prices moved within a band of $1.26/MMBtu at the end of the report week. The price range moved from a low of $3.88/MMBtu in New York to a high of $5.14/MMBtu at PG&E Citygate in California, as per data from Natural Gas Intelligence. Of the major pricing hubs, the Henry Hub price was the second-highest. By comparison, the international natural gas spot prices declined over the report week, although they remained elevated since the commencement of hostilities between Russia and Ukraine on February 24. The average total natural gas supply in the U.S. fells this week by 0.9% compared with the previous week. The country’s natural gas consumption increased this week across all sectors, while U.S. LNG exports decreased by one vessel this report week compared to the week before.

World Markets

European equities climbed for the second straight week as investors became cautiously optimistic that Russia and Ukraine will enter into productive negotiations that will end the conflict. Sentiments were also boosted by announcements from China that it is ready to adopt measures to support the global economy and financial markets. The pan-European STOXX Europe 600 Index rose 5.43% in local currency terms. Germany’s Xetra DAX Index gained 5.76%, France’s CAC 40 Index rose 5.75%, and Italy’s FTSE MIB Index ascended 5.13% week-on-week. The UK’s FTSE 100 Index moved in the same direction, rising 5.13% week-on-week.

The core eurozone bond yields climbed slightly higher. Hopes for an improved geopolitical situation and the anticipation that the central banks will adopt more aggressive monetary policies to address inflation caused the benchmark German 10-year bund yield to climb higher. The yields slowed after it became evident that ceasefire negotiations will be further stymied. Peripheral eurozone bond prices firmed up support during the week. While the price of the Italian government debt and other sovereign issues were buoyed by news that the European Union (EU) was contemplating fresh joint issuances to fund energy and defense spending. Although the Bank of England raised interest rates, UK gilt yields fell. The markets noted that a more accommodative tone overshadowed policymakers’ comments, causing expectations for more rate hikes to be scaled back.

Japan’s equity markets rose for five successive days. The Nikkei 225 Index ended the week higher by 6.62% from the previous week, while the broader TOPIX Index climbed 6.10%. Sentiment remained positive as the Bank of Japan remained committed to its accommodative stance despite the prevailing global transition to a tighter monetary policy. The government also announced that it was prepared to lift all remaining quasi-states of emergency as daily coronavirus infections trended downwards. Export volumes recovered, experiencing double-digit growth in February after declining slightly in January. Backed by these positive developments, the yield on the 10-year Japanese government bond rose to 0.21% from 0.18% one week earlier. The yen fell slightly against the US dollar, from JPY 117.29 the previous week to JPY 118.90 in the week just ended.

Chinese stocks weakened during the trading week as the broad-cap Shanghai Composite Index declined by 1.8% and the blue-chip CSI 300 Index descended by 0.8%. Despite the soft trading, the sentiment was more positive at the week’s end when policymakers announced their commitment towards greater economic support. Government officials promised to introduce market-friendly policies and to maintain smooth operations in the capital market at a meeting attended by Vice Premier Liu He, the economic czar of President Xi Jinping. In reports broadcast over state media, the top Chinese financial policymaking body vowed to stabilize the capital markets, support overseas stock listings, address risks pertaining to property developers, and complete a crackdown on Big Tech at the soonest possible time. The 10-year government bond yield closed the week at 2.82%, down from 2.836% during the week before. The yuan lost some ground ahead of a meeting between U.S. President Joe Biden and Chinese President Xi Jinping. During the meeting, it is expected that President Biden will issue a warning to Beijing against providing support to Russia. On the positive side, there was some optimism that Beijing may make some concessions on issues surrounding the U.S.-China audit dispute.

The Week Ahead

The PMI index and building permits as well as jobless claims are among the economic data that will be released in the coming week.

Key Topics to Watch

• Atlanta Fed President Raphael Bostic speaks
• Chicago Fed national activity index
• Fed Chair Jerome Powell speaks at NABE conference
• New home sales (SAAR)
• Initial jobless claims
• Continuing jobless claims
• Durable goods orders
• Core capital goods orders
• Current account deficit
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• UMich consumer sentiment index (final)
• 5-year inflation expectations (final)
• Pending home sales index

Markets Index Wrap Up