Stock Markets

Market volatility has once again intensified over the past several weeks, particularly after the last FOMC meeting. Although there is much controversy about whether the economy can emerge unscathed from the increasingly tightening monetary policy onto a so-called “soft landing,” the financial markets appear to be pricing in an impending recession as a new base-case scenario. The S&P 500 has entered bear-market territory once more after losing 2.91% for the week. Overall, its value has descended by 23% for the year. This past week, the Dow Jones Industrial Average (DJIA) matched the S&P 500, losing 2.92% while the total stock market index fell 2.64%. The Nasdaq Stock Market Composite came down 2.69% while the NYSE Composite lost 2.35%. The CBOE Volatility index rose by 5.68% for the week.

The past week was the third consecutive weekly decline of the bourses. Consequently, the yield on the benchmark 10-year U.S. Treasury note breached 4%, albeit briefly, for the first time since 2008. This is expected to bring bond prices down to record levels since bond prices and yields move in opposite directions. The stock market’s biggest move came on Wednesday in response to a surprise decision by the Bank of England (BoE) to purchase long-dated UK government bonds. This move by the BoE triggered extreme volatility before the start of trading on Wall Street, although a silver lining was the easing of recent upward pressure on interest rates and the U.S. dollar, which caused a rally for stocks as the result. There was also some positive news concerning results in a large-scale trial of Biogen’s Alzheimer’s treatment, sending the pharmaceutical company’s shares surging upward by 40% and providing much-needed support to the market.

U.S. Economy

It may be a source of some comfort to note that despite attempts to deny it, expectations of an imminent recession have well been sounded off by market participants, including Federal Reserve Chairman Jerome Powell. The Chair noted in his last press conference that chances for a “soft landing” are gradually diminishing as the central bank continues to tighten policy or keep it aggressively restrictive over a longer period. The focus is therefore shifting from whether a recession is coming, to when and how deep the potential economic downturn could be.

Although some positive developments in the pharmaceutical sector created a buying opportunity on Wednesday, the markets reversed their gains the following day. The sell-down was tempered by the release of data indicating weekly jobless claims fell to 193,000, well below consensus expectations and their lowest level since late April. The news shows continued resilience in the economy. Other data pointed to inflationary pressures despite tightening monetary policy. The Fed’s preferred inflation gauge, the core (less food and energy) personal consumption expenditures (PCE) price index, rose at an annualized rate of 4.7% in the second quarter. The figure well exceeds expectations of 4.4% as well as the Fed’s long-term inflation target of 2.0%.

Feeling the immediate impact of the Fed’s rate hikes is the housing sector, as seen in the rising mortgage rates that breached an average of 7%. But the evidence was also mixed for this sector. New home sales rose nearly 20% in August to hit a five-month high. However, pending sales of both new and existing homes, where contracts have been signed but not closed, fell slightly. The Case-Schiller Home Price Index declined by 0.24% in July, the first time the indicator retreated since early 2012. Prices slowed from June to July on a year-over-year basis, at the fastest pace in the history of the index.

Metals and Mining

The gold market has fallen for six months straight without a substantial rally, bringing the bearish sentiment to its highest in four years among investors. In the metals market, commodity analysts downgraded their gold prices for 2023 by 6%, and their silver prices by 11%. Historically, however, the negative sentiment toward precious metals has never proven to be sustainable. After the period April to September 2018, the last time the gold market declined for six months consecutively, gold went on to build a strong uptrend that ended with the prices establishing a new record high above $2,000 an ounce. The same pattern appears to be forming now in gold’s bearish speculative positioning, its highest level since December 2018. While the consolidation may take some time, investors are likely at some point to recognize the value opportunity building in precious metals.

Last week, gold gained 1.01% from its prior close at $1,643.94 to this week’s close at $1,660.61 per troy ounce. Silver moved slightly higher by 0.85% from $18.87 to $19.03 per troy ounce. Platinum closed at $864.03 per troy ounce, up 0.51% from $859.64. Palladium, which began at $2,073.00, ended the week at $2,166.46 per troy ounce, gaining 4.51% week-on-week. The 3-month LME prices for base metals were mixed. Copper, which ended the week prior at $7,433.00, closed this week at $7,560.00 per metric tonne for a gain of 1.71%. Zinc slid 1.33% from the previous week’s close at $3,008.00 to end this week at $2,968.00 per metric tonne. Aluminum came from $2,165.00 the week before to close at $2,162.00 per metric tonne this week, a drop of 0.14%. Tin gained 1.93% from its previous close at $20,243.00 to this week’s close at $20,634.00 per metric ton.

Energy and Oil

The fluctuation in oil prices during September is not an unusual event as this month is the season when hurricanes ravage the U.S Gulf of Mexico. This fact notwithstanding, Hurricane Ian did not affect crude prices significantly despite the grave damage it wreaked in Florida and other southeastern states. While there occurred some pricing upside from U.S. stock draws, a new batch of Iranian sanctions, and some slight weakening of the U.S. dollar, the next important determinant of oil prices will be the OPEC+ meeting that is scheduled for the 5^th of October. An upward run towards $100 may be in the future for ICE Brent, with production cuts being discussed by the oil cartel as a means of maintaining prices within an attractive bandwidth. According to OPEC+ sources, members of the oil group have begun discussions about potential cuts in oil production beginning November 2022 as Russia has already proposed a target reduction of 1 million barrels per day for the October 5^th meeting.

Natural Gas

For the report week beginning September 21, Wednesday, and ending September 28, Wednesday, the Henry Hub spot price declined by $1.38 from $7.99 per million British thermal units (MMBtu) to $6.61/MMBtu for last week. Concerning the Henry Hub futures prices, the October 2022 NYMEX contract expired on Wednesday at $6.868/MMBtu, down by $0.91 from one week earlier. The November 2022 NYMEX contract price descended to $6.955/MMBtu, lower by $0.87 for the week. The price of the 12-month strip averaging November 2022 through October 2023 futures contracts lost $0.50 to end at $5.741/MMBtu. At most locations this report week, natural gas spot prices fell, with week-over-week decreases ranging from $0.70 to $2.00 at most major pricing hubs.

International natural gas futures prices fell for this report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $4.20 to a weekly average of $39.77/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe dropped by $3.17 to a weekly average of $53.45/MMBtu.

World Markets

European stock prices plunged amid disappointing corporate earnings and concerns of a coming recession. The pan-European STOXX Europe 600 Index closed the week down by 0.65% in local currency terms. Italy’s FTSE MIB Index lost 1.98%, Germany’s DAX Index dropped 1.38%, and France’s CAC 40 Index slid 0.65%. The UK’s FTSE 100 Index declined by 1.78%. UK government bond (gilt) yields closed higher after they underwent historic swings resulting from the new UK fiscal plan announced last Friday. The plan proposed large tax cuts, energy subsidies, and sizable borrowing. At the beginning of the week, yields rose sharply amid worries of a serious deterioration in the public finances, but then eased after the Bank of England (BoE) declared that it would make temporary purchases of long0dated bonds “on whatever scale is necessary” in attempts to “restore orderly market conditions.” Core eurozone bond yields fluctuated, ending higher mostly in tandem with UK gilts. Some upward pressure on yields was exerted by higher-than-expected inflation in Germany later in the week Core markets were broadly tracked b peripheral eurozone bonds.

Japanese equities began the week on a downtrend and by the end of the week, they finished as they began. Japanese shares ended at a three-month low even in the face of some positive economic news. The Nikkei average fell 4.5% to 25,937, its lowest close since July 1. Also finishing down is the broader TOPIX benchmark, which closed at 1,836, about 4.2% from where it began for the week. The further strengthening of the U.S. dollar against Asian currencies continued to dampen market sentiment. The Bank of Japan (BoJ) released the minutes of its meeting on monetary policy last Wednesday. The policymakers voted overwhelmingly to maintain a negative benchmark interest rate of -0.1%, signaling a further divergence from the U.S. tightening policy. The BoJ also confirmed that it will continue to purchase Japanese government bonds (JGBs) at the necessary amount without setting an upper limit, to keep the 10-year JGB yields to remain at approximately zero percent. Because of this, the yen weakened further against the U.S. dollar midweek. The yen recovered slightly later in the week as the U.S. dollar somewhat withdrew. The end ended in the mid-144 range against the dollar by the week’s end. The 10-year JGB yield ended the week at 0.247%.

Stock markets in China were weighed down by currency weakness and signs of a flagging economy. The broad, capitalization-weighted Shanghai Composite Index fell 2.1% and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, lost 1.4%. The yuan traded at 7.0898 per U.S dollar at the close of the week, slightly stronger than the 7.1066 per USD rate at which it traded one week earlier.  On Monday, the currency fell to a 28-month low, at which rate it lost more than 11% against the greenback for this year. This trend has the yuan on track to register its biggest annual loss since 1994 when China unified its official and market rates. Like the currencies of other emerging markets, the weakness in the yuan is being caused by a surging U.S. dollar that continues to gain strength as the Federal Reserve continues to pursue its aggressive interest rate hikes. As for the rest of the Chinese economy, profits at industrial firms contracted by 2.1% in the first eight months of the year compared to the same period one year ago, versus a 1.1% decline in the first seven months of the year.

The Week Ahead

Among the important data scheduled to be released this week are consumer credit, hourly earnings, and job openings.

Key Topics to Watch

• S&P U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Motor vehicle sales (SAAR)
• Job openings
• Quits
• Factory orders
• Core capital goods orders revision
• ADP employment report
• International trade balance
• S&P services PMI (final)
• ISM services index
• Initial jobless claims
• Continuing jobless claims
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor force participation rate ages 25-54
• Wholesale inventories revision
• Consumer credit

Markets Index Wrap Up

Stock Markets

This is the second consecutive week that stocks fell sharply, particularly after the Federal Reserve policymakers announced that short-term interest rates are expected to move up aggressively over the next several months. Indexes this past week dropped precipitously, with the Dow Jones Industrial Average (DJIA) losing 4.00% of its value and the total stock market plunging 5.03%. The broad-based S&P 500 Index dropped 4.65% while the technology-heavy Nasdaq Stock Market Composite dove 5.07%. The NYSE Composite shed 5.33%. The Cboe Volatility Index (VIX), a measure of investor sentiment, became more entrenched below its spring highs but rose sharply by the end of the week. Nasdaq underperformed the other indexes for the second consecutive week and briefly dipped to a level of more than one-third of its January record high.

Stocks began their sudden descent at 2 p.m. on Wednesday following two days of listless trading. The catalyst for the sell-off was the announcement of a 75-basis-point (0.75 percentage-point) federal fund rate hike to a target of 3.00% to 3.25%, the highest level it has reached since March 2008. What was more concerning to investors was the survey of the Fed policymakers’ expectations for further rate increases. The results of the survey pointed to a hike up to 4.50% by the end of this year and remain at that level for most of 2023. The uncertainty of future developments makes it difficult for businesses to plan ahead, creating pessimism in the stock market. A further dampener on investor confidence was Powell’s admission that “no one knows whether this process [of raising rates] will lead to a recession or, if so, how significant that recession would be.”

U.S. Economy

This week’s market sell-off was influenced by other factors, such as troubling developments in Europe. Not all news was negative, however, as there were some moderately encouraging economic data. Measures of current manufacturing and services activity reported by S&P Global proved surprisingly optimistic. There was an expansion and some acceleration of manufacturing activity (51.8 compared to 51.5, wherein levels above 50 suggest expansion) from August data; the services sector continued to contract, but at a slower pace (49,2 against 43.7). Weekly jobless claims that were released on Thursday slightly increased to 213,000, but this would have been flat if not for the downward revision in the previous week’s numbers. The four-week moving claims average dropped to its lowest level in three months.

The short-term Treasury yields rose briefly in reaction to the latest projections by the Fed, but the week’s most sudden yield increases took place on Thursday as futures market activity elevated. The two-year U.S. Treasury note yield was pushed above 4.10%, which is its highest level going back to October 2007. The benchmark 10-year Treasury note yield briefly rose to 3.77%, its highest point since November 2008. It should be recalled that bond prices and yields move opposite to each other, signaling a drop in bond prices. Investment-grade corporate bonds were relatively resilient ahead of the Fed meeting. After the meeting, however, corporate bonds also weakened, mirroring moves in the stock market and rising U.S. Treasury yields.   

Metals and Mining

Heading into the weekend, sentiment in the metal industry had changed considerably from its bearish direction midweek. There is a perception of optimism building in the gold market as it managed to hold onto its long-term support despite the Federal Reserve raising interest rates by 75 basis points and signaling a terminal rate above 4.5%. Analysts speculate that gold is beginning to look attractive as the prospect of a recession appears to be materializing going into the next year. Fed Chairman Powell reiterated that the central bank will not hesitate to continue its hawkish policy in efforts to get inflation under control. In the meantime, the bears still rule as gold is heading towards a new two-year low as it is unable to withstand the surging momentum of the U.S. dollar, now at a fresh two-year high. It is still heartening to see that gold is in a better place compared to other assets. Gold prices are down less than 2% this week, while oil prices are down more than 7%. Precious metals remain a sturdy safe-haven asset in this period of geopolitical and macroeconomic uncertainty.

Gold prices this week slid by 1.86%, from $1,675.06 to $1,643.94 per troy ounce. Silver came down 3.68% from $19.59 to $18.87 per troy ounce. Platinum moved from $909.66 to $859.64 per troy ounce for a weekly loss of 5.50%. Palladium came from $2,138.16 the previous week to close at $2,073.00 per troy ounce, a drop of 3.05%. The 3-month LME prices of base metals did not fare better. Copper began at $7,762.00 and ended at $7,433.00 per metric tonne for a weekly loss of 4.24%. Zinc closed the week earlier at $3,153.50 and this week at $3,008.00 per metric tonne, shedding 4.61%. Aluminum came from $2,277.00 and closed at $2,165.00 per metric tonne for a weekly loss of 4.92%. Tin closed the week earlier at $21,137.00 and this week at $20,243.00 per metric tonne, sliding by 4.23%.

Energy and Oil

As the U.S. Federal Reserve brought interest rates to their highest level since 2008, it further affirmed its commitment to bring down inflation as its main target, overriding any oil-related concerns. During the week’s escalation of the Russian-Ukraine conflict, fears were stoked over Russian supply cuts and their effect on the coming winter’s energy supply. As Russia expects to annex parts of east Ukraine after next week’s referendum, the European Union meanwhile is attempting to assemble another sanctions package that may further curb high-tech exports and implement a group-wide oil price cap. Concurrent with this, concerns are heightened over the forthcoming increase in energy demand by China where cities, which were closed over covid lockdowns in the past months, are once again opening up. For the time being, these developments that may usher in a tightening of the oil supply may counter the downward pressure on oil prices.

Natural Gas

For this report week, beginning Wednesday, September 14, and ending Wednesday, September 21, the Henry Hub spot price fell $0.70 from $8.69 per million British thermal units (MMBtu) to $7.99/MMBtu. Regarding the Henry Hub futures prices, the price of the October 2022 NYMEX contract dropped by $1.335, from $9.114/MMBtu at the beginning of the week to $7.779/MMBtu by the end of the week. The price of the 12-month strip averaging October 2022 through September 2023 futures contracts descended from $0.976 to $6.448/MMBtu. International gas futures prices suffered a decline this report week. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $9.23 to a weekly average of $43.97/MMBtu. The natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, likewise declined by $4.18 to a weekly average of $56.63/MMBtu.

World Markets

European shares plunged for a second straight week in response to central banks raising their interest rates sharply to keep up with the Federal Reserve rate hikes. The move is seen to intensify investor fears that a prolonged economic slowdown is imminent. The pan-European STOXX Europe 600 Index closed the week lower by 4.37% in local currency terms, its lowest level in over a year. The major indexes across the board likewise lost considerably. France’s CAC 40 lost by 4.84%, Italy’s FTSE MIB declined by 4.72%, and Germany’s DAX slid by 3.59%. The UK’s FTSE 100 Index lost 3.01% of its value. As stocks fell, yields climbed. The yields on Germany’s 10-year government bonds rose to their highest levels in a decade as central bank rate hikes intensified market expectations for monetary policy tightening at eh European Central Bank. Across Europe, other markets followed as Italian, French, and Spanish yields rose across the board. The UK gilt yields jumped sharply on the possibility of escalating public debt and a steep increase in interest rates after the government cut taxes by the most since 1972 in an attempt to support the economy. The UK pound fell to USD 1.09, its lowest level in 37 years.

In a holiday-shortened trading week, Japan’s stock exchanges closed at their lowest levels over the past two months. The Nikkei 225 Index declined by 2.6%, at one point traversing below the 27,000-mark for the first time since July 19. The Nikkei mirrored losses on Wall Street as a significant rate hike by the Fed further weakened the U.S.-Japan rate differential. For the first time since 1998, the government intervened in the foreign exchange market to support the yen after the Bank of Japan (BoJ) decided to maintain its dovish monetary policy. Japan’s intervention came after the yen fell below JPY 145 per USD. Japan’s Finance Minister, Shunichi Suzuki, observed that while their policy was to let the market determine the exchange rates, the intervention was necessary because “we cannot tolerate repeated rapid fluctuations by speculative moves.” The government intends to closely monitor the market and has promised to take any actions necessary to temper excessive rate swings.

China’s stock markets fell as concerns about a global growth slowdown impacted investor sentiment. The broad, capitalization-weighted Shanghai Composite Index slid 1.2% and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, dipped by 1.9%. The week’s close saw the yuan currency fall to a near 28-month low and traded at 7.1066 per U.S. dollar compared to 7.0185 a week earlier. The People’s Bank of China (PBoC), which sets a reference rate each trading day for the onshore yuan versus the U.S. dollar, set the so-called fixing at its lowest level since early August 2020. The onshore yuan can trade up to 2% on either side of the fixing. However, the PBoC has set the fixing stronger than market expectations at every single session for nearly a month, which is indicative of China’s efforts to slow the pace of depreciation. Any significant discrepancy between the market’s expectations of the fixing and the level at which the PBoC sets the midpoint is interpreted by analysts as a signal of how Beijing intends to influence the currency. Aside from the Fed’s rate hikes, the yuan’s slide has also been influenced by China’s surprise decision to lower its key interest rates in August.

The Week Ahead

Inflation and consumer confidence data are among the important economic data scheduled for release this week.

Key Topics to Watch

• Chicago Fed national activity index
• Boston Fed President Susan Collins speaks
• Atlanta Fed President Raphael Bostic speaks on wealth inequality
• Dallas Fed President Lorie Logan speaks
• Cleveland Fed President Loretta Mester speaks
• Chicago Fed President Charles Evans speaks
• Fed Chair Jerome Powell speaks on digital finance
• Durable goods orders
• Core capital goods orders
• San Francisco Fed President Mary Daly speaks
• S&P Case Shiller U.S. home price index (SAAR)
• FHFA U.S. home price index (SAAR)
• St. Louis Fed President James Bullard speaks
• Consumer confidence index
• New home sales (SAAR)
• Trade in goods, advance report
• Atlanta Fed President Raphael Bostic speaks
• Pending home sales index
• Fed Chair Jerome Powell delivers opening remarks
• Fed Gov. Michelle Bowman speaks on bank competition
• Chicago Fed President Charles Evans speaks
• Initial jobless claims
• Continuing jobless claims
• Real gross domestic product revision (SAAR)
• Real gross domestic income revision (SAAR)
• Real final sales to domestic purchasers (SAAR)
• St. Louis Fed President James Bullard speaks
• PCE price index
• Core PCE price index
• PCE price index (year-on-year)
• Core PCE price index (year-on-year)
• Real consumer spending
• Real disposable incomes
• Fed Vice Chair Lael Brainard speaks
• Chicago PMI
• UMich consumer sentiment index (late)
• UMich 5-year expected inflation (late)
• Fed Gov. Michelle Bowman speaks on bank supervision
• Richmond Fed President Tom Barkin speaks on what’s driving inflation
• New York Fed President John Williams speaks on financial stability

Markets Index Wrap Up

Stock Markets

Stocks fell sharply this week, registering their largest weekly drop in three months. Inflation fears intensified with the announcement of a higher-than-expected consumer price index (CPI). Simultaneously, and for the same reason, short-term bond yields reached levels not seen since 2007, during the advent of the subprime financial crisis. The Dow Jones Industrial Average (DJIA) slumped by 4.13% from the previous week, while the total stock market index lost 4.80%. The S&P 500 Index dropped by 4.77% while the technology-heavy Nasdaq Stock Market Composite plunged by a hefty 5.48%. The NYSE Composite lost 4.06 % of its value.

Among the sectors, communication services underperformed the rest within the S&P 500 as a result of Google parent Alphabet and Facebook parent Meta Platforms sinking to new lows going back 52 weeks. There was also marked weakness in the industrials and materials shares. Despite the CBOE Volatility Index (VIX) rising 15.40%, it remained well below the levels seen at the beginning of the pandemic. On Tuesday, the S&P 500 suffered its worst drop in two years; on that day, however, trading volumes remained contained, with the number of shares traded coming in below the average for the year, suggesting the market may hold.

U.S. Economy

Tuesday’s CPI report appeared to have been the week’s prime mover. Consumer prices rose by 8.3% for the 12 months ended in August, which overshot consensus expectations for an increase of approximately 8.1%. The indicator was telling because it dimmed investors’ hopes that they had seen the worst of inflation and the economy was poised to recover. More worrisome was the core inflation (excluding food and energy) figure registering 6.3%, its highest level over the last six months and above the expected core inflation rate of 6.1%. The August housing cost increase of 7.0% was partly the cause of the higher-than-expected rise, but price increases in food and medical care also significantly contributed to the surge. On Wednesday, the core producer prices were released and offered some comfort to investors. Producers’ prices continued their year-on-year decline that commenced in April, registering 7.3% in August from 7.6% in July.

Regarding wage inflation, a key concern of policymakers, there were mixed messages over the past week. A large list of companies are planning layoffs, among which are Ford Motor and Microsoft, soon joined by Goldman Sachs. Weekly jobless claims released on Thursday suggested the opposite as they fell to 213,000, the lowest level since summer. Retail sales data released on the same day pointed to consumers’ reduced spending. The Labor Department reported a decline of 4.2% in spending at gas stations in August. There were, however, solid increases in spending on cars, restaurants and bars, and other stores. Some positive news in the form of falling gas prices helped to perk consumer sentiment. It slightly offset the gloomy outlook on the global economy reported by shipping giant FedEx. After Thursday’s market close, FedEx announced it was withdrawing its earnings guidance for fiscal year 2023 due to a foreseen “continued volatile operating environment” and that its CEO expected a global recession.

Overall, this week began with investors hopeful that inflation has rounded its peak and energy prices will continue their descent since August. This should have convinced the Federal Reserve to moderate its aggressive monetary tightening. The rise in food, shelter, and medical costs, however, offset gains made in decreasing gasoline prices, again raising fears of a further Fed rate hike. 

Metals and Mining

The gold market is immersed in much doom and gloom as prices closed the week at their lowest levels since April 2020. Gold broke its support level at $1,700, but it still holds above its critical long-term support in the narrow range between $1,680 and $1,675 per ounce. There is hope that if the precious metal holds for some time within this range, it could build a solid base at a critical long-term level. Analysts are keen to observe that a strong break below the $1,675 level could mark the end of gold’s three-year bullish uptrend. There is a slight ray of hope, however. In the coming week, the central bank is expected to be fairly hawkish, but if Fed Chair Jerome Powell does not meet those elevated expectations, some profit-taking may take place in the U.S. dollar, and this development may drive gold prices higher.

This week, the spot prices of precious metals were mixed. Gold dropped -2.43% from the previous week’s close at $1,716.83 to its new close at $1,675.06 per troy ounce. Silver, on the other hand, gained 3.87% from its prior close at $18.86 to this week’s close at $19.59 per troy ounce. Platinum also rose 2.88% from its earlier price of $884.19 to the week’s ending price of $909.66 per troy ounce. Palladium lost some ground, beginning at $2,178.58 and ending at $2,138.16 per troy ounce for a loss of 1.86%. The 3-mo LME prices of base metals were mostly down. Copper, which closed the week earlier at $7,856.50, ended this week at $7,762.00 per metric tonne for a drop of 1.20%.  Zinc dipped 0.44% week-on-week, from $3,167.50 to $3,153.50 per metric tonne. Aluminum, which a week ago traded at $2,286.00, closed this week at $2,277.00 per metric tonne for a price depreciation of 0.39%. Tin closed this week at $21,137.00 per metric tonne, down by 0.13% from its previous price of $21,165.00.

Energy and Oil

Fears of an economic downturn were signaled this week by a host of developments, including the largest single-day stock market crash in recent memory, U.S. yields breaching multi-year highs, and expectations of an impending global recession announced by the multinational shipping giant FedEx. There is widespread expectation that at next week’s Fed meeting, another aggressive rate hike will be announced. This will likely exacerbate a decidedly bearish sentiment in the oil market, with oil prices poised to record a decline for the third straight week. In the not-so-distant future, there remain plenty of catalysts to spur a bullish oil market, but none of them are likely to materialize soon enough to reverse the economic fears weighing heavily on this sector. Currently, investors can only sigh with relief for positive developments such as the aversion of an expected U.S. railroad strike that might have caused a major disruption to the country’s commodity markets and potentially derailed the energy sector.

Natural Gas

For the week beginning Wednesday, September 7, and ending Wednesday, September 14, the Henry Hub spot price rose by $0.56 from $8.13 per million British thermal units (MMBtu) to $8.69/MMBtu. Regarding the Henry Hub futures prices, the price of the October 2022 NYMEX contract increased by $1.272 from $7.842/MMBtu from the beginning of the week to $9.114/MMBtu by the week’s end. The price of the 12-month strip averaging October 2022 through September 2023 futures contracts increased by $0.898 to $7.424/MMBtu. Spot prices for natural gas increased at most locations this report week, while the international natural gas futures prices descended. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia declined by $2.88 to a weekly average of $53.19/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $5.68 to a weekly average of $60.81/MMBtu.

World Markets

European shares drew back due to signs of an impending economic slowdown. The pan-European STOXX Europe 600 Index closed 2,89% lower in local currency terms, Germany’s DAX Index fell by 2.65%, France’s CAC 40 Index declined by 2.17%, and the UK’s FTSE 100 Index dipped by 1.56%. Italy’s FTSE MIB Index remained roughly flat by the week’s end. The British pound weakened against the dollar, descending to levels not seen since 1885. Concerns of an impending recession accounted for the downward pressure on the markets. Further aggressive policy action is feared by investors, on the possibility that the Bank of England may hike interest rates by 0.5 percentage point (0.50%) at its next meeting, way smaller than an increase the U.S. Federal Reserve may announce that would further strengthen the dollar against the pound.  In Germany, yields on the 10-year government debt rose due to hawkish comments from the European Central Bank policymakers that also boosted expectations of more substantial rate increases. Peripheral eurozone government bonds broadly tracked core markets. The British 10-year government bond yields climbed to their highest levels in more than a decade.

Japan’s stock market plunged in last week’s trading. The Nikkei 225 Index plummeted 2.29% of its value while the broader TOPIX Index lost 1.37%. The government announced the lifting of its COVID-related restrictions on individual tourists and removed its limit on daily international arrivals to the country. Trade data for August indicated that Japan’s exports grew by 22.1% from August 2021, further exceeding a 19% annual increase in July. This is largely accounted for by Japan’s top export market, the U.S. Exports may be further helped by the continued weakening of the Japanese currency against the dollar. The yen-to-dollar exchange rate finished at JPY 143, lower from the previous week’s level at JPY 142 versus the U.S. currency. Despite rumors that circulated midweek concerning a possible intervention by the Bank of Japan (BoJ), the central bank took no action and allowed the yen to further slide against the dollar. The yen’s decline was driven by the Fed’s rapid rate hikes whereas the BoJ has not made any such move to defend the yen. The 10-year Japanese government bond yield increased to 0.25% from 0.23% the week earlier. The BoJ began purchasing bonds at 0.25% which is the upper limit of the yield range for the 10-year note under the central bank’s yield curve control policy.

China’s stock markets fell due to currency weakness and lackluster property data overshadowing the unexpectedly strong factory output and retail sales indicators. The broad, capitalization-weighted Shanghai Composite Index sank by 4.2%, while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, tumbled 3.9% in its largest weekly drop in two months. The People’s Bank of China (PBoC) siphoned off liquidity from the banking system for the second month in a row, but it maintained interest rates at their current levels in an attempt to ease selling pressure on the yuan due to a widening policy divergence with the Federal Reserve. China’s central bank has pegged a set of stronger-than-expected yuan fixings against the greenback while reducing banks’ foreign currency reserves requirement in an attempt to stabilize the currency. China’s surprise decision to lower key interest rates in August has accelerated the yuan’s slide amid the Fed’s hawkish tightening stance that has strengthened the dollar against emerging market currencies. Both the onshore and offshore yuan slumped to their lowest level since July 2020. The yield on the 10-year Chinese government bond rose to 2.692% from 2.663% one week earlier, ahead of another possible U.S. rate hike in the coming week.

The Week Ahead

Housing data and leading economic indicators are among the important economic data being released in the coming week. The next Federal Open Market Committee meeting will also take place during the week.

Key Topics to Watch

• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Existing home sales (SAAR)
• Federal Reserve statement
• Fed Chair Jerome Powell’s news conference
• Initial jobless claims
• Continuing jobless claims
• Current account deficit (% of GDP)
• Leading economic indicators
• S&P U.S. manufacturing PMI (flash)
• S&P U.S. services PMI (flash)

Markets Index Wrap Up

Stock Markets

After a streak of three consecutive weekly losses, stocks rebounded this week, a sign that investors are gaining confidence that the market may have temporarily bottomed out after retracing half of its summer gains. Inflation concerns appear to have been moderated with the expectation that the Fed’s future hawkish measures may be tempered. Energy shares underperformed the other sectors due to a midweek decline in oil prices, which briefly descended to their lowest level since the Russia-Ukraine war broke out; nevertheless, the sector still registered a modest gain for the week. The consumer discretionary sector outperformed the market due to a rally in heavily-weighted Tesla.

The markets were closed on Monday in observance of Labor Day. During the four-day trading week, the Dow Jones Industrial Average (DJIA) saw a 2.66% climb, while the total stock market did better, gaining 3.23%. The Nasdaq Stock Market Composite, which tracks technology stocks, surged by 4.14%. The broad S&P 500 Index rose by 3.65%, while the NYSE Composite gained 3.41%. The market began to turn on Wednesday in a relief rally on light trading volumes, suggesting the unlikelihood of a reversal. The rally was partly a reaction to the more dovish comments made by Federal Reserve Vice Chair Lael Brainard and Cleveland Fed President Loretta Mester. Brainard further remarked that she believed, despite the Fed continuing to raise rates, a recession could still be avoided. It appears that inflation may be cooking faster than the Fed originally expected when it released some hawkish projections in the past weeks.

U.S. Economy

The pandemic shutdown has wrought notable imbalances and distortions in the economy. The more significant impact was the impairments to global supply chains, increased consumer spending on goods relative to services, and record-high household savings. Moving towards the end of the year and on to 2023, economic growth is expected to continue. Growth drivers will shift from the pandemic stimuli to normalization in the underlying GDP trends, among which are the improvements in clearing supply bottlenecks, consumer spending supported by a drawdown in excess savings, and a shift to more services spending as pent-up demand due to the shutdown is released.  

The healthy labor market appears to have tightened amid a return this year to full employment and strong hiring demand. The unemployment rate may likely fall back to below 4% from 2021’s average of 5.4%, with wage growth remaining steady for the rest of the year. While payrolls in the leisure and hospitality sector still lag behind the other sectors, total employment has returned to pre-pandemic levels. We may expect to see some cracks in the otherwise solid labor-market situation as demand slows and hiring freezes and layoffs may take place in certain industries. These are starting to emerge in pockets of the technology sector. The pace of monthly job growth as well as the pace of monthly job openings will begin to slow. The high trend in job quits has descended from its record highs in recent months. Workers’ confidence that opportunities will remain plentiful as they were in the past year appears to be moderating. Nevertheless, overall employment conditions will remain reasonably favorable, fueling support for consumer spending and moving the economy further forward.  

Metals and Mining

Analysts observe that gold and precious metals appear to gain solid footing, although it is still premature to speculate that gold is close to a breakout. The precious metal has registered some strength from the fact that it did not break down to new lows this week. Another development this week was the major breakout of the U.S. dollar against a basket of foreign currencies, including the Japanese yen and the Chinese yuan. The pound also fell to a 35-year low against the greenback, and the euro continues to trade below parity with the dollar. Against this backdrop, gold has managed to hold steady to its support at $1,700. The precious metal has also remained steady despite rising bond yields, as the U.S. 10-year yields surged to 3.5% this week, the highest it has been in two months. The trend in yields will continue to prevail as the market sees a 90% likelihood that the Federal Reserve will raise interest rates by 75 basis points. This will further test the price of gold, which tends to weaken vis-à-vis assets that have yields.

Gold closed the week at $1,716.83 per troy ounce, higher by 0.27%, from the earlier week’s close at $1,712.19. Silver, which closed the previous week at $18.04, ended this week at $18.86 per troy ounce, higher by 4.55%. Platinum rose by 5,38% from its prior close at $839.05 to its closing price this week at $884.19 per troy ounce. Palladium began the week at $2,024.00 and closed at $2,178.58 per troy ounce for a gain of 7.64%. The three-month LME prices of base metals were mixed at trading this week. Copper gained 2.93% from its previous close at $7,633.00 to this week’s close at $7,856.50 per metric tonne. Zinc saw a slight gain of 1.02% from the previous week’s close at $3,135.50 to this week’s close at $3,167.50 per metric tonne. Aluminum dipped by 0.41% from the earlier close at $2,295.50 to end at $2,286.00 per metric tonne. Tin, which ended one week earlier at $21,155.00, closed this week at $21,165.00 per metric tonne for a gain of 0.05%.

Energy and Oil

The oil markets continue to be impacted by weak macroeconomic data. ICE Brent continues to trend around $90 per barrel after it bounced back from multi-month lows where it treaded mid-week. Bearish sentiment appears to prevail as news of weak Chinese trade data and ECB interest rate hikes overpowered the story of Iran’s nuclear deal getting sidetracked, a story more relevant to the supply/demand situation. Nevertheless, threats of supply cut-offs appear to have countered a very bearish inventory report by the U.S. Energy Information Administration (EIA), sending oil prices upward early on Friday morning. Russia’s President Vladimir Putin raised the stakes in Europe’s energy crisis as the EU considers a pipeline gas price cap. Putin threatened to halt energy exports to any country that will implement price gaps on the country’s oil, gas, and coal.

Natural Gas

For the report week from Wednesday, August 31 to Wednesday, September 7, the Henry Hub spot price fell by $0.82 from $8.95 per million British thermal units (MMBtu) at the start of the week to $8.13/MMBtu by the week’s end. Regarding futures prices, the price of the October 2022 NYMEX contract descended by $1.285 for the week, from $9.127/MMBtu to $7.842/MMBtu. The price of the 12-month strip averaging October 2022 through September 2023 futures contracts decreased by $0.869 to $6.526/MMBtu. In all regions this report week, natural gas spot prices decreased as prices at major pricing hubs declined. After reaching record highs last week, international natural gas futures prices declined this week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia slid by $7.95 to a weekly average of $56.07/MMBtu, while natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $17.13 to a weekly average of $66.49/MMBtu.

World Markets

European bourses climbed after announcements by some member countries concerning plans to address the energy crisis and boost their economies. The pan-European STOXX Europe 600 Index concluded the week 1.06% higher. Major indexes followed the trend. Germany’s DAX Index gained 0.29%, France’s CAC 40 Index rose 0.73%, and Italy’s FTSE MIB Index advanced 0.79%. The UK’s FTSE 100 Index increased by 0.96%. The British pound lost ground against the U.S. dollar before it bounced back to approximately USD 1.16, close to its lows in 1985. Uncertainty about the economic agenda of the new UK Prime Minister Liz Truss appeared to be at the center of the pound’s weakness, at least in part. After the European Central Bank (ECB) hiked its key interest rates by a record 0.75%, the euro climbed above parity with the U.S. dollar.

Japan’s stock markets ascended for the week as the Nikkei 225 climbed 2.04% and the broader TOPIX Index rose by 1.83%. Investors showed optimism as the government announced new measures to help Japan contend with rising inflation. Meanwhile, the yen fell to its lowest level in 24 years, eliciting fresh comments from government officials that any options on foreign exchange moves will not be ruled out. The yen weakened to about JPY 142 against the U.S. dollar from about JPY 140 the week before. The 10-year Japanese government bond yield dipped to 0.23% from 0.24% at the close of the preceding week. The government declared that by October, a new counter-inflation package will be launched, including cash handouts to low-income households and measures to keep the prices of some commodities and food items at their current levels. Priority is being given to the protection of households and businesses from the repercussions of higher import prices due mainly to the Russia-Ukraine war.

China’s stock markets climbed as modest inflation data and expectations of added policy support perked buying interest. The broad, capitalization-weighted Shanghai Composite Index surged 2.4% while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, gained 1.7%. Although inflation slowed, so did trade and domestic demand. China’s consumer and factory gate inflation in August came down from their levels in July even better than analysts’ expectations. Over the 12 months ending in August, consumer prices rose 2.5%, as did factory gate prices, down sharply from the 4.2% recorded in July. Year-over-year factory gate inflation (excluding transport or delivery charges) peaked in October 2021 at 13.5%; since then, it had consistently trended lower. Earlier this past week, official data showed that exports and imports began to slow in August as growing inflation slowed overseas demand and China’s output was disrupted by coronavirus restrictions and the prevailing heat wave.

The Week Ahead

Inflation and economic activity information comprise some of the important economic data scheduled for release in the coming week.

Key Topics to Watch

• NY Fed 3-year inflation expectations
• NFIB small-business index
• Consumer price index
• Core CPI
• CPI (year-on-year)
• Core CPI (year-on-year)
• Federal budget
• Producer price index final demand
• Initial jobless claims
• Continuing jobless claims
• Retail sales
• Retail sales excluding vehicles
• Philadelphia Fed manufacturing index
• Empire State manufacturing index
• Import price index
• Industrial production index
• Capacity utilization
• Business inventories
• UMich consumer sentiment index
• UMich 5-year consumer inflation expectations

Markets Index Wrap Up

Stock Markets

Stocks ended in negative territory for the week as market participants continued to discount the ramifications of messages from the Federal Reserve officials pointing to more aggressive policy tightening ahead. Fed Chair Jerome Powell informed investors on Friday this week that they are committed to further raising rates in further attempts to rein in inflation until it “gets the job done.” The markets took this pronouncement seriously, causing a 3.29% drop in the broad S&P 500 for the week. The Dow Jones Industrial Average (DJIA) dropped 1.07% and its total stock market index dived 3.48%. The tech-heavy Nasdaq Stock Market Composite plunged 4.21% while the NYSE Composite also fell 3.22%.  Markets will continue to remain volatile in the near term as a forecast remains for a further 75-basis point (0.75%) rate hike at the September FOMC meeting and a terminal fed funds rate of close to 4.0%. The previous forecast of a Fed rate cut for mid-2023 forecast appears to have been abandoned.

U.S. Economy

The week ended with the release of a resilient jobs report which, nevertheless, failed to lift the equities market. Uppermost in the concerns of many investors is the continued rate-hike policy by the Feds which threatens a possible deepening of what is currently seen as an economic recession. The expected pivot in Fed policy in the form of a rate cut by mid-2023 has morphed into a possible Fed pause. Investors are now focused on the forthcoming inflation readings upon which the Fed is anchoring any forward-looking actions.

There are some data points indicating that it is possible inflation has peaked and may soon be descending. Oil and commodity prices have begun to soften although they remain volatile. The ISM manufacturing prices announced last week fell to the lowest levels of the year. Wage gains remain steady and the housing market has begun to cool as mortgage rates ascended. Despite these developments, the overall inflation figures may move lower only after several months while other components remain sticky, namely rent, shelter, and broader services.

The labor market remains resilient. The August jobs report was generally in line with and even slightly higher than expectations. Nonfarm jobs rose by 315,000, higher than the 300,000 forecasted, signaling a relatively robust job market. It is noticeable that unemployment also rose, up to 3.7% from the previous 3.5%, although it remains close to record lows. Some labor supply appears to be returning to the workforce as labor force participation increased from 62.1% to 62.4%, staving off some worries of a supply shortage. Wage growth remains at 5.2%, moderating from peak levels that were set in March of this year.

Metals and Mining

The metal markets experienced a dismal summer which is coming to an end. Nevertheless, there remains no strong impetus to move metal prices forward and they continue to hover at current levels. Thankfully, the gold market ended the week off its lows at $1,700 where it has its strong support, but it still has not broken its losing streak of the past three weeks. Despite a bounce on Friday this past week, prices are only slightly above the critical initial support level. Gold’s sluggish performance is attributed to the growing competition posed by the dollar; further negative sentiment may push gold prices lower. Many investors are eyeing $1,685, which marks gold’s breakout parabolic move to $2,000 per ounce seen two years ago. Analysts speculate that if this level is broken significantly, this move could signal the end of the precious metal’s three-year bull market. Below $1,675, gold has little support on its way to $1,600.

Gold closed the week at $1,712.19 per troy ounce, down by 1.49% from its previous close at $1,738.14. Silver, which ended the week previous at $18.90, closed this week at $18.04 per troy ounce, down by 4.55%.  Platinum ended the week at $839.05 per troy ounce, incurring a loss of 3.22% from the prior week’s close at $866.97. Palladium closed the previous week at $2,108.87 but ended this week at $2,024.00 per troy ounce for a loss of 4.02%. The 3-month forward LME prices for base metals also went southward for the week. Copper closed at $7,633.00 per metric tonne for the week, down by 6.46% from its close one week earlier at $8,160.50. Zinc ended this week at $3,135.50 per metric tonne, losing 12.06% from its previous weekly close of $3,565.50. Aluminum closed this week at $2,295.50 per metric tonne, down by 7.94% from the week-ago close at $2,493.50. Tin ended at $21,155.00 per metric tonne, for a loss of 14.53% from the previous week’s close at $24,750.00.           

Energy and Oil

The slowdown in the Chinese economy has been the focus of this past week’s attention in the assessment of the future demand for energy and oil. The country’s PMI index for August registered only 49.4 which is roughly sideways from July, which investors see as a further delay in the much-anticipated economic activity rebound. Another concern is that the return of lockdowns in multimillion mega-cities, including Shenzhen or Chengdu, is likely to reduce oil demand as there is no way of predicting how long such measures will last.

The political instability in Iraq has further dampened any hopes of oil establishing a bullish trend, as much as the prospects of a nuclear deal for the country remain in limbo without political guarantees. Iran’s foreign minister stated that Tehran is seeking stronger guarantees from the U.S. for the nuclear deal to proceed, including an explicit no-snapback clause from Washington and a halt to IAEA probes into its nuclear program – conditions to which the U.S. will likely not agree. China-driven demand fears will continue to lead the market narrative, seeing ICE Brent down at $92 per barrel, until the OPEC+ meeting scheduled for September 5.

Natural Gas

For this report week covering Wednesday, August 24, to Wednesday, August 31, 2022, the Henry Hub spot price slid by $0.34 from $9.29 per million British thermal units (MMBtu) at the start of the week, to $8.95/MMBtu at the end of the week. Regarding Henry Hub futures prices, the September 2022 NYMEX contract expired Monday, August 29, at $9.353/MMBtu, higher by $0.023 from last Wednesday. The October 2022 NYMEX contract price declined to $9.125/MMBtu, lower by $0.17 for the week. The price of the 12-month strip averaging October 2022 through September 2023 futures contracts rose by $0.04 to $7.394/MMBtu.

Concerning international futures prices, international natural gas futures prices increased this report week to reach record-high levels, largely driven by natural gas supply constraints in Europe. The European market has experienced reduced pipeline flows from Russia and a maintenance event on the Nord Stream 1 pipeline. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia rose by $5.02 to a weekly average of $64.02/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, rose by $6.01 to a weekly average of $83.62/MMBtu, the highest weekly average price on record. Earlier in the report week, the price at TTF increased close to $100/MMBtu.

World Markets

European bourses plunged sharply on concerns that central banks could aggressively tighten monetary policy for a prolonged period. Fears that Russia might stop natural gas supplies to Europe likewise contributed to the negative investor sentiment. The pan-European STOXX Europe 600 Index fell on local currency terms, ending the week lower by 2.37%. Major indexes were mixed, with Germany’s DAX Index gaining 0.61% while France’s CAC 40 Index descended 1.70% and UK’s FTSE 100 Index losing 1.97%. Italy’s FTSE MIB Index was practically unchanged. Core eurozone government bond yields climbed due to record-high inflation and hawkish central bank comments. Peripheral eurozone bond yields and UK gilt yields followed the trend of core markets.

Eurozone money markets priced in an approximate 80% probability of an unusually large 0.75 percentage point rate increase by the European Central Bank (ECB) at its next meeting following a spate of hawkish comments by policymakers and the record inflation reflected by economic data. According to Executive Board member Isabel Schnabel, central banks should act “forcefully” to control high inflation, even at the risk of higher unemployment and lower growth, to reduce the risk of bad economic outcomes.

In the meantime, Japan’s stock exchanges registered losses for the week. The Nikkei 225 Index lost 3.46% while the broader TOPIX Index fell by 2.50%. The declines were attributed to the hawkish outlook by investors on U.S interest rate hikes and their likely impact on the Japanese economy. On this basis, the yield on the 10-year Japanese government bond rose to 0.24%, from 0.22% at the end of the previous week, driven by a sell-off in global bonds. The yen weakened on expectations of continued monetary policy divergence between the U.S. Fed policy and the monetary policy pursued by the Bank of Japan (BoJ), which remains committed to keeping its interest rates low. The yen fell to its lowest level since 1998, breaching the JPY 140 level against the dollar. This has improved Japan’s export competitiveness, although it has pushed up the cost of importing energy and food, thus increasing the burden on businesses and households.

China’s stock markets have once again fallen to the impact of coronavirus outbreaks in major cities that have triggered renewed lockdowns and weighed down the near-term economic outlook. The broad capitalization-weighted Shanghai Composite Index fell by 1.54% and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, retreated by 2.01%. In the southern tech hub of Shenzhen, a large segment of the city’s almost 18 million residents were restricted by virus-related control amid the country’s most serious spike since the spring. Chengdu, the capital of Sichuan province in southern China, was put under lockdown on Thursday with mass testing scheduled throughout the weekend. The southern port city of Guangzhou was also placed under severe restrictions. About 41 Chinese cities, which controls about 32% of the country’s gross domestic product, are currently under coronavirus control measures, the highest number since April.  

The Week Ahead

Inventories and the PMI index are among the important economic data to be released this week.

Key Topics to Watch

• S&P U.S. services PMI (final)
• ISM services index
• Cleveland Fed President Loretta Mester speaks
• International trade balance
• Beige book
• Initial jobless claims
• Continuing jobless claims
• Quarterly services
• Consumer credit
• Wholesale inventories revision

Markets Index Wrap Up

Stock Markets

Stocks were driven sharply lower this week due to concerns that the Federal Reserve may not be able to control inflation without further aggressive rate hikes. Investors fear that further increases in interest rates may well cause a significant economic slowdown. The Dow Jones Industrial Average (DJIA) plunged 4.22% while the total stock market lost 3.84% of its value. The S&P 500 Index gave up 4.04% while the Nasdaq Stock Market Composite lost 4.44%. The NYSE Composite slid 2.63%. The underperformance by the Nasdaq, which fell to its lowest level in a month, compared to the other stock market indexes suggested that technology and other high-growth stocks fared worse in this slowing environment.  The rising price of oil further drove inflation worries, but also boosted the energy sector.

It is notable that the major indexes entered a bear market in June, rebounded strongly in July, and inbound to end flat in August, returning to their levels three months ago. Currently, the markets are in search of a reason to move in either direction, with the worst-case scenario for risks having been dissipated although strong resistance to further growth is expected. Volatility is forecasted to remain high in the coming prolonged market recovery.

U.S. Economy

Inflationary pressures seem to be receding, although levels remain far from the Fed’s 2% target rate. The constraints against supply appear to be easing even as demand is weakening. Companies are reporting improved delivery times which indicates that the tight supply chain situation of the past months is lifting. Inventories are rising relative to sales as the economic growth has softened, thus it is likely that inflation for consumer goods is likely to come down significantly in the months to come. It is therefore plausible that the Fed may eventually ease up on its tight monetary policy that it has aggressively pursued so far this year, and adopt a neutral stance that neither stimulates nor restrains growth if the inflation rate continues to improve.

Although the economy continues to slow down, it has been largely policy-driven, therefore it is too soon to tell whether the full effects of the rate hikes have already been felt. Consumption appears to be healthy and sustained, expanding 1.5% after adjusting for inflation, Strong consumer spending is behind the small contraction in the economy indicated after the first revision for the second-quarter GDP. Annualized increase in services rose 3.6% while personal income rose in July due to the tight labor market. However, this trend may be soon arrested as suggested by the upward trend in jobless claims and the declines in the job openings and quit rates.

Metals and Mining

The gold market has once more been stymied in neutral, clinging to its support at around $1,750 per ounce despite the pressure to move downward exerted by increasing interest rates. Market participants, including traders and investors, are still discounting the substance of the comments of Federal Reserve Chair Jerome Powell during the annual central bank symposium. Powell appears to sound hawkish without actually divulging future policy moves. In light of the fluid economic conditions, the central bank’s gold demand will continue to provide critical support for the gold market.

The sport price for gold, which ended the preceding week at $1,747.06, closed this week at $1,738.14 per troy ounce, losing 0.51%. Silver closed at $19.05 previously and this week at $18.90 per troy ounce for a 0.79% drop. Platinum began at $899.21 and ended this week at $866.97 per troy ounce, sliding 3.59%. Palladium, which previously closed at $2,129.59, closed this week at $2,108.87 per troy ounce, dipping 0.97%.  The 3-month LME price of industrial metals performed relatively better for the week. Copper, which was previously $8,078.50, closed the week at $8,160.50 per metric tonne, rising 1.02% week-on-week. Zinc began at $3,487.50 and ended the week at $3,565.50 per metric tonne, climbing 2.24%. Aluminum rose week-on-week from $2,386.00 to $2,493.50 per metric tonne, gaining 4.51%. Tin closed the previous week at $24,795.00 and this week at $4,750.00, declining 0.18%.

Energy and Oil

Oil prices were directionless this week. ICE Brent remained at around $100 per barrel as the market’s attention was focused on the likelihood of the successful negotiation of the Iranian deal. The Biden administration relayed its response to the European Union, which acted as a broker between it and Iran in light of their refusal to negotiate directly. According to the grapevine, the proposed terms are far from what Tehran anticipated, effectively creating a “take it or leave it” dilemma for the Iranian leadership.  Absent any breakthrough in the Iranian stalemate, the Feds Jackson Hole symposium will continue to drive oil prices. In the meantime, U.S. Energy Secretary Jennifer Granholm, in a letter sent to the country’s leading refiners, called upon them to withhold exports to Europe and South America and commence building up inventories, despite both the gasoline and diesel curves being firmly backwardated.

Natural Gas

For the report week from Wednesday, August 17, 2022, to Wednesday, August 24, 2022, the Henry Hub spot price fell by $0.22, from $9.51 per million British thermal units (MMBtu) to $9.29/MMBtu. The price of the 2022 NYMEX contract increased by $0.086/MMBtu, from $9.244/MMBtu at the start of the week to $9.330/MMBtu at the end of the week. The price of the 12-month strip averaging September 2022 through August 2023 futures contracts rose $0.114 to $7.659/MMBtu. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $9.06 to a weekly average of $59.01/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, increased by $12.53 to a weekly average of $77.60/MMBtu.

World Markets

European shares fell due to growing fears that the efforts so far of key central banks to rein in inflation can exacerbate an economic downturn. The pan-European STOXX Europe 600 Index closed 2.58% lower than the preceding week in local currency terms. Major stock indexes likewise declined, with Germany’s DAX Index plunging 4.23%, France’s CAC 40 Index coming down 3.41%, and Italy’s FTSE MIB Index sliding 2.84%. The UK’s FTSE 100 Index suffered a 1.63% loss. Core eurozone government bond yields inched higher in the midst of rising expectations of sharper increases in interest rates and indicators of stalling economic activity. The peripheral eurozone and UK government bond yields tracked core markets broadly. Natural gas levels shot up to record levels after the Russian state-owned natural gas producer Gazprom announced further closures of the Nord Stream 1 pipeline to Europe at the end of August, reasoning maintenance processes. This further weighed on investor sentiments as pipeline flows are currently only at 20% of the agreed volume. The euro traded close to parity with the dollar due to the pessimistic economic outlook.

In Japan, despite a rally late in the week, stocks finished the week lower than they began as investors anticipated an announcement of further rate hikes from U.S. Federal Reserve Chair Jerome Powell on Friday. The Nikkei 225 Index closed at 28,641.4, the week down by 1.0%. The broader TOPIX likewise ended down by 0.75% to close at 1,979.6 for the week. That being said, the week actually brought the bourses into a positive trend. On Thursday, the Nikkei broke out of a five-session losing streak, mainly attributable to positive cues from Wall Street and actions by bargain hunters, extending the gains to Friday. Exporters and technology stocks noticeably led the other sectors. In the bond market, the 10-year Japanese government bond (JGB) yields surged to more than a one-month high on Thursday (0.230%), following the lead of its U.S. counterparts. JGP yields closed the week at around 0.224%, higher than the close of the previous week. Regarding currencies, the U.S. dollar traded firmly against the yen intermittently during the week, however, the yen eventually finished the week broadly unchanged from where it began, at JPY 136.8 against the dollar.

China’s stock markets slumped as concerns about the growth outlook were challenged by extreme temperatures and power shortages in some provinces. The broad, capitalization-weighted Shanghai Composite Index slid 0.67% while the blue-chip CSI 300 Index, which broadly tracks the largest listed companies in Shanghai and Shenzhen, dropped 1.05%. Beijing last week announced that the government will adopt several measures to support the economy. The State Council, China’s cabinet, laid out a 19-point policy package that intends to add CNY 300 billion to state policy banks’ investment in infrastructure projects, over and above CNY 300 billion announced in June. The cabinet further allocated CNY 500 billion of special bonds from previously unused quotas to local governments. China appears geared to flood the economy with excessive stimulus. The People’s Bank of China (PBOC) also cut two key interest rates, contrary to the direction taken by most central banks around the world, in its efforts to revive the economy. The 10-year Chinese government bond yield rose to 2.68% from 2.639% the week earlier. The yuan weakened to 6.8624 per U.S. dollar compared to 6.80 the week before.

The Week Ahead

Unit labor costs and the unemployment rate are among the important economic data scheduled to be released this week.

Key Topics to Watch

• S&P Case-Shiller U.S. home price index (year-over-year)
• Consumer confidence index
• Job openings
• Quits
• New York Fed President John Williams speaks
• Cleveland Fed President Loretta Mester speaks
• ADP employment report
• Chicago manufacturing PMI
• Atlanta Fed President Raphael Bostic speaks
• Initial jobless claims
• Continuing jobless claims
• Productivity revision (SAAR)
• Unit labor costs revision (SAAR)
• S&P U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Atlanta Fed President Raphael Bostic speaks
• Light motor vehicle sales (SAAR)
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor force participation rate, 25-54 years
• Factory orders
• Core capital equipment orders revision

Markets Index Wrap Up

Stock Markets

Markets were generally down for the week. The Dow Jones Industrial Average (DJIA) slipped by 0.16%. All sectors were down although the utility average bucked the trend and climbed by 1.39%. The S&P 500 Index descended by 1.21% while the Nasdaq Stock Market Composite slumped by 2.62%. The NYSE Composite fell by 1.37%. Meanwhile, the CBOE Volatility Index, which is the popular measure of stock market volatility based on the S&P 500, increased by 5.48%. The market drop was fueled by recession worries due to high inflation, supply bottlenecks, and expected Federal Reserve rate hikes. The negative returns for the week could also be seen as the market technically retracing from the strong gains of the preceding week. A sharp decline in the stock price of Facebook parent Meta Platforms dragged the S&P 500 Index down more than the other indexes.

U.S. Economy

On Thursday, St. Louis Fed President James Bullard voiced the question on everybody’s mind as to whether inflation has already really peaked despite the sudden downturn in the year-over-year CPI from 9.1% in June to 8.5% in July.  Bullard called attention to the lack of statistical confirmation at this point, hinting that the Fed may again vote in favor of another 75-basis-point (0.75 percentage point) increase in the federal fund target rate at its next policy meeting. Other economic data that emerged this week showed that household finances may be a source of optimism. The economy is slowing, which was the intended effect of the rate hikes.

Personal consumption accounted for 70% of GDP, indicating that consumption holds the key to the path forward for the economy. The underlying retail sales, excluding auto and gasoline sales, increased by a healthy rate of 0.7% month-over-month. Online sales rose sharply while restaurant sales noticeably increased, projecting a balance between goods and leisure spending. The lower food and gasoline costs appeared to prompt consumers to redirect their purchasing power towards discretionary items instead of reducing their spending altogether. This is a healthy indication that there is further upside in consumption to move the economy forward.

Initial jobless claims registered at 250,000 this week, which is a downtick from the reading of the week before. While it is still historically healthy, it is 50% above the lows in March, reflecting some deterioration in employment conditions. It should be noted, however, that March figures were at all-time lows, so this week’s figures may still be seen as a return to historically normal levels. Caution should be taken as a material increase in initial jobless claims is an indicator of an emerging labor-market softness. It is worthy to note that the unemployment figure has actually declined during this same time.

Metals and Mining

Gold has declined for the last five trading days. Gold opened on Monday, August 15, at approximately $1,816 per ounce and registered strong price declines throughout the week. While the price declines were significant, they were not rare or historically unusual. On the other hand, the gains in the dollar index this week were rare and significant. In percentage terms, gold experienced a larger percentage drop than what the dollar gained. In just one week, the dollar index opened at 98.46 and closed at 103.48, advancing strongly by 502 points. Recall that gold prices are based on two primary underlying factors, dollar strength (or weakness) and traders bidding the precious metal higher or lower. Thus for this week, out of gold’s 3.86% decline, 1.65% is attributable to market players actively selling gold, and 2.21% to the dollar’s strength.  It is generally accepted that gold and the dollar are in direct competition as a haven asset during times of economic uncertainty. Also, when the Fed raises interest rates, this weighs on the dollar which does not yield any interest. For this week at least, market participants are focused on further interest rate hikes rather than on the current level of inflation.

For this week, Gold began at $1,802.40 and ended at $1,747.06 per troy ounce, for a decline of 3.07%. Silver, which closed the week prior at $20.82, closed this week at $19.05 per troy ounce, losing 8.50%. Platinum dipped by 6.85% from the earlier week’s close at $965.33 to this week’s $899.21 per troy ounce. Palladium slid from $2,224.95 to $2,129.59 per troy ounce, declining by 4.29%. The three-month LME prices for base metals also took a hit for the week. Copper, which closed the previous week at $8,091.50, ended this week at $8,078.50 per metric tonne for a decline of 0.16%. Zinc began at $3,589.00 and closed this week at $3,487.50 per metric tonne for a loss of 2.83%. Aluminum closed last week at $2,434.50 and this week at $2,386.00 per metric tonne, sliding by 1.99%. Tin began at $25,177.00 and closed this week at $24,795.00 per metric tonne for a price attrition of 1.52%.

Energy and Oil

Oil prices began the week with a sudden plunge on week Chinese economic data and rumors that an Iranian nuclear deal may soon be finalized. Worries were alleviated for bullish oil market participants when large U.S. stock draws materialized across the oil and products spectrum, easing speculation of domestic demand destruction. U.S. refiners argued that there is little sign of demand destruction and that inventories are still below their optimal state. The refiners are expected to maximize their refinery runs over the upcoming weeks. Analysts are expecting a nationwide average of 94%, in line with second-quarter forecasts. As a result, WTI and Brent prices both experienced a strong bounce back.

Natural Gas

During the report week, from August 10 to August 17, 2022, the Henry Hub spot price ascended from $7.89 per million British thermal units (MMBtu) at the start of the week, to $9.51/MMBtu by the week’s end, for an increase of $1.62/MMBtu. Regarding futures, the price of the September 2022 NYMEX contract increased by $1.042, from $8.202/MMBtu to $9.244/MMBtu for the week. The price of the 12-month strip averaging September 2022 through August 2023 futures contracts rose by $0.813 to $7.545/MMBtu. Domestic natural gas spot prices rose at most locations during this report week. International futures prices for liquefied natural gas (LNG) cargoes in East Asia on average increased by $5.33 to a weekly average of $49.94/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, increased by $5.92 to a weekly average of $65.07/MMBtu.

World Markets

Stock markets across Europe pulled back due to renewed concerns that central banks will aggressively tighten their monetary policies to rein in persistently high inflation. The pan-European STOXX Europe 600 Index closed the week lower by 0.80% in local currency terms. France’s CAC 40 Index dipped by 0.89%, Germany’s DAX Index declined by 1.82%, and Italy’s FTSE MIB Index slumped by 1.90%. The UK’s FTSE 100 Index, however, bucked the trend by adding 0.66% due to the depreciation of the UK pound against the U.S. dollar. Weakness in the pound tends to raise the index since most of the listed companies are multinationals earning revenues overseas. Higher dollar revenues will fetch higher corporate earnings in terms of the pound sterling. The core eurozone government bond yields ascended in response to a double-digit increase in UK consumer prices. Also driving the increase in yields was a comment by European Central Bank (ECB) official Isabel Schnabel that inflation may rise further in the near term. Peripheral eurozone and UK government bond yields followed the trend of core markets.

Japan’s shares rose solidly through the first half of the week in reaction to the release of positive U.S. economic data. This bolstered expectations that the Federal Reserve may be less aggressive in its monetary policy and will not raise interest rates too high in the coming months. Japanese equity markets rallied on Wednesday despite mixed domestic economic news and weak data emerging from China that stoked worries that global growth may slow down. Both the Nikkei 225 Index and the TOPIX breached the psychological resistance levels of 29,000 and 2,000, respectively. However, by midweek, the optimism began to recede after the minutes from the U.S. Fed’s July meeting were released, pointing to a prolonged retention of high interest rates. The minutes reaffirmed that the Fed planned to continue raising interest rates in attempting to return inflation to its long-term objective of 2% (the July inflation rate figure was at 8.5%). This resulted in Japanese stock markets closing notably lower on Thursday. The yen weakened from its previous level of JPY 133.5 per USD to JPY 136.7 per USD. On the bond market, the benchmark 10-year JGB yields inched higher during the week, from 0.184% to 0.191%.

China’s stock markets also declined for the week in response to weak economic data and elevated levels of COVID cases, exacerbated by drought conditions in parts of the country. The broad, capitalization-weighted Shanghai Composite Index slipped 0.6% while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, dipped by 1%. July’s retail sales data released during the week indicated that it grew by 2.7% year-on-year and that industrial output was 3.8% higher than one year ago. Both indicators were lower than expected, however. Data on the property sector showed that China’s home prices fell for an 11^th straight month in July. Regarding COVID infections, this was the worst seven-day period in China since mid-May as more than 18,000 new local cases were recorded. A national drought alert was also issued by the government as rising temperatures threatened crops and industrial activity in certain regions of the country. The severe heat wave has sparked power shortages and forest fires. The 10-year Chinese government bond yield fell sharply after the People’s Bank of China (PBOC), China’s central bank, unexpectedly cut a key interest rate due to July’s disappointing economic data. In the meantime, the yuan hit a three-month low versus the U.S. dollar as the currency reacted to soft economic data and tracked the PBOC’s weakened midpoint guidance.

The Week Ahead

Personal income and consumption, jobless claims, and inflation are among the important economic data expected to be released in the coming week.

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

When inflation data released last week showed it slowing down on a monthly basis, despite still being elevated year-on-year, stocks rallied significantly in hopes that the rise in consumer prices may have seen their highest level. The market appeared optimistic that the Federal Reserve would move away from raising rates by 75 basis points (0.75%) in September as they had resorted to in the recent past, although the Fed clarified that they still had much work to do before inflation can be tamed.  The consumer price index (CPI) and producer price index (PPI) inflation data for July moved down, which was a welcome development after June’s unexpected accelerated indicators.

The Dow Jones Industrial Average (DJIA) rallied 2.92% for the week with a 957.58-point rise. The total stock market surged higher by 3.43% or a 1.434.21 increase. The S&P 500 Index gained 3.26% while the tech-heavy Nasdaq Stock Market Composite also rose 3.08%. the NYSE Composite likewise returned 3.48% for the week. Consumer staples underperformed the other sectors. In the weeks following, volatility may still be high, but if inflation continues to improve moderately but consistently, the markets may be poised for a sustained, longer-term rally.

U.S. Economy

While the headline CPI reported this week was lower than last month, the core CPI remained largely unchanged. The lower inflation figure was attributed to lower fuel and energy prices which impacted both the CPI and the PPI. The latter also benefitted from an improvement in the global supply chain as indicated by better delivery times, lower shipping-container rates, and a reduction in the Fed’s Global Supply Chain Pressure Index. There is some concern that changes in consumer habits may also have lowered demand for energy and fuel which in turn contributed to the reduction in fuel prices.

The lower-than-expected inflation data prompted an increase in steepening bets among investors that caused a pullback in front-end rates and a slight rise in longer-term yields. The optimism that inflation may have peaked caused a risk-on rally in investment-. grade corporate bonds. For the moment, the Fed remains committed to further increasing interest rates, citing that despite the apparent slowdown, inflation figures remain at historic highs. Chicago Fed President Charles Evans opined that the central bank may need to raise rates to as high as 4% by the end of 2023.

Metals and Mining

On Friday, gold closed with a fourth straight weekly gain, Analysts were expecting gold to rally significantly after inflation figures slowed down, since gold is a non-yield asset that tends to fall when fixed-income rates increase following a Fed rate hike. When colder weather kicks in, however, there is a chance that energy and fuel prices may once again ascend which may prompt inflation to once more increase. Some speculate that if gold cannot close around the $1,820 per ounce price level, the much-anticipated breakout summer rally may be out of the question, implying that the precious metal may even pull back to $1,700 per ounce.

Over trading last week, gold rose 1.52% above its prior week’s close at $1,775.50 to end the week at $1,802.40 per troy ounce. Silver, which closed the previous week at $19.90, ended the just-concluded week at $20.82 per troy ounce, a rise of 4.62%. Platinum began at $936.26 but closed on Friday at $965.33 per troy ounce, gaining 3.10%. Palladium previously closed at $2,129.29 but ended the week at $2,224.95 per troy ounce, increasing week-on-week by 4.49%. The three-month futures prices for base metals likewise ended the week on a higher note. Copper increased by 2.81% from its previous week’s close of $7,870.50 to its recent close at $8,091.50 per metric tonne. Zinc ended the prior week at $3,488.50 but closed this week at $3,589.00 per metric tonne for a gain of 2.88%.  Aluminum, which was previously pegged at $2,416.00, closed Friday at $2,434.50 per metric tonne for a slight increase of 0.77%. Tin began at $24,455.00 and ended at $25,177.00 per metric tonne to lock in a gain of 2.95%.

Energy and Oil

The recently concluded week was a volatile one for oil markets. It was dominated by a gloomy sentiment although, by the week’s end, oil prices still registered a gain. Accounting for the late-week recovery was the flat U.S. month-on-month inflation data and pipeline supply disruptions in Europe. The increasingly divergent world views of the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) also contributed to market speculation. OPEC was reducing further its demand forecasts for 2022; it brought down its estimated this week by another 260,000 barrels per day (b/d) due to recessionary pressures. The IEA, on the other hand, has increased its outlook by 380,000 b/d to 2.1 million b/d, arguing that elevated gas prices will be incentivizing higher crude utilization and demand. The IEA was optimistic that gas-to-oil switching will provide a boost to the recessionary-wary oil markets.

Natural Gas

For the report week from August 3 to August 10, 2022, the Henry Hub spot price increased by $0.06 from $7.83 per million British thermal units (MMBtu) at the start of the week to $7.89/MMBtu by the week’s end. As for the Henry Hub futures prices, the price of the September 2022 NYMEX contract descended $0.06, from $8.266/MMBtu on August 3 to $8.206/MMBtu on August 10. The price of the 12-month strip-averaging September 2022 through August 2023 futures contracts fell by $0.02 to $6.032/MMBtu for the report week. Regarding international futures prices, the weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia rose by $0.65 to a weekly average of $44.61/MMBtu, while natural gas futures for delivery to the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, dipped by $0.38 to a weekly average of $59.16/MMBtu.

World Markets

European shares made gains for the week as concerns abated that central banks will further hike interest rates. The pan-European STOXX Europe 600 gained 1.18% for the week, in local currency terms. Major indexes likewise advanced. France’s CAC 40 Index rose by 1.26%, Germany’s DAX Index climbed 1.63%, and Italy’s FTSE MIB Index ascended 1.70%. The UK’s FTSE 100 Index added 1.80%. The core eurozone government bond yields likewise ascended higher. The UK and the peripheral eurozone government bond yields broadly tracked the core markets. Some of the major European countries proclaimed that they would make more emergency funds available to support the slowing economies and to enable citizens to keep up with the rising cost of living. For instance, German Finance Minister Christian Lindner announced that the government would provide EUR 10 billion in tax relief. The French Parliament also recently passed a support package of EUR 44 billion, which includes nearly EUR 10 billion for nationalizing the power company, Électricité de France. Industrial production in the euro area rose for a third consecutive month in June, while output increased more than expected due to a large uptick in capital goods.

Japan’s stock markets rose over the week. The Nikkei 225 Index and the broader TOPIX Index similarly increased by about 1.3%. Investment appetite strengthened mainly due to the weaker-than-expected U.S. inflation data, supporting hopes that the Fed will temper its currently aggressive monetary policy. A reshuffling of Japan’s Cabinet suggested that monetary policy will continue to be dovish by retaining top figures in key positions, boosting investor sentiment. The yield on the 10-year Japanese government bond rose to 0.19% from the previous week’s 0.16%. The yen gained strength against the U.S. dollar to end at approximately JPY 133.4 (from what was previously JPY 135.0).

 China’s bourses ended the week mixed. Encouraging news of a record trade surplus last month and a central bank report that signaled support for growth were offset by a flare-up in coronavirus cases that coincided with the announcements. The broad, capitalization-weighted Shanghai Composite Index gained 1.5% while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, rose by 0.8%. A continued slowdown in the housing market and the coronavirus case spike that coincided with it were deemed serious risks to China’s recovering economy in the short term. Chinese coronavirus cases accelerated to a three-month high, half of which took place in the southern coastal island of Hainan which was widely locked down in the past week. The 10-year Chinese government bond yield slipped to 2.755% from the previous week’s 2.7652% as interbank money rates remained below policy rates, hovering at two-year lows.

The Week Ahead

Among the economic news to be released in the coming week are the building permits and housing starts, industrial production, retail sales, and jobless claims.

Key Topics to Watch

• Empire State manufacturing index
• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Industrial production
• Capacity utilization rate
• Retail sales
• Retail sales ex-motor vehicles
• Real retail sales
• Fed Gov. Michelle Bowman speaks
• Business inventories
• Federal Open Market Committee minutes
• Fed Gov. Michelle Bowman speaks
• Initial jobless claims
• Continuing jobless claims
• Philadelphia Fed manufacturing index
• Existing home sales (SAAR)
• Leading economic indicators
• Kansas City Fed President Esther George speaks
• Minneapolis Fed President Neel Kashkari speaks
• Richmond Fed President Tom Barkin speaks
• Advance report on selected services

Markets Index Wrap Up

Stock Markets

Stocks were mixed throughout trading this past week due to a stronger-than-expected jobs report and renewed investor worries that the Federal Reserve will continue with its aggressive monetary policy. The Dow Jones Industrial Average (DJIA) dipped marginally by 0.13% with all sectors down although the total stock market index rose by 0.67%. Tech stocks did better, as indicated by the 2.15% weekly increase in the Nasdaq Stock Market Composite, while the broad S&P 500 Index recorded an increase of 0.36%. The NYSE Composite was down a slight 0.36%. Trading modestly higher during the week was the broad tax-exempt bond market. It appeared that the strong payroll report and hawkish tone of pronouncements from Fed officials helped drive U.S. Treasury yields higher during the week, outweighing the downward pressure from heightened U.S.-China tensions resulting from House Speaker Nancy Pelosi’s Taiwan visit.

U.S. Economy

The Labor Department’s payrolls report released on Friday showed that 528,000 nonfarm jobs were added in July, more than doubling consensus expectations of 250,000, while estimates for May and June were revised upward by a total of 28,000. The strong July gains have brought total nonfarm employment in the U.S. to its pre-pandemic level. The data suggests that the job market is heating up instead of cooling, which is contrary to the Fed’s intentions to slow growth and, consequently, inflation. The unemployment rate has fallen to its February 2020 level, at 3.5%. Notable hiring increases were accounted for by the leisure and hospitality, professional and business services, and health care sectors. Wage growth rose faster than expected, up 0.5% month-on-month and 5.2% year-on-year. This suggests that inflation may remain elevated in the near term due to wage pressure.

The strong payroll numbers indicate that the Fed has room to raise interest rates further, despite Fed Chair Jerome Powell’s somewhat dovish comments following the central bank’s July 26-27 policy meeting. Initial jobless claims inched up to 260,000 in line with forecasts, while the Institute for Supply Management (ISM) survey data showed an unexpected growth acceleration in the service sector. On the other hand, the ISM’s reading of manufacturing growth exceed expectations but still fell to its lowest level since June 2020.

Metals and Mining

There is not much good news for gold investors that the exceptionally strong jobs report provides. Wages rose more than expected in a contracting economy, which is far from normal. The Fed may decide to increase interest rates more aggressively to seek to control inflation, drawing investments more toward yield-generating assets and away from precious metals that have no yield. Although the next Fed monetary policy decision is still almost two months away, markets have chalked up a 70% chance that the rate will be increased another 75 basis points, whereas before the release of this week’s employment report, this possible movement was estimated at only 30%. Furthermore, the Bank of England hiked its interest rates by 50%, the first half-point movement since the BoE’s independence from the government in 1997. On the other hand, analysts have noted a strong risk premium in the marketplace is providing solid support for gold. The shift in focus was due to the deterioration in U.S.-Sino relations brought about by U.S. House Speaker Nancy Pelosi’s visit to Taiwan. These risks may continue to linger, providing an incentive for investors to remain with gold.

During this past week, the spot price of gold closed at $1,775.50 per troy ounce, 0.54% higher from its prior close at $1,765.94.  Silver dipped from its previous closing price of $20.36 to its recent weekly close at $19.90 per troy ounce, a loss of 2.26%. Platinum began at $899.35 and ended the week at $936.26 per troy ounce for a gain of 4.10%.  Palladium, which was previously priced at $2,131.10, ended the week at $2,129.29 per troy ounce, down by 0.08%. The three-month outright order price for base metals ended mixed. Copper, which closed at $7,917.50 during the previous week, ended this past week at $7,870.50 per metric tonne, down by 0.59%.  Zinc registered a weekly gain of 5.44%, from the prior week’s close at $3,308.50 to last week’s close at $3,488.50. Aluminum fell from the earlier week’s $2,488.50 to last week’s $2,416.00 for a loss of 2.91%. Tin likewise dipped from $25,047.00 the week before to $24,455.00 per metric tonne last week for a decline of 2.36%.

Energy and Oil

Despite the U.S. government’s reluctance to declare that a recession is technically underway, other news and analysis appear to lean to the contrary. The Bank of England issued a warning last week that a five-quarter-long recession is imminent, while the OPEC+ fails to take action on increasing oil production. During its recent meeting to set its collective September 2022 target, OPEC+ agreed to the lowest monthly quota increase since 1986, at 100,000 barrels per day, signifying that the group is still assessing the risk of recession before it takes more radical steps. These signals are taking their toll on oil prices which have fallen back almost to levels before the Russian invasion of Ukraine, with ICE Brent trending around $96 per barrel. For the first time in weeks, oil futures contracts are beginning to reflect expectations of a weak winter as monthly spreads halve week-on-week. While the market remains in backwardation (i.e., when the future prices exceed the spot price), the situation does not appear to be as drastic as it had been before the summer.

Natural Gas

For the report week from July 27 to August 3, 2022, the Henry Hub spot price fell $0.85 from $8.68 per million British thermal units (MMBtu) to $7.83/MMBtu. The price of the September 2022 NYMEX contract descended to $8.266/MMBtu, a decrease of $0.29 for the week. The price of the 12-month strip averaging September 2022 through August 2023 futures contracts slid by $0.20 to $6.748/MMBtu. International natural gas futures prices rose over the report week, with the weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia rising by $4.61 to a weekly average of $44.57/MMBtu. Also for the report week, natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, increased by $5.90 to a weekly average of $59.54/MMBtu.

World Markets

In Europe, equities weakened on the expectation that central banks will continue to hike interest rates aggressively in an attempt to control inflation. The pan-European STOXX Europe 600 Index slid by 0.59% in local currency terms while major market indexes advanced. France’s CAC 40 Index gained 0.37%, Germany’s DAX Index advanced 0.67%, while Italy’s FTSE MIB Index climbed 0.81%. The UK’s FTSE 100 Index rose 0.22%. Core eurozone government bond yields ended the week sideways. Due to an increase in tensions between the U.S. and China over Speaker Nancy Pelosi’s visit to Taiwan, yields fell early on, only to be driven up again by hawkish pronouncements from Federal Reserve officials ahead of key U.S. data releases. UK yields broadly tracked core markets but ended the week slightly higher after the BoE increased rates by a significant 50 basis points and warned that a recession may be on the horizon. The biggest rate increase in 27 years brought the interest rate to 1.75%. Inflation is projected by the BoE to hit 13.3% by October due to surging energy prices. Inflation will continue to remain “very elevated” throughout 2023 and will recede to its 2% target in two years. The U.K. is forecasted to remain in recession for five quarters beginning this winter.

Japanese equities gained over the past week. The Nikkei 225 Index rose 1.35% while the broader TOPIX Index ascended 0.35%. The impetus was largely pushed by optimistic corporate earnings on the domestic front, although worries about increased friction between the U.S. and China appeared to impose a ceiling on the surge. Japanese firms that earned their revenues from exports benefitted from a weak currency. The yen closed at around JPY 133 against the U.S. dollar for the week, which is broadly unchanged from the past week. The yield on the 10-year Japanese government bond (JGB) slumped to 0.16% the just-concluded week from 0.18% by the end of the previous week as a reflection of the risks of a global recession. A Ministry of Finance official opined that, while nothing yet is conclusive, investors should prepare for a normalization in Japanese bond trading when the Bank of Japan (BoJ) will cease to be the main purchaser of JGBs. Currently, the BoJ’s curve control policy mandate buying an unlimited amount of JGBs to defend an implicit 0.25% ceiling around its zero percent yield target.

Stock markets in China slowed as buyers were pushed to the sidelines by geopolitical tensions, mortgage boycotts, and lukewarm economic data. The broad, capitalization-weighted Shanghai Composite Index slid 0.8% while the blue-chip CSI 300 Index, which follows the largest listed companies in Shanghai and Shenzhen, descended 0.3%. The top issue that moved equities was the trip to Taiwan of U.S. House of Representatives Speaker Nancy Pelosi in the face of Beijing’s protests. The event led to live-fire drills in the waters around Taiwan and imposed sanctions on Pelosi and her immediate family. Shares of Chinese chipmakers surged as speculation grew ripe that the government will increase support for the domestic semiconductor industry coincident with the U.S. ramping up its efforts to curb China’s rise in chip manufacturing.

The Week Ahead

Among the important economic data scheduled for release in the coming week are productivity, jobless claims, and data focusing on inflation in the U.S.

Key Topics to Watch

• NY Fed 3-year inflation expectations
• NFIB small business index
• Productivity
• Unit labor costs
• Consumer price index
• Core CPI
• CPI (year-over-year)
• Core CPI (year-over-year)
• Wholesale inventories (revision)
• Federal budget (compared with year earlier)
• Initial jobless claims
• Continuing jobless claims
• Producer price index
• Import price index
• UMich consumer sentiment index (preliminary)
• UMich 5-year inflation expectations (preliminary)

Markets Index Wrap Up

Stock Markets

In the last trading week, three major data releases impacted the markets – the July Federal Reserve rate increase, the second-quarter gross domestic product (GDP) reading, and the current second-quarter earnings season focusing on large-cap technology. Market reaction was relatively optimistic despite the data seeming broadly soft since investors have already generally priced in the potential sluggish economic growth. The S&P 500 has already come down by more than 17% and the Nasdaq by almost 24%, already shedding much of the downside risk. Had they not plunged to such levels earlier this year, the markets would have exhibited much more volatility in reaction to this week’s announcements.

All indexes are up for the week, particularly after the release of the much-anticipated negative data. The Dow Jones Industrial Average (DJIA) rose 2.97% for the week, with the total stock market 4.19% higher. The S&P 500 Index gained 4.26% and the Nasdaq Composite, which tracks the technology sector, surged 4.70%. The NYSE Composite index ascended 3.63% week-on-week. All sectors made gains in the week, indicative of a “bad news is good news” dynamic, with growth stocks outperforming value stocks.

U.S. Economy

All attention was focused on the week’s Federal Open Market Committee (FOMC) meeting that ended with the announcement of a 75-basis-point rate increase on Wednesday. The announcement was generally expected, and thus was quickly discounted by investors, having priced in the restrictive measures in past weeks’ trading. Some softening of spending and manufacturing was noted in the FOMC statement, and Fed Chair Jerome Powell’s post-meeting press conference was mostly interpreted by market participants as more dovish than expected. The stronger-than-expected quarterly earnings reports from Amazon.com and Alphabet resulted in a one-day gain of more than 4% for the Nasdaq Composite Index.

The Commerce Department reported on Thursday that the second-quarter GDP contracted by 0,9% year-on-year. This was much lower than the consensus expectation of an increase of 0.5% to 0.8%.  The negative second-quarter GDP growth marks the second successive quarter of negative growth, the definition of a technical recession. Analysts noted, however, that job growth remained strong, indicating that the current business cycle has not yet turned. It is likely, however, that the U.S. economy is evidently slowing down to below-trend growth levels, and may slow further in the coming months. It should be kept in mind that the second-quarter GDP is backward-looking and has not yet taken into account most of the Fed rate hikes. The rate hikes and quantitative-tightening program adopted by the Feds will likely be felt in the medium term. The more interest-rate sensitive sectors of the economy may exhibit more weakening, such as the housing market which is already showing some softness. Hopefully, the economy may avoid a deep or prolonged recessionary period, given the strong starting position of the labor market and consumers. These factors may provide a cushioning effect against further rising interest rates and a weaker economy ahead.

Metals and Mining

The gold market appears to be experiencing some bullish momentum. This coincides with the fact that the U.S. economy has technically entered a recession, having contracted the second quarter of negative GDP growth. Despite the controversy among politicians and economists as to whether they are currently in a real recession or not, consumers are beginning to feel the effects of rising interest rates and the unrelenting rising inflation. Data from the U.S. Conference board in the past week showed that consumer confidence for July dropped to its lowest level since February 2021. This pessimism is expected to increase and weigh on further growth. Worse, a Twitter poll in the past week showed that as many as 80% of investors in the metal industry believe that the U.S. is headed for a recession. The recession debate notwithstanding, there is little doubt that the economy is slowing. With increasing inflation comes increased interest in gold as a safe haven asset. However, rising interest rates may cap the gold rally, thus it may be prudent to take some profits should gold prices push to $1,800 per ounce.

In the past week, gold moved from $1,727.64 the week before to $1,765.94 per troy ounce, gaining 2.22%. Silver rose by 9.46% from $18.60 to $20.36 per troy ounce. Platinum, which closed the week earlier at $876.84, closed this week at $899.35 per troy ounce for an increase of 2.57%. Palladium began at $2,039.00 and closed at $2,131.10 per troy ounce for a week-on-week gain of 4.52%. The 3-mo prices for base metal also realized gains for the week. Copper gained 6.24% for the week, beginning at $7,452.50 and ending at $7,917.50 per metric tonne. Zinc closed the week earlier at $2,992.50 but ended this past week at $3,308.50 per metric tonne, gaining 10.56%. Aluminum used to be at $2,475.50 but closed this past week at $2,488.50 per metric tonne, a rise of 0.53%. Tin came from $24,947.00 the week prior and ended at $25,047.00 this week, ascending by 0.40%.

Energy and Oil

Over the past week, the overall sentiment in oil markets has been greatly encouraged by record second-quarter profits posted by companies such as ExxonMobil, Chevron, and Shell. This time, it was due to falling gasoline prices in the U.S., thus saving the companies from accusations that they are making money at the expense of customers. Over the upcoming period, virtually all leading oil majors have indicated that they will either maintain or intensify their share buybacks, resulting in a much-needed surge among oil stocks this week. Together with improving confidence, rumors that the OPEC+ will keep September production targets unchanged have pushed oil prices higher. The front-month ICE Brent contract moved up to $110 per barrel.

Natural Gas

Prices rose at most locations this report week. The Henry Hub spot price increased by $1.12 from $7.56 per million British thermal units (MMBtu) at the start of the report week on July 20, 2022, to $8.68/MMBtu at the end of the report week on July 27, 2022. Increases at major pricing hubs ranged from its highest level of $1.15 at PG&E Citygate to its lowest level of $0.28 at the SoCal Citygate in Southern California. International natural gas futures prices rose also during the week. In East Asia, weekly average futures prices for liquefied natural gas (LNG) cargoes rose by $1.85 to a weekly average of $39.96/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, rose by $6.04 to a weekly average of $53.64/MMBtu. This is the second-highest weekly average on record behind the $61.08/MMBtu weekly average reported for early March after Russia’s full-scale invasion of Ukraine. 

World Markets

European equities climbed this week on the back of data indicating that the eurozone economy expanded faster than expected, at a rate of 0.7%, in the second quarter. Markets were generally unimpacted by concerns about rising natural gas prices caused by a reduction in Russian supply. The pan-European STOXX Europe 600 Index closed the week higher by 2.96% in local currency terms. Germany’s Xetra DAX Index gained 1.74%, France’s CAC 40 Index ascended 3.73%, and Italy’s FTSE MIB Index surged by 5.63%. The UK’s FTSE 100 Index rose 2.02%. The core eurozone bond yields dipped on rising concerns regarding global growth after Russia diminished its gas supplies into Europe. As the U.S. entered a technical recession, the International Monetary Fund downgraded its global growth forecast. The core markets were broadly tracked by peripheral government bond yields. UK gilt yields likewise tracked core markets but closed the week broadly level.

The Japanese stock markets ended the week slightly lower. The Nikkei 225 Index slid 0.40% while the broader TOPIX Index fell 0.80%. Equities were generally weighed down by a stronger yen, mixed domestic earnings releases, and the downgraded estimates for Japan’s economic growth. Over the week, risk appetite in global markets was propped by tentative expectations that the U.S. Federal Reserve may take measures to slow the pace of its interest rate hikes, seeing how the U.S. economy contracted for two straight quarters. The yen recovered from its recent 24-year lows in light of this development. It treaded six-week highs of around JPY 133 against the U.S. dollar from about JPY 136 one week earlier. The Deputy Governor of the Bank of Japan (BoJ), Masayoshi Amamiya, declared that the BoJ must maintain massive stimulus for the present, although the central bank must anticipate the means available to exit its accommodative policy. Amid fears of a global recession, the yield on the 10-year Japanese government bond dropped to 0.18% from the previous week’s 0.22%.

Chinese equity markets were reassured after a high-level meeting of the ruling Communist Party dropped calls that it will attempt to meet its 2022 growth target, without giving any indication of new stimulus, however. The broad, capitalization-weighted Shanghai Composite Index slid 0.5% and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, dipped 1.6%. Analysts reported that statements from the government signaled that it was implicitly abandoning its target growth rate of approximately 5.5% without specifying a new target. On Thursday, the IMF adjusted its full-year growth forecast for China to 3.3% from its April forecast of 4.4% and reduced its 2023 forecast by half a percentage point to 4.6%. The 10-year Chinese government bond yield slid from the prior week’s 2.806% to 2.775%. The yuan was flat against the U.S. dollar, in contrast with other currencies which gained against the greenback during the week.

The Week Ahead

Among the important economic data expected to be released in the coming week are hourly earnings, unemployment rate, and job openings.

Key Topics to Watch

• S&P U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Job openings
• Quits
• Rental vacancy rate
• Homeowner vacancy rate
• Real household debt
• St. Louis Fed President James Bullard speaks
• Motor vehicle sales (SAAR)
• S&P U.S. services PMI (final)
• ISM services index
• Factory orders
• Core capital equipment orders (revision)
• Initial jobless claims
• Continuing jobless claims
• Trade deficit
• Cleveland Fed President Loretta Mester speaks
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor force participation rate, ages 25-54
• Consumer credit

Markets Index Wrap Up