Stock Markets

Major stock market indexes were mixed this week. The Dow Jones Industrial Average (DJIA) was up marginally by 0.86% week-on-week, mirroring the Total Stock Market index increase of 0.58%. The S&P 500 Index was on pace with the DJIA as it gained by 0.87% for the week, although the Nasdaq Stock Market Composite performed better with a 1.28% climb. The NYSE Composite moved sideways with a slight dip of 0.21%. CBOE Volatility, an indicator of investors’ perceived risk, declined by 5.90%. Trading for the week was selective as only four stocks – Microsoft, Apple, Amazon.com. and Facebook parent Meta Platforms – accounted for almost half of the strong gain of the S&P 500, its strongest since January 6. Unfortunately, cyclical sectors mostly performed poorly as investors discounted several new signs of an economic slowdown, particularly in the manufacturing sector.

Looking at the stock market’s performance year-to-date, there is still much to be optimistic about. This week added to the year’s gains so far, including a 2% rally on Thursday, the best day since January 6. The S&P 500 is up by 8%, while the Nasdaq has seen the strongest momentum with a 16% gain as technology and growth stocks rallied on the back of lower rates. Global markets have also surged as international developed-market equities moved up 11% year-to-date. Bonds likewise participated in the rebound, with yields pulling back from the last year’s peak and returning 3%.

U.S. Economy

Early in the week, several indicators of regional manufacturing activity came in well below expectations and suggested that factories were cutting back on production in April. A negative outlook was noted for shipping volumes from United Parcel Service, which lost 10% of its stock price on the news. Durable goods data released on Wednesday surprised on the upside as it rose by 3.2% in March orders. The optimism is tempered, however, by the fact that orders excluding aircraft and defense, considered a better indicator of business spending plans, dipped by 0.4%. Retail inventories rose by 0.4% for the month, which is more than expected and the most since August, suggesting the need for further cutbacks in production and spending.

The Commerce Department’s advance estimate of annualized growth in gross domestic product (GDP) in the first quarter was released on Thursday, coming in at 1.1% which is well below the consensus estimate of 2%. The GDP report signals a softening economy, nevertheless, it also confirms that the movement is gradual rather than abrupt, suggesting that a mild and shallow recession, rather than a precipitous drop, is ahead. This outlook appears to be bolstered by a labor market that is in a historically healthy position, allowing consumers to deal with a recession in better shape. The latest data suggests that employment conditions are weakening, but moderately, which contributes to softening the effect of a coming market slowdown.

Fears of a slowdown and possible recession were further escalated by renewed turmoil in the banking industry. U.S. markets ended on session lows on Tuesday following the earnings release by California’s First Republic Bank. The report revealed that the bank had suffered more than $100 billion in deposit outflows in the first quarter. The news plunged the bank’s stock price by almost half and influenced the performance of the overall regional banking sector. On Friday morning, news came that the Federal Deposit Insurance Corporation (FDIC) was planning on taking the bank into receivership that evening, sending the bank’s stock even lower.

Metals and Mining

Gold prices appear to be stuck in neutral at $2,000 an ounce, which is not necessarily a disadvantage at this point. Precious metals may not be going anywhere for the time being as stubborn inflation continues to compel the Federal Reserve to raise rates and maintain aggressive policies. However, looking back at where gold has been, it appears that the yellow metal is performing exceptionally well. Gold is maintaining a steady grip on $2,000 an ounce as investors prepare to close the books in April. This signifies that it has once more managed an all-time high monthly close at $1,997 an ounce. The prices are well north of a post-pandemic three-year average of approximately $1,807.65 an ounce. At the same time, the gold price is far above the five-year pre-pandemic average of about $1,267.57 an ounce.

As of this past trading week, gold gained by 0.35% from its previous week’s close at $1,983.06            to its latest close at $1,990.00 per troy ounce. Silver slipped by 0.12% from the prior week’s ending at $25.08 to this week’s ending at $25.05 per troy ounce. Platinum lost 4.34% of its closing price from the previous week’s $1,127.20 to this week’s $1,078.31 per troy ounce. Palladium also declined from its previous closing price of $1,605.10 to this week’s closing price of $1,506.87 per troy ounce, a loss of 6.12%.  The three-month LME prices for base metals mostly ended the week on the downside. Copper came from $8,794.50 a week ago and lost by 2.26% to end this week at $8,595.50 per metric tonne. Zinc, which closed one week ago at $2,719.00, ended this week at $2,647.50 per metric tonne for a loss of 2.63%.  Aluminum, which one week ago ended at $2,396.50, lost by 1.69% to end this week at $2,356.00 per metric tonne. Tin ended this week at $26,088.00 per metric tonne, a decline of 1.90% from last week’s close at $26,594.00.

Energy and Oil

After Wednesday’s double whammy of bad macroeconomic data, oil prices have stabilized at $78 per barrel for ICE Brent and $74 per barrel for WTI. Fears that economic growth is slowing down in the United States are bolstered by the decline in U.S. capital goods spending. Refinery margins likewise continued their descent this week, making it much harder for downstream players to stay profitable. On the back of these developments and despite the OPEC+ production cuts, oil is poised to see its sixth straight monthly loss.

In other developments this week, OPEC Secretary General Haitham al-Ghais issued a warning to the International Energy Agency (IEA) to exercise caution regarding discouraging investment into oil and gas. Advocating for such measures and finger-pointing at oil producers may lead to increased volatility in the future, al-Ghais argued.

Natural Gas

European natural gas storage inventories as of April 1, 2023, were 56% full. According to data from Gas Storage Europe’s Aggregated Gas Storage Inventory, this is the highest level on record for the end of the heating season. An exceptionally warm winter reduced heating demand, resulting in Europe’s high levels of natural gas in storage. Lower natural gas consumption resulting from a Europe-wide effort to conserve natural gas, as well as record levels of liquefied natural gas (LNG) imports, also contributed to the higher levels and offset lower imports by pipeline from Russia. The U.S. remained the largest LNG supplier to Europe for the second year in a row, accounting for 44% of total LNG imports during 2022.

For this report week beginning Wednesday, April 19, and ending Wednesday, April 26, 2023, the Henry Hub spot price fell by $0.01 from $2.20 per million British thermal units (MMBtu) at the start of the week to $2.19/MMBtu by the week’s end. The May 2023 NYMEX contract expired on April 26 at $2.117/MMBtu, down by $0.11 from one week earlier. The June 2023 NYMEX contract price decreased to $2.305/MMBtu, down by $0.09 throughout the week. The price of the 12-month stripping averaging June 2023 to May 2024 futures contracts declined by $0.04 to $3.042/MMBtu.

International natural gas futures prices declined for this report week. The weekly average front-month futures prices for LNG cargoes in East Asia fell by $0.66 to a weekly average of $11.90/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF), the most liquid natural gas market in Europe, fell by $0.51 to a weekly average of $12.84/MMBtu. In the corresponding week last year (the week from April 20 to 27, 2022), the prices were $25.26/MMBtu and $31.29/MMBtu in East Asia and at the TTF, respectively.

World Markets

European stock markets trekked lower on heightened concerns that the rounds of interest rate increases may finally tip the economy into a recession. The pan-European STOXX Europe 600 Index closed the week lower by 0.50% in local currency terms. The major stock indexes were mixed to lower. Italy’s FTSE MIB declined by 2.41% while France’s CAC 40 Index dipped by 1.13%. Germany’s DAX, on the other hand, advanced by 0.26%. The UK’s FTSE 100 Index gave up 0.55%.  Core eurozone bonds were highly volatile for the week. Resurrected concerns about the U.S. banking industry and an unexpected fall in Spanish producer price inflation initially pushed the 10-year German bund yield lower. Around midweek, however, it corrected upward on the back of the U.S. core personal consumption expenditures inflation that surprised on the upside. Thereafter, news of stagnating first-quarter German economic growth and a more dovish-than-expected Bank of Japan (BoJ) policy meeting on Friday resulted in a pullback in yields. Peripheral eurozone and UK government bonds broadly followed the trend set by core markets.

Japan’s equities markets ascended over the week. The Nikkei 225 Index rose by 1.02% while the broader TOPIX Index gained by 1.10%. A dovish BoJ surprised the markets by signaling a continued commitment to its ultra-loose stance by leaving monetary policy unchanged, including its yield curve control framework. Also contributing to the positive investor sentiment was the government’s easing of Japan’s border controls ahead of an expected increase in arrivals, particularly from China, due to the Golden Week holidays scheduled at the end of April and the beginning of May. Largely due to an unexpectedly dovish BoJ, the yield on the 10-year Japanese government bond (JGB) dipped to 0.41% from 0.46% at the end of the previous week. The yen pulled back to about JPY 135 against the U.S. dollar, from around JPY 134 to the greenback during the prior week, which further signaled policy continuity.

China’s stock markets ended mixed ahead of a five-day holiday. Beijing reaffirmed its commitment to a supportive policy stance, easing worries about an uneven economic recovery. The Shanghai Stock Exchange Index rose by 0.67%, while the blue-chip CSI 300 retreated by 0.09% in local currency terms. China’s stock markets will remain closed for the coming Monday through Wednesday in celebration of the Labor Day holiday. Trading will resume on Thursday, May 4. The country’s top decision-making body, the Chinese Politburo, promised to continue its “forceful” fiscal and monetary policy position to support the economy which is expected to face obstacles in economic transformation and insufficient domestic demand. In this year’s first quarter, China’s economy expanded at its fastest pace in a year. Nevertheless, policymakers remain cautious in light of headwinds ranging from high youth unemployment and slowing global growth.

The Week Ahead

Among the important economic data scheduled for release this week are several labor market indicators (e.g., employment reports and unemployment rate) as well as the Federal Reserve interest rate statement.

Key Topics to Watch

• S&P U.S. manufacturing PMI
• ISM manufacturing
• Construction spending
• U.S. job openings
• Factory orders
• ADP employment
• S&P U.S. services PMI
• ISM services
• Federal Reserve interest rate statement
• Fed Chair Powell press conference
• U.S. productivity
• U.S. trade deficit
• Initial jobless claims
• Continuing jobless claims
• U.S. employment report
• U.S. unemployment rate
• U.S. hourly wages
• Hourly wages year over year
• Consumer credit

Markets Index Wrap Up

Stock Markets

The stock markets moved sideways for the week which was dominated by first-quarter earnings reports and little market-moving economic news. Market volumes were particularly light which underscores the listless trading for the week. First-quarter earnings reports are still coming in, but once the remaining company results have been released, overall earnings for the S&P 500 listed companies will show a decline for the second straight quarter, although some reports have surprised on the upside. During the week, financials outperformed overall despite a quick plunge in Goldman Sachs’s share price after the company missed consensus revenue estimates. Goldman Sachs has diversified into the wealth and asset management businesses.

According to the WSJ weekly markets report, the Dow Jones Industrial Average (DJIA) dipped by 0.23% for the week although the transportation and utility averages and 65 composite inched upward. The total stock market index also slid by 0.05%. The broader S&P 500 Index is likewise down for the week by about 0.10% and the Nasdaq Stock Market Index, which tracks technology stocks, lost by 0.42%.  The NYSE Composite Index corrected by 0.15%. Despite the correction in all the major stock indexes, the CBOE volatility index, a gauge of investors’ risk perception, came down by 1.76%, its lowest level since late 2021.

U.S. Economy

The economy continues to expand, however, there have been recent signals pointing to the inevitable cooling of the labor market and economic activity. The weekly jobless claims report released on Thursday showed signs that the labor market is growing weaker. Investors, however, appear uncertain as to whether this should be treated as good news or bad. If the labor market slows, the Federal Reserve may take this as a sign that inflation is coming under control and, therefore, further interest rate hikes may be dialed back. This would be good news. However, if the slowing labor market was taken as a sign of an impending contraction, the likely prognosis is that a recession is imminent. Then it would be bad news. Weekly claims increased slightly more than expected, but continued claims were elevated significantly more than anticipated and attained their highest level, 1.87 million, since November 2021.

Housing data also projected a weakening of activity, as starts and finishes slowed down from February’s data. Existing home sales descended, while year-over-year home prices lost ground by 0.9%, the largest decrease recorded going back 11 years. The picture painted by S&P Global was more optimistic in their Friday release. According to their analysis, private-sector employers increased hiring in early April at the fastest rate in nine months, while work backlogs grew even while businesses added capacity.  The S&P Global U.S. Composite Purchasing Managers’ Index (PMI) of both services and manufacturing activity rose to its peak in almost a year. The PMI rose to 53.5, with readings over 50 indicating expansion. The strong PMI reading was attributed to stronger demand, improving supply chains, and strength in new orders. The manufacturing PMI was higher than expected and returned to expansion territory with a 50.4 reading for the first time since October.

The yield on the benchmark 10-year U.S. Treasury note surged following the S&P Global data release, reversing earlier declines and ending modestly higher for the week. It should be recalled that bond prices and yields move in opposite directions. The municipal bond market was weighed down somewhat by a spike in supply.

Metals and Mining

Markets have now come to accept the idea that the Federal Reserve will continue to raise interest rates, an issue that caused massive volatility in last month’s trading. At present, the markets have already firmly priced a 25-basis point hike for May, and have pushed back the timing of any potential rate cut to the end of the year. At the height of the banking crisis last month, a potential rate cut was speculated as early as June; as a result, gold prices are ending below $2,000 per ounce this past week due to profit-taking. Gold may see further lows in the short term, although the market remains on track to hit all-time highs within the year.

For the week, precious metals prices were mixed. Gold closed at $1,983.06 per troy ounce, coming down by 1.10% from the previous week’s close at $2,005.21. Silver dipped by 1.22% from its week-ago close at $25.39 to end this week at $25.08 per troy ounce. Platinum, on the other hand, rose by 7.54% from its close the previous week at $1,048.13, to end this week at $1,127.20 per troy ounce. Palladium likewise gained by 6.62% over its week-ago close at $1,505.38 to end this week at $1,605.10 per troy ounce. The three-month LME prices of base metals were likewise mixed. Copper came from its previous week’s close at $9,058.50 to this past week’s close at $8,794.50 per metric tonne, a decline of 2.91%. Zinc lost by 4.16% from its week-ago close at $2,837.00 to this week’s close at 2,719.00 per metric tonne. Aluminum inched upward by 1.25% from the previous week’s close at $2,367.00 to this week’s close at $2,396.50 per metric tonne. Tin climbed by 8.80% from the previous week’s close at $24,442.00 to this week’s close at $26,594.00 per metric tonne.

Energy and Oil

The labor market appears to be cooling, as indicated by an increase in the number of Americans filing for unemployment benefits. This seemed to lull expectations of another interest rate hike from the Federal Reserve which added to the bearish sentiment in the oil markets. A slowing economy signals weaker demand offsetting the falling inventories and adding to fears of dropping oil prices. Macroeconomic-related drivers are expected to dominate in the next two weeks as investors anticipate the Fed and ECB meetings in early May. In the meantime, the Biden administration attempts to allay concerns raised by lawmakers that last year’s 180-million-barrel drawdown of strategic petroleum reserves (SPR) may have damaged the SPR salt caverns.  

Natural Gas

For the report week beginning Wednesday, April 12, and ending Wednesday, April 19, 2023, the Henry Hub spot price fell by $0.01 from $2.21 per million British thermal units (MMBtu) at the start of the week to $2.20/MMBtu at the week’s end. The price of the May 2023 NYMEX contract increased by $0.129 from $2.093/MMBtu to $2.222/MMBtu through the report week. The price of the 12-month strip averaging May 2023 through April 2024 futures contracts climbed by $0.108 to $3.006/MMBtu. International natural gas futures prices decreased during this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.05 to a weekly average of $12.56/MMBtu.  Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, fell by $0.48 to a weekly average of $13.35/MMBtu. In the corresponding week last year (the week from April 13 to April 20, 2022), the prices were $27.16/MMBtu and $30.06/MMBtu at East Asia and TTF, respectively.

World Markets

European shares moved sideways for the week on directionless trading in the absence of significant trading incentives. The pan-European STOXX Europe 600 Index gained a modest 0.45% as optimism about the economic outlook gradually picked up versus concerns about interest rates staying higher for a longer period. Major stock indexes were mixed. Germany’s DAX inched up by 0.47% while France’s CAC Index added 0.76%. On the other hand, Italy’s FTSE MIB fell by 0.45%. The UK’s FTSE 100 Index managed to gain by 0.54%. European government bond yields moved higher as investors assessed the chances that the European Central Bank (ECB) will again hike interest rates in May. Eurozone business activity seemed to pick up in April as indicated by a popular Purchasing Managers’ Index (PMI). The Hamburg Commercial Bank (HCOB) Flash Eurozone Composite PMI Output Index, which gauges activity in both the services and manufacturing sectors, rose to 54.4 seasonally adjusted from 53,7 in March, driven by a revival of demand in the services sector. Activity in the manufacturing sector, however, shrank, with the index falling to 48.5 from 50.4, which was likely influenced by protests in France that temporarily slowed output.

Japan’s stock market rose over the past week, with the Nikkei 225 Index coaxed up by 0.25% and the broader TOPIX Index rising by 0.81%. Core consumer price inflation remained above the March 2% target of the Bank of Japan (BoJ). This adds pressure on the BoJ to take steps to normalize monetary policy under its new Governor Kazuo Ueda. The governor reiterated the BoJ’s commitment to its easing stance until price stability is achieved, a message released by Ueda ahead of his first monetary policy meeting at the helm on April 27-28. In this light, the yield on the 10-year Japanese government bond remained unchanged at 0.46%. The yen was also little changed against the dollar, ending the week at JPY 134.

The Chinese stock market fell for the week, as investors’ sentiments were weighed down by mixed economic data and news that the U.S. may introduce fresh investment limits against China. The Shanghai Stock Exchange Index lost by 1.11% while the blue-chip CSI 300 declined by 1.45% in local currency terms. Hong Kong’s benchmark Hang Seng Index gave up 1.78%. China’s year-on-year gross domestic product (GDP) expanded by 4.5%, which was better than expected, in the first quarter of 2023, compared with last year’s growth rate of 3.0%. The recovery was driven by robust export growth and infrastructure investments, as well as a rebound in retail spending and property prices. Based on this growth reading, several banks were prompted to raise their annual growth forecasts for China as consumption continues to recover.

The Week Ahead

Home sales data and inflation measures are among the important economic data coming out in the week ahead.

Key Topics to Watch

• S&P Case-Shiller home price index (20 cities)
• FHFA home price index
• New home sales
• Consumer confidence
• Durable goods orders
• Durable goods minus transportation
• Advanced U.S. trade balance in goods
• Advanced retail inventories
• Advanced wholesale inventories
• Gross Domestic Product (GDP)
• Initial jobless claims
• Continuing jobless claims
• Pending home sales
• Employment cost index
• Personal income (nominal)
• Personal spending (nominal)
• PCE index
• Core PCE Index
• PCE (year-over-year)
• Core PCE (year-over-year)
• Chicago Business Barometer
• Consumer sentiment (final)

Markets Index Wrap Up

Stock Markets

Over the trading week, the benchmark indexes moved slightly higher as investors weighed slowing economic growth signals. The Dow Jones Industrial Average moved up by 1.2% for the week while the total stock market average inched up by 0.89% on the back of a 2.01% gain in the transportation sector that offset a 1.48% slide in the utility average. The broad-based S&P 500 Index also moved up slightly by 0.79% while the technology-heavy Nasdaq Stock Market Composite gained marginally by 0.29%. The NYSE Composite index advanced by 1.45%. The CBOE Volatility Index dropped by 7.23%, indicating a reduction in investor risk perception of the market.  

Materials and industrials shares outperformed within the S&P 500 Index, while technology shares underperformed. The technology sector was weighed partly by a decline in graphics and artificial intelligence chipmaker NVIDIA as it continued on its recent retreat from a 52-week high. Early in the week, trading was exceptionally thin, reflecting the closed markets in Europe following the Easter holiday. Volumes eventually picked up as the week progressed, but trading was muted as investors waited for the release of the quarterly corporate earnings expected to begin on Friday. By the end of the week, analysts expected overall earnings for the S&P 500 to have contracted by 6.5% year-over-year in the first quarter. Earnings in the financial sector were expected to increase moderately. 

U.S. Economy

The Wednesday morning release of the Labor Department’s consumer price index (CPI) for March was highly anticipated by investors and analysts alike. The news that the CPI rose only by 0.1%, slightly below expectations, caused the markets to act positively as it brought the year-over-year inflation rate to 5.0%, the slowest pace since May 2021. The indexes subsequently fell back for the day, which may partly be due to comments from Federal Reserve Bank of Richmond President Thomas Barkin to the effect that “there is still more to do “to calm inflation down. More encouraging news on the producer side was released on Thursday which tended to suggest that consumers could look forward to better prices in the pipeline. The core (excluding food and energy) producer price index dipped by 0.1% in March. This is the first decrease in the prices businesses pay for inputs going back to the height of the pandemic shutdowns in April 2020.

In the meantime, encouraging data on inflation signaled that consumer prices continue to trek a path of moderation after rising to decades-high levels in the past year. As the year progresses, moderating demand and improvement in supply chain disruptions will likely foster lower inflation readings. Moderating inflation and a decelerating economy will possibly provide the conditions for the Federal Reserve to reduce its degree of intervention and move to the sidelines in the coming months, effectively terminating its aggressive rate hike cycle. Although this may not eliminate the economic slowdown, it remains a positive development for the markets since ending monetary tightening is traditionally a favorable economic catalyst.

Bond investors appear to perceive Friday’s data as giving the Federal Reserve some room to life rates further, which resulted in a rise in longer-term U.S. Treasury yields. Technical conditions characterized by relatively lighter dealer inventories and below-average supply continued to support the municipal market. New issuance and trading both remained calm in both the high-yield corporate and the investment-grade bond markets.

Metals and Mining

The past week had been a hectic one for precious metals, but the robust bullish optimism may not be sufficiently sustained as yet to push gold beyond the $2,000 resistance to establish a new all-time high. On Friday, gold started predictably with profit-taking, normally expected after a three-day rally surged gold prices to a new 13-month high above $2,050 per ounce. The profit-taking, however, morphed into a significant retreat as economic data helped to strengthen expectations that the Federal Reserve may continue to raise interest rates by another 0.25% next month. At one point during trading, gold prices slumped by 2% during the session, relinquishing all of its weekly gains. Despite the solid-selling pressure, it is still optimistic to note that gold remained resilient above the $2,000 per ounce support level heading into the weekend.

Over the past week, the spot gold price came from its week-ago level of $2,007.91 to this week’s close at $2,005.21 per troy ounce, losing by a slight 0.13%. Silver gained by 1.64% to end at $25.39 per troy ounce from its prior week’s close at $24.98. Platinum, which closed the previous week at $1,011.80, ended the past week at $1,048.13 per troy ounce for a gain of 3.59%. Palladium closed this week at $1,505.38 per troy ounce, gaining 2.40% from the previous week’s close at $1,470.06.  The three-month LME prices of base metals generally closed up for the week. Copper closed 2.94% higher from its previous week’s price of $8,800.00 to end the week at $9,058.50 per metric tonne. Zinc moved up from its week-ago closing price of $2,779.00 to this week’s closing price of $2,837.00 per metric tonne for a gain of 2.09%. Aluminum began at the previous closing price of $2,333.50 and ended this week at $2,367.00 per metric tonne, higher by 1.44%. Tin closed one week ago at $24,308.00 and this week at $24,442.00, a slight increase of 0.55%.  

Energy and Oil

The bullish optimism that pushed Brent prices north of $87 per barrel, backed mainly by the US CPI figures reported at 5.6%, appeared prepared to slacken just as OPEC reduced its demand forecast for the second semester of 2023. Simultaneously, OPEC retrospectively increased demand in the first quarter, leaving it with the same annual growth as it had previously, at 2.3 million barrels per day. The report of the International Energy Agency (IEA), on the other hand, boosted oil prices on Friday as the agency drew cautious attention to a significant supply deficit later this year. The head of the IEA, Faith Birol, announced that oil markets may see some tightness in the second half of 2023 if the voluntary production cuts of major OPEC+ producers remain in place until the end of the year, thus pushing prices even higher than present levels. The agency warned in its Oil Market Report that a supply deficit, exacerbated by OPEC+ cuts, may adversely impact global economic growth.

Natural Gas

This report week began on Wednesday, April 5, and ended Wednesday, April 12, 2023. The Henry Hub spot price rose by $0.04 from $2.17 per million British thermal units (MMBtu) at the beginning of the week to $2.21/MMBtu by the end of the week. The price of the May 2023 NYMEX contract fell back by $0.062, from $2.155/MMBtu on April 5^th to $2.093/MMBtu on April 12^th. The price of the 12-month strip averaging May 2023 through April 2024 futures contracts fell by $0.103 to $2.897/MMBtu. International natural gas futures prices decreased throughout the report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.35 to a weekly average of $12.61/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, fell by $1.12 to a weekly average of $13.84/MMBtu. In the corresponding week last year, the week ending April 13, 2022, the prices were $33.12/MMBtu and $32.91/MMBtu in East Asia and at the TTF, respectively.

World Markets

European stocks rose as recession fears diminished. The pan-European STOXX Europe 600 Index rose by 1.74% over the trading week ending April 14. Major stock indexes in the region likewise posted gains. Germany’s DAX advanced b 1.34%, Italy’s FTSE MIB gained 2.42%, and France’s CAC 40 Index surged by 2.66%. The UK’s FTSE 100 Index ascended by 1.68%.  Investors weighed the prospects of more policy tightening, resulting in the rise of European government bonds. The yields on 10-year German government debt rose, with some policymakers supporting a half-percentage-point rate increase should the inflation data warrant it. The yields on 10-year UK and French sovereign bonds also climbed.

Japanese equities realized gains over the week. The Nikkei 225 Index increased by 3.54% while the broader TOPIX Index also climbed by 2.71%. Investor sentiment turned optimistic with a comment by prominent investor Warren Buffett that his company, Berkshire Hathaway, would pour more investments into Japan. Also supporting risk assets were dovish comments from the new Bank of Japan (BoJ) Governor Kazuo Ueda and subsequent yen weakness. While Ueda dampened expectations that any sudden major change will take place in monetary policy, he nevertheless signaled that there may be a revision in the central bank’s large-scale easing stance, the consideration of which may take place in the near future. The yen weakened to about JPY 132.5 versus the U.S. dollar, from the previous week’s JPY 132.2. The yield on the 10-year Japanese government bond remained unchanged at 0.46%, on the anticipated continuity of monetary policy under Ueda. The IMF revised its projection for Japan’s 2023 economy downward, from 1.8% to 1.3% in January, due to weak economic performance over the final quarter of last year.

Chinese stocks were mixed at the end of a volatile week, in light of pessimistic consumer sentiment caused by softer-than-expected inflation.  New loans and trade data surprised investors positively, however, it was not sufficient to offset the more serious concerns regarding the strength of the economic recovery. The Shanghai Stock Exchange Index climbed by 0.32% while the blue-chip CSI 300 slipped by 0.76% in local currency terms. In Hong Kong, the benchmark Hang Seng Index ascended by 0.53%. Inflation slowed for the second straight month in March. For this month, China’s consumer price index rose by 0.7% from last year, down from a 1% rise the month before. Core inflation (which excludes food and energy prices, the volatile components) increased to 0.7% in March from 0.6% in February. Following the trend is the producer price index, which receded by 2.5%, the lowest since June 2020 and its sixth straight monthly decline.

The Week Ahead

Included among the important economic data scheduled for release this week are the PMI indexes, leading economic indicators, and the initial and continuing jobless claims.

Key Topics to Watch

• Empire State manufacturing
• Home builder confidence index
• Richmond Fed President Tom Barkin speaks
• Housing starts
• Building permits
• Fed Gov. Michelle Bowman speaks
• Fed Beige Book
• New York Fed President Williams speaks
• Initial jobless claims
• Continuing jobless claims
• Philadelphia Fed manufacturing survey
• Existing home sales
• U.S. leading economic indicators
• Fed Gov. Christopher Waller speaks
• Cleveland Fed President Loretta Mester speaks
• Dallas Fed listens with Dallas Fed President Lorie Logan and Fed Gov. Michelle Bowman
• Atlanta Fed President Raphael Bostic speaks
• S&P flash U.S services PMI
• S&P flash U.S. manufacturing PMI
• Fed Gov. Lisa Cook speaks

Markets Index Wrap Up

Stock Markets

Last week was marked by light and choppy trading due to a holiday-shortened trading week. U.S. markets were closed on Friday together with most of the other markets in the Americas, in observance of the Good Friday holiday and the Passover that started on Wednesday evening. Also noticeable was a slight pause by investors after the previous week’s end-of-quarter “window dressing.” This is the activity performed by some institutional investors wherein they adjust their holdings in advance of their quarterly public disclosure.

The major indexes were generally up for the week that just ended, although some of their component sectors lost ground. The Dow Jones Industrial Average (DJIA) ascended by 1.91% although its transportation average was down by 1.15%. Nevertheless, the Dow Jones total stock market index was still up by 1.02%. The broad S&P 500 Index also was up by 1.34%, but within this market, the MidCap 400 and SmallCap 600 fell by 0.88% and 0.82% respectively. The technology-heavy Nasdaq Stock Market Composite gained by 0.62% while the NYSE Composite performed slightly better, rising by 1.17% for the week. Predictably, the CBOE Volatility metric slid lower by 3.26%, indicating reducing risk perception among stock investors.

U.S. Economy

Last week, the markets closed early, a bit too soon to react to the nonfarm payrolls report released by the Labor Department for March. On Monday, the Institute for Supply Management’s (ISM’s) gauge of March factory activity reversed a modest uptick in February and descended back to almost its three-year low. The ISM’s gauge for the services sector which was released two days later suggested that the services sector was still expanding, albeit at a rate that was significantly slower than expected. There appears good reason for concerns about a recession to deepen, and hopes for lower interest rates to grow, based on the Labor Department report released on Tuesday. The report indicated that job openings declined much more than expected in February, falling to 9.9 million, a level last reached in May 2021. However, the number of people quitting their jobs grew from 3.9 million to 4.0 million. According to economists, the number of people voluntarily leaving their jobs is a more reliable indicator of the overall health of the labor market.

Pessimistic statements from a Federal Reserve official and a leading bank executive also weighed down investor sentiment. At an economic conference, Cleveland Fed President Loretta Mester disclosed that she expected the federal funds rate to go above 5% and remain at that level, while JPMorgan Chase Chairman and CEO Jamie Dimon warned in a letter to shareholders that the banking crisis is not yet over and “that there will be repercussions from it for years to come.” The weak economic data push U.S. Treasury yields lower, and, since bond prices and yields move in opposite directions, bond prices moved up. Bonds in the energy sector were early outperformers on news of a production cut by OPEC and other oil-producing nations, while U.S. and Yankee banks – banks domiciled in the U.S. but with most of their operations abroad – lagged the broader market.

Overall, it is likely that a soft recession may lie in the future of the U.S. economy, based on three emerging trends. First, the labor market is showing signs of faltering. Second, manufacturing and services activity continues to fall. Third, the housing sector appears to be softening. The most likely scenario is for a mild recession, possibly beginning in mid-2023.

Metals and Mining

There is so much uncertainty dominating the financial markets, as may be testified by comments among financial experts that a recession is likely to materialize in the months to come. In the impending flight to safe-haven assets, gold may experience continued buying pressure. At present, gold has hit a new record high above $2,000 an ounce, and silver is starting to tread at the $25 per ounce level. Gold and silver have significantly benefited from a steep drop in bond yields this past week, which in turn weighs on the U.S. dollar. If the U.S. dollar finds some momentum, it may cause investors to take some profits on their bullish gold positions. Also, even if the U.S. labor market has been surprisingly resilient since early 2022, analysts observe that signs are showing that the tide is starting to shift in the labor market, highlighting weakness and raising fears of a recession. This might usher in further dollar weakness and a corresponding upside for precious metals.

In the week just ended, gold came from its previous close at $1,969.28 to end at $2,007.91 per troy ounce, up by 1.96%. Silver rose by 3.65% from the previous week’s close at $24.10 to this week’s close at $24.98 per troy ounce. Platinum climbed by 1.67% to close this week at $1,011.80 per troy ounce from the earlier week’s close at $995.22. Palladium, which was priced one week ago at $1,463.77, closed this week at $1,470.06 per troy ounce, a gain of 0.43%. The three-month LME prices of base metals all fell over the week. Copper came from $8,993.00 one week ago to settle this week at $8,800.00 per metric tonne, descending by 2.15%. Zinc closed at $2,779.00 per metric tonne this week, lower by 4.91% from the previous week’s price of $2,922.50. Aluminum descended by 3.29% from the previous week’s close at $2,413.00 to this week’s close at $2,333.50 per metric tonne. Tin began at its prior week’s close of $25,835.00 to settle this week at $24,308.00 per metric tonne for a loss of 5.91%.

Energy and Oil

After the surprising rally in oil prices seen at the beginning of this past week, the subsequent increases have been sluggish despite the notable stock draws in both the U.S. crude and product inventories. In light of the resurging U.S. demand after a weak first quarter and OPEC+ showing a resolve to curb production, supply-side factors seem to indicate the existence of a further upside. Simultaneously, macroeconomic concerns might once more cut short what should be an impending bull market, particularly if the U.S. labor market data douse expectations of a resurging economy. It appears that recession fears have begun to weigh on diesel prices, seeing how the premium of diesel against Brent or WTI has been shrinking for the past six months. Diesel’s cyclical sensitivity makes it vulnerable to declines in business activity and lower manufacturing orders.

Natural Gas

For the week starting Wednesday, March 29, and ending Wednesday, April 5, 2023, the Henry Hub spot price rose $0.22 from $1.95 per million British thermal units (MMBtu) at the start of the report week to $2.17/MMBtu by its end. The April 2023 NYMEX contract expired by the week’s end at $1.991/MMBtu. The May 2023 NYMEX contract price decreased to $2.155/MMBtu, down by $0.03 throughout the week. The price of the 12-month strip averaging May 2023 through April 2024 futures contracts declined by $0.08 to $3.000/MMBtu.

International natural gas futures prices increased during this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia rose by $0.24 to a weekly average of $12.96/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, rose by $1.48 to a weekly average of $14.96/MMBtu. In the corresponding week last year (i.e., the week ending April 6, 2022), the prices were $33.99/MMBtu in East Asia and $36.25/MMBtu at the TTF.

World Markets

European shares gained ground as concerns of a deeper banking crisis faded. The pan-European STOXX Europe 600 Index closed the five-day trading week ending April 6 with a 0.90% increase. Major stock indexes were mixed on slow trading. Three European Central Bank (ECB) officials have issued statements over the week hinting at more rate hikes ahead. ECB President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane opined that inflationary pressures necessitate further interest rate hikes in the future. Other policymakers, however, said that while rates may continue to rise, they are also possibly close to their peak. This group includes Bank of France Governor François Villeroy de Galhau, Bank of Lithuania Governor Gediminas Šimkus, and Bank of Greece Governor Yannis Stournaras.

Japanese stocks lost some ground over the shortened trading week. The Nikkei 225 Index fell by 1.9% and the broader TOPIX Index declined by 2.1% through Thursday’s trading. Data have been released that suggested the U.S. economy may be slowing down, which is raising fears that a global recession may take place. Investors also speculate about the potential repercussions of Japan’s recent announcement of export restrictions on certain types of semiconductor manufacturing equipment, particularly on Japan’s relations with China, its largest trading partner. There is also speculation about a possible change in the ultra-loose monetary policy of the Bank of Japan (BoJ) under Governor Kazuo Ueda, who assumed the post on April 9. During the week, a former BoJ official suggested that the central bank could tweak its yield curve control framework without prior warning. On this note, the 10-year Japanese government bond rose to 0.46%, from 0.32% at the end of the previous week, tracking the rise in global bond yields. The yen strengthened to about JPY 131.3 against the U.S. dollar from about JPY 132,8 the prior week.

Chinese stocks gained ground during the holiday-truncated week as a recovery in services activity and the property sector boosted invested sentiment. The Shanghai Stock Exchange Index rose by 1.22% and the blue-chip CSI 300 advanced by 1.13% in local currency terms. Markets in Hong Kong and China were closed on Wednesday in observance of the Qingming Festival, also known as Tomb Sweeping Day, when Chinese people honor their ancestors by cleaning and placing offerings on their tombs. China’s new home sales climbed by 55.7% in March, up from 31.9% in February. Increased demand was due to several stimulus measures that China’s central and local governments implemented at the end of 2022 to drive homebuying sentiment. While sales growth is expected to improve for the rest of 2023, many analysts believe that prospects for China’s property market will remain subdued for the longer term.

The Week Ahead

Among the important economic data to be released in the coming week are several inflation indicators, including CPI, PPI, and their core equivalents.

Key Topics to Watch

• Wholesale inventories
• NFIB optimism index
• Chicago Fed President Goolsbee speaks
• Philadelphia Fed President Harker speaks
• Minneapolis Fed President Kashkari speaks
• Consumer price index
• Core CPI
• CPI year over year
• Core CPI year over year
• Richmond Fed President Barkin speaks
• San Francisco Fed President Daly speaks
• Treasury Budget
• Minutes of FOMC meeting
• Producer price index
• Core PPI
• PPI year over year
• Core PPI year over year
• Initial jobless claims
• Continuing jobless claims
• U.S. retail sales
• Retail sales minus autos
• Import price index
• Import prices minus fuel
• Fed Gov. Waller speaks
• Industrial production
• Capacity utilization
• Business inventories
• Consumer sentiment

Markets Index Wrap Up

Stock Markets

The equities markets ended a positive, albeit volatile, first quarter as weakness in banks was offset by strength in technology stocks. In the week just ended, all major stock indexes posted solid gains, offsetting the losses of the preceding weeks. The Dow Jones Industrial Average ended 3.22% higher and the total stock market ascended by 3.67%. The broad S&P 500 Index rose by 3.48%, the technology-tracking Nasdaq Stock Market climbed by 3.37%, and the NYSE Composite jumped by 4.18%. Risk perception calmed as the CBOE Volatility index lost by 13.98% for the week.

Trading was relatively quiet throughout the week as economic data releases and financial news provided comparatively little motivation for market activity. Small caps outperformed large caps, and value stocks modestly outperformed growth stocks. Making up a significant part of the value indexes are the energy stocks which were boosted by rising oil prices. Rising more than 9% for the week was the U.S. benchmark West Texas Intermediate crude oil which climbed back above the USD 80 per barrel level. For the end of the first quarter of 2023, the technology-heavy Nasdaq Composite surged by more than 16% for the quarter, compared to the broad market S&P 500 Index which climbed by about 7%.  

U.S. Economy

A set of new proposed regulations for mid-size banks – i.e., those with assets between USD 100 billion and USD 250 billion – was released by the Biden administration this week. The proposed changes are likely to align the regulation of mid-size banks with the rules governing the country’s largest banks. The new rules are expected to impose more stringent capital and liquidity requirements. They may also require mid-size banks to pass more frequent stress tests under a wider range of scenarios.

More optimistic news has been released regarding inflation. The U.S. core (excluding food and energy) personal consumption expenditure (PCE) price index for February came in at 4.6%, slightly lower than consensus expectations for 4.7%. The Federal Reserve’s preferred inflation metric is the core PCE. The February 2023 reading was below the recent high of 5.4% reached in February 2022, however, it still exceeds the Fed’s long-term inflation target of 2%. The Commerce Department released its final estimate of fourth-quarter 2022 gross domestic product (GDP) growth, which was revised slightly lower to 2.6%.

The U.S. Treasury yields increased but at a slower rate as the market took a respite from the elevated volatility that dominated it for U.S. government debt since the Silicon Valley Bank’s (SVB’s) sudden collapse triggered concerns that the current banking system crisis will eventually lead to a recession. The difference between two- and ten-year Treasury yields became more negative, with short-term rates increasing more than longer-maturity yields, but the yield curve remained less inverted than in early March.

Metals and Mining

The reasons to be bullish on gold remain solidly in place. Count among these the global banking crisis, an impending recession, persistently higher inflation, and now also the possible demise of the U.S. dollar as the world’s reserve currency, although rumors of the latter may be premature. Still, there is a growing global trend that countries are moving towards a multi-currency financial system. Just this past week, China and Russia have agreed to trade in an internationally recognized yuan, a move that is increasingly gaining traction. For many analysts, gold will continue to be the biggest winner in a multicurrency system as the world diversifies away from the U.S. dollar. In 2022, central banks primarily bought a record 1,136 tonnes of gold to diversify their foreign reserve holdings. Central banks may continue to buy gold en masse even if this year might not set another record. Solid support appears to be created at the $1.900 per ounce level this past month, increasingly convincing investors that “strong hands” are holding the asset and creating real value for it in the market.

This week, gold moved from last week’s close at $1,978.21 to the new close at $1,969.28 per troy ounce, slightly correcting by 0.45%. Silver, which ended a week ago at $23.23, closed this week at $24.10 per troy ounce for a gain of 3.75%. Platinum ended this week at $995.22 per troy ounce, appreciating by 1.11% from its previous week’s close at $984.30. Palladium, which closed one week ago at $1,422.00, gained by 2.94% to close this week at $1,463.77 per troy ounce. The three-month LME prices for base metals were mixed. Copper ended this week at $8,993.00 per metric tonne, a correction of 0.42% from last week’s close at $9,031.00. Zinc, which ended the previous week at $2,907.00, closed this week at $2,922.50 per metric tonne for a gain of 0,53%. Aluminum ended the week at $2,413.00 per metric tonne for a gain of 3.74% over the previous week’s close at $2,326.00. Tin, which ended last week at $24,348.00, closed this week at $25,835.00 per metric tonne for a gain of 6.11%.

Energy and Oil

Continuing to provide the impetus for a major pricing upside for oil prices this week was the ongoing tug-of-war over Kurdistan’s oil exports. This situation threatens some 500,000 barrels per day (b/d) of oil at risk of shut-ins after Iraq ordered a halt to all exports. The huge reduction in U.S. crude inventories, driven by stocks in the Gulf Coast, has pushed the gradual return of ICE Brent to the $80 per barrel mark. New U.S. inflation data may pause or stymie that momentum today in a market that appears to respond more sensitively to sentiment rather than supply and demand fundamentals. In the U.S., an oil and gas activity survey published by the Federal Reserve Bank of Dallas indicates that activity stalled in the first quarter of the year, causing the index to plummet from 30.3 in the fourth quarter of 2022 to 2.1 currently amidst rising field costs, higher interest, and plunging gas prices.

Natural Gas

For the report week beginning Wednesday, March 22, 2023, and ending Wednesday, March 29, 2023, the Henry Hub spot price fell $0.09 from $2.04 per million British thermal units (MMBtu) at the beginning of the week to $1.95/MMBtu at the end of the report week. The April 2023 NYMEX contract expired on March 29 at $1.991/MMBtu, down by $0.18 from the start of the report week. The last time the front-month NYMEX contract settled below $2.00/MMBtu was on September 22, 2020, when it settled at $1.834/MMBtu. The May 2023 NYMEX contract price decreased to $2.184/MMBtu, down by $0.12 from March 22 to 29. The price of the 12-month strip averaging May 2023 through April 2024 futures contracts declined by $0.05 to $3.083/MMBtu.

International gas futures price changes were mixed this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.51 to a weekly average of $12.72/MMBtu.  Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, rose by $0.33 to a weekly average of $13.47/MMBtu.  In the corresponding week last year (i.e., the week ending March 30. 2022), the prices were $34.22/MMBtu in East Asia and $35.16/MMBtu at the TTF.

World Markets

European shares rallied from their previous weeks’ slump as concerns of financial instability faded away. The pan-European STOXX Europe 600 Index closed 4.03% higher in local currency terms. Also posting significant gains were the major stock indexes of the region. France’s CAC 40 Index rose by 4.38%, the Swiss Market Index (SMI) gained by 4.41%, Germany’s DAX added 4.49%, and Italy’s FTSE MIB increased by 4.72%. The UK’s FTSE 100 Index climbed by 3.06%. European government bonds broadly ascended as investors weighed the implications of strong core inflation data and hawkish comments from the European Central Bank policymakers. The yields on benchmark 10-year German government bonds inched up. Easing concerns about the global banking sector also up French and Swiss bond yields as demand dwindled for assets generally seen as havens. In the UK, the yields on 10-year government debt rose above 3.5% and closed proximate to that level on heightened expectations of another interest rate hike in May.

Japan’s stock markets climbed over the week. The Nikkei 225 Index gained by 2.40% while the broader TOPIX Index ended up by 2.46%. Investor sentiment grew optimistic as concerns eased about the recent turmoil in the global banking sector. There were also some expectations that the U.S. Federal Reserve may continue to moderate its monetary tightening. Core consumer price inflation in the Tokyo areas slowed for the second straight month in March. Nevertheless, the reading still came in ahead of expectations at 3.2% year-on-year and continued to surpass the Bank of Japan’s (BoJ’s) 2% inflation target. This furthered speculation that the central bank may adjust its ultra-loose monetary policy under incoming Governor Kazuo Ueda, who ascends to office on April 9. On this basis, the yield on the 10-year Japanese government bond (JGB) rose to 0.32%, from 0.29% at the end of the previous week, but remained well below the 0.50% level at which the BoJ caps JGB yields.

Chinese stocks rallied on the back of strong economic data coupled with supportive comments from Beijing, thus boosting confidence in the country’s growth outlook. The Shanghai Stock Exchange Index rose by 0.22% and the blue-chip CSI 300 increased by 0.59% in local currency terms. In Hong Kong, the benchmark Hang Seng Index ascended by 2.43%. The country’s No. 2 official who ascended earlier this month, Premier Li Qiang, reinforced China’s commitment to open its economy and deliver reforms that can stimulate consumption and international business. During a speech delivered at the Boao Forum for Asia, a four-day summit for business and government leaders, Li pledged that China’s recovery would deliver new momentum to the world economy despite challenges in the geopolitical environment.

The Week Ahead

Scheduled for release in the coming week are the important economic reports regarding personal credit and employment and unemployment rates.

Key Topics to Watch

• St. Louis Fed President Bullard speaks
• S&P final U.S. manufacturing PMI
• ISM manufacturing
• Construction spending
• Fed Gov. Cook speaks
• Factory orders
• Job openings
• Cleveland Fed President Mester speaks
• ADP employment
• U.S. trade balance
• S&P final U.S. services PMI
• ISM services
• Initial jobless claims
• Continuing jobless claims
• St. Louis Fed President Bullard speaks
• U.S. employment report
• U.S. unemployment report
• Average hourly wages
• Average hourly wages (year over year)
• Consumer credit

Markets Index Wrap Up

Stock Markets

The uncertainty in the U.S. regional and global banking system has, in just over two weeks, notably shifted the performance of financial markets and, most likely, the path of the Federal Reserve in its policies moving forward. According to the Wall Street Journal markets data, The major stock market indexes generally recovered over the week to recover the lost ground resulting from the shocks that occurred in the final industry during the preceding weeks. The Dow Jones Industrial Average is up by 1.18% and the total stock market was also ahead by 1.26%, whereas the transportation and utilities sectors underperformance among the other sectors. The S&P 500 Index likewise expanded by 1.39% and the Nasdaq Stock Market Composite advanced by 1.66%. The NYSE Composite gained by 1.09%. The CBOE Volatility Index fell by 14.78%, indicative of a drop in investors’ risk perception. Financials underperformed for a third straight week, however, and the small real estate sector took the brunt of consumer concerns about how stresses in the regional banking system would affect the commercial real market, where regional banks are the major lenders.

The Fed is now constrained to perform a balancing act between navigating the liquidity pool on the one hand and battling inflation with rate increases on the other. The policy-setting body is now compelled to consider pausing its interest-rate-hiking cycle, and the recent tightening in financial conditions resulting from the banking crisis may potentially slow economic activity and cool inflation. Many stock market investors who initially adopted a risk-on sentiment have lately shifted towards more defensive positioning, gravitating towards resilient sectors such as consumer staples, health care, and technology outperforming over the past month. Volatility may continue in the near term as investors shake off the fear and restore confidence in the banking sector, and opportunities may continue to present themselves in both equity and bond markets.  

U.S. Economy

In the past week, the most closely watched event was the conclusion of the Federal Reserve’s policy meeting on Wednesday. The Fed raised official short-term rates by 25 basis points, as was generally expected, and officials may stop raising rates after one more hike in May. Fed Chair Jerome Powell’s post-meeting press conference reflected a change in tone that was driven more by forecast uncertainty rather than a strong conviction that a 5.0% to 5.25% fed funds target range (if a 25 bps rate increase were to be announced in May) would sufficiently restrict inflation to preclude further rate hikes after May. In response to questions, Powell confirmed that rate cuts were not expected this year.

The week’s economic data appeared to indicate that the economy still had significant strength, at least heading into what may be a possible banking crisis. Weekly jobless claims remained close to a five-decade low; meanwhile, last Friday’s release of the S&P Global’s Composite Index of both current services and manufacturing activity jumped from 50.1 to 53.3 (note that readings above 50 indicate expansion). This marks the fastest pace of private sector growth since last May 2022, with new orders moving higher for the first time since September. S&P Global’s chief economist observed that the data were “broadly consistent with the annualized gross domestic product (GDP) growth approaching 2%, painting a far more positive picture of economic resilience” than had been observed during the previous months.

Core capital goods orders, which exclude orders for aircraft and defense and which are often relied upon as an indicator of business investment, were also higher than expected upon their release by the Commerce Department on Friday. Such orders increased in February by 0.2%, beating a consensus estimate that indicated a decline of the same magnitude. The optimistic data provided support that lifted the yield on the benchmark 10-year U.S. Treasury note from a six-month intraday low on Friday morning, although the yield still finished modestly lower for the week.

Metals and Mining

After hitting a one-year high, the precious metals market is seeing some selling pressure as it undergoes some cooling down ahead of the weekend. Gold briefly transcended above $2,000 per ounce and while it has since given way to some correction, there still appears to be further bullish momentum to resume its upward trek. The forecast is for safe-haven demand to continue to provide buying support to move gold prices up. According to financial headlines, the recent banking shocks that have hinted at a further financial crisis are far from over. In Europe, fears of contagion have spread from Switzerland to Germany as Deutsche Bank, the nation’s largest lender, saw its biggest increase in credit default swaps since 2018. Credit default swaps are similar to insurance for investors, and payout if a company defaults on its loans. Before the bailout from UBS, credit default swaps for Credit Suisse ran as high as 1,194 basis points, suggesting that further shocks are still to come. Gold remains an attractive safe-haven asset.

Over the week, gold moved from its previous close at $1,989.25 to this week’s close at $1,978.21 per troy ounce, a slight correction of 0.55%. Silver advanced by 2.79% from its week-ago price of $22.60 to its closing price this week at $23.23 per troy ounce. Platinum moved up slightly from last week’s $978.95 to this week’s $984.30 per troy ounce, a gain of 0.55%. Palladium moved sideways for the week, from what was previously $1,423.30 to its new closing price of $1,422.00 per troy ounce, a slight correction by 0.09%. The three-month LME prices for base metals were generally higher for the week. Copper climbed from last week’s $8,518.00 to this week’s $9,031.00 per metric tonne, a gain of 6.02%. Zinc began at $2,857.50 and ended at $2,907.00 per metric tonne, an increase of 1.73%. Aluminum climbed by 2.58% from $2,267.50 to $2,326.00 per metric tonne. Tin advanced from the previous week at $22,218.00 to this week at $24,348.00 per metric tonne for a gain of 9.59%.

Energy and Oil

Oil prices survived the financial jolts of the previous weeks and have rebounded marginally in the past week. ICE Brent climbed closer to $75 per barrel once more as the perennial bulls began to channel the commodity supercycle again. At the other end is the UN once more publishing yet another report of a “ticking climate bomb.” There were brief hopes that for at least a short amount of time, the price of fuel would once again be ideally determined by supply and demand, but this appears a fleeting prospect as Fed policy may soon influence again the movement of currencies and, again, the price of fuels and energy. In the meantime, as of Tuesday, U.S. crude exports are set for an all-time high this month, with outflows to Europe averaging 2.1 million barrels per day so far. Wide discounts for the WTI benchmark and a significantly lower domestic refining pull continue to incentivize oil producers to export as much as they can. Also in the news are reports that the G7 group is not seeking to revise the $60 per barrel price cap on Russian oil this week, three months after it took effect on December 5. Apparently, there is little appetite among members to introduce any modifications to the policy.

Natural Gas

On news regarding natural gas, the European Commission proposed an extension of gas consumption mandates for EU member states to have gas demand cut by 15% for another 12 months, with the knowledge that natural gas markets remain tight despite the exceptionally warm winter. For the week starting Wednesday, March 15, and ending Wednesday, March 22, 2023, the Henry Hub spot price fell $0.40 from $2.44 per million British thermal units (MMBtu) at the start of the week to $2.04/MMBtu at the week’s end. The price of the April 2023 NYMEX contract decreased by $0.268, from $2.439/MMBtu on March 15 to $2.171/MMBtu on March 22. The price of the 12-month strip averaging April 2023 through March 2024 futures contracts declined by $0.133 to $3.046/MMBtu.

International natural gas futures prices decreased for this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.98 to a weekly average of $13.24/MMBtu. Natural gas futures for delivery at the Title Transfer Facility in the Netherlands, the most liquid natural gas market in Europe, fell by $1.43 to a weekly average of $13.14/MMBtu. In the week last year corresponding to this week, (i.e., the week ending March 23, 2022), the prices were $34.83/MMBtu and $33.81/MMBtu in East Asia and at the TTF, respectively.

World Markets

European equities climbed this week despite weakness in bank stocks. The pan-European STOXX Europe 600 Index closed marginally higher (0.87%), as did the major stock indexes in the region. Italy’s FTSE mib advanced by 1.56%, Frances’ CAC 40 Index climbed by 1.30%, and Germany’s DAX gained by 1.28%. The UK’s FTSE 100 Index ascended by 0.96%. In the STOXX Europe 600 Index, bank stocks once more resumed their sharp decline by the week’s end on unabated concerns surrounding the financial sector. The continued drop reversed any gains made earlier on news that the UBS Group agreed to buy Credit Suisse in a deal brokered by the Swiss authorities. Although there were no specific pronouncements, the focus of investors appeared to have transferred to worries surrounding banks with exposure to commercial real estate.

Japan’s stock markets realized mixed returns for the week. The Nikkei 225 Index gained by 0.19% but the broader TOPIX declined by 0.21%. After the worries created by the developments in the global banking sector over the last weeks. Investor concerns somewhat as the Bank of Japan (BoJ) and four other major central banks announced on March 19 that they were coordinating action to provide liquidity and to ease strains in the global funding markets. The yen gained strength after the U.S. Federal Reserve raised interest rates as expected, but stated that a pause on further hikes is being considered. The yen finished the week at around JPY 130.6 from about $131.8 against the U.S. dollar the week earlier. The yield on the 10-year Japanese government bond remained broadly unchanged at 0.29%. Although Japan’s inflation remains high, price pressures are beginning to ease.

Chinese stock markets gained ground on optimism that the People’s Bank of China (PBOC) will continue to maintain accommodative monetary policies during the current global banking crisis. The Shanghai Stock Exchange Index advanced by 0.46% and the blue-chip CSI 300 gained by 1.72% in local currency terms. Hong Kong’s benchmark Hang Seng Index rose by 2.03%. The PBOC left its benchmark one-year and five-year loan prime rates (LPR) at 3.65% and 4.3%, respectively, for the seventh straight month. The LPRs are based on the interest rates that 18 banks offer their best customers and are published monthly by the PBOC. They are quoted as a spread over the rate on the central bank’s one-year policy loans, known as the medium-term lending facility (MLF). The stance was largely expected after the PBOC left its MLF unchanged the previous week and unexpectedly announced a 25-basis-point cut in the reserve requirement ratio for most banks, suggesting the easing of measures to support the economy.

The Week Ahead

Among the important economic data scheduled for release this week are personal consumption, consumer confidence, and consumer sentiment.

Key Topics to Watch

• Fed Gov. Jefferson speaks
• Advanced U.S. trade balance in goods
• Advanced retail inventories
• Advanced wholesale inventories
• S&P Case-Shiller home price index (20 cities)
• FHFA home price index
• U.S. consumer confidence
• Fed Gov. Barr testifies to Senate on banks
• Pending U.S. home sales
• Fed Gov. Barr testifies to House on banks
• GDP (2^nd revision)
• Initial jobless claims
• Continuing jobless claims
• Boston Fed President Collins speaks
• Personal income (nominal)
• Personal spending (nominal)
• PCE index
• Core PCE index
• PCE (year-over-year)
• Core PCE (year-over-year)
• Chicago Business Barometer
• Consumer sentiment (final)
• Fed Gov. Waller speaks
• New York Fed President Williams speaks
• Fed Gov. Cook speaks  

Markets Index Wrap Up

Stock Markets

The major indexes closed mixed for the week. According to the Wall Street Journal weekly tally, the Dow Jones Industrial Average dropped by 0.15%; in it, the transportation sector underperformed with a 3.07% loss, while the utility sector outperformed with a rise of 4.02% for the week. The broad-based S&P 500 Index managed to climb by 1.43% and the technology stock-heavy Nasdaq Stock Market Composite surged by 4.41%. The NYSE Composite dipped by 1.98%. In the meantime, the CBOE Volatility index, a risk perception metric, rose by 2.86% which suggests an increase in the level of risk investors perceive in the equities markets.

The lack of direction in the markets reflects the crosscurrents of the banking sectors’ stressors, concerns of a likely harder economic slowdown soon, and speculation that the Federal Reserve will now be compelled to temper or possibly pause their rate-hiking cycle. Within the S&P 500, industry sector returns varied widely. Communication services and technology shares recorded strong gains as evidenced by the Nasdaq surge, while the financial and energy sectors succumbed to significant losses. Performing especially well in this environment were the mega-cap tech shares that generate significant free cash flow that have minimal exposure to the regional banks. The large-cap growth stocks outperformed the value stocks by 580 basis points or 5.80 percentage points.

Over the weekend, the jitters set off by the previous Friday’s failure of Silicon Valley Bank (SVB), that this might spark a repeat of the 2008 financial contagion were calmed, despite the closure on Sunday of New York’s Signature Bank. Signature Bank was another large regional bank, this time with heavy exposure in the cryptocurrency markets. On the same day, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Treasury Department jointly announced that all SVB depositors would have full access to funds on Monday morning. To safeguard deposits, the Fed made additional funding available to banks and prepared to address expected liquidity pressures. Furthermore, the Fed announced that it was launching an internal review of its supervision and regulation of SVB.

U.S. Economy

Credit markets were on the receiving end of the fallout of the banking stresses, however, Shorter-duration bonds and bonds issued by regional banks experiences some of the largest fluctuations, while investment-grade credit spreads widened to a four-month high. During the week, no new deals reached the market as volatility sidelined potential issuers. The high-yield market was also mostly quiet.

The Labor Department on Tuesday reported that February’s headline consumer inflation had moderated, in line with expectations, to 6.0% year-on-year. This was inflation’s slowest pace since September 2021. On Thursday, surprise but welcome news emerged that producer prices declined by 0.1%, partly due to a sharp decrease in transport and warehousing costs. Regarding the bonds market, yields have fallen but credit spreads continue to widen. A sharp decline in longer-term Treasury yields has materialized due to lower growth expectations and higher risk aversion. The yield on the benchmark 10-year note touched an intraday low of 3.37% on Thursday, its lowest level since the start of February. This brings bond prices up since bond prices and yields move in opposite directions. Amid balanced flows and lower-than-normal new issuance, technical conditions in the tax-exempt municipal bond market were generally supportive.

It historically takes 12-18 months before Fed hikes impact demand and employment, a window where we are at now. During this cycle, pandemic distortions and other unique factors have helped make the economy less sensitive to rising interest rates, but soon the impacts will set in. Consumers built a cash cushion of approximately $2.1 trillion during the early days of the pandemic, but as of now, these savings have already been reduced by half. Pent-up demand for services that have accumulated during the lockdowns has largely been satisfied already, and spending appears to have returned to its pre-pandemic trend, evidenced by the slow rise of auto inventories after three years of underproduction.

Metals and Mining

The gold market took its cue from the biggest banking crisis since the 2008 Great Financial Crisis that occurred this past week. Gold proved to be the ultimate safe-haven asset that investors run to when an unexpected crisis shakes the markets. Analysts report that gold prices are ending Friday up more than 3% on the session as investors do not want to go home ahead of the weekend sans some protection from the uncertain shocks that are still to take place. It appears that customers are urgently moving their money out of regional banks at an unprecedented rate, in the process creating a liquidity crunch. The regional banks have to sell bonds to raise the capital to meet their customers’ withdrawal demands. However, the aggressive interest rate hikes of the last 12 months that have been pushed by the Feds to control inflation have driven bond prices down to almost nothing, so the banks are selling their bonds at a loss. As a sign of the panic in the financial system, data from the Federal Reserve showed that banks borrowed a record $164.8 billion from the Fed in the week ending March 15, compared to $4.58 billion borrowed the previous week. In the 2008 crisis, the record borrowing was $111 billion.

In the week just ended, gold came from $1,868.26 one week ago to $1,989.25 per troy ounce this week for a gain of 6.48%. Silver ended at $20.54 one week ago and at $22.60 per troy ounce just this past week for a gain of 10.03%. Platinum followed the trend from its week-ago close at $964.88 to last Friday’s close at $978.95 per troy ounce, climbing by 1.46%. Palladium climbed this week by 2.84% from its week-ago close of $1,383.98 to this week’s close of $1,423.30 per troy ounce. The three-month LME prices for base metals generally lost ground for the week.  Copper lost by 3.78% from the previous week’s close of $8,853.00 to this week’s close at $8,518.00 per metric tonne. Zinc came from its week-ago close of $2,974.00 to this week’s close at $2,857.50 per metric tonne for a loss of 3.92%. Aluminum ended this week at $2,267.50 per metric tonne, a loss of 2.60% from the previous week’s close of $2,328.00. Tin, which closed the previous week at $23,351.00, ended this week at $22,218.00 per metric tonne, down by 4.85%.

Energy and Oil

The looming bank crisis brought about by the collapse of Silicon Valley Bank has alerted the oil markets to the risks of seeing other U.S. banks going down the drain. This dire prospect has sent the benchmark WTI below $75 per barrel and Brent below the $80 per barrel mark. The oil supply-demand narrative has almost been completely overtaken by news of the macroeconomic situation, to the point that even the few newsworthy events did not attract the attention of investors. OPEC oil demand growth remains at 2.3 million barrels per day and U.S. oil inventories appear to remain relatively stagnant. In the most recent monthly oil market report, OPEC increased its 2023 oil demand growth forecast for China to an increase of 0.71 million barrels per day year-on-year. This is attributed to strong jet fuel and diesel demand hikes of which one-third of this year’s global growth is accounted for by the Asian powerhouse that is China. Meanwhile, the now-failed Silicon Valley Bank has been a major lender to community solar projects, thus its collapse could jeopardize the buildout of smaller than utility-scale solar farms, currently at a capacity of 5.6 GW.

Natural Gas

Based on the report week from March 8 to March 15, 2023, the Henry Hub spot price fell $0.06 from $2.50 per million British thermal units (MMBtu) at the beginning of the week to $2.44/MMBtu by the week’s end. The price of the April 2023 NYMEX contract decreased by $0.112, from $2.551/MMBtu on March 8 to $2.439/MMBtu on March 15. The price of the 12-month strip averaging April 2023 through March 2024 futures contracts declined $0.206 to $3.179/MMBtu. International natural gas futures prices increased this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia rose $0.01 to a weekly average of $14.22/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $0.91 to a weekly average of $14,57/MMBtu. The prices were $36.76/MMBtu in East Asia and $37.95/MMBtu at the TTF in the corresponding week last year (i.e., the week ending March 16, 2022).

World Markets

European shares tumbled this week on concerns that systemic shocks in the financial system in the U.S. may spark contagion in the global markets. The pan-European STOXX Europe 600 Index ended the week lower by 3.84% in local currency terms. Major stock indexes followed the trend with hefty losses. Italy’s FTSE MIB Index plunged by 6.55%, Germany’s DAX Index gave up 4.28% of its value, and France’s CAC 40 Index declined by 4.09%. The UK’s FTSE 100 Index suffered its biggest weekly loss since early June 2020, plummeting by 5.33%. Within the STOXX Europe 600 Index, the sector that declined the most was, not surprisingly, the banking sector. The plunge in share values reflected concerns that Credit Suisse’s challenges could create counterparty risk in the financial system. After the chair of Saudi National Bank announced that it would not invest further capital in the Switzerland-based financial giant, its shares suffered a huge sell-off despite the company having unveiled last fall an ambitious restructuring plan. The development followed on the heels of Credit Suisse delaying the release of its annual report due to “material weakness” in its financial reporting controls. On Thursday, the stock rebounded after news that the Swiss National Bank had offered to provide Credit Suisse with liquidity and that the company had sought to “preemptively” strengthen itself by borrowing more than USD 50 billion from the Swiss National Bank. Medi continued to speculate, however, that further action eventually was needed to follow up on these preliminary steps. Meanwhile, the European Central Bank (ECB) announced that it raised its deposit rate by half a percentage point to 3.0% as part of its ongoing effort to curb elevated inflation.

In Japan, although there is a limited direct impact on Japan’s financial system from the global banking sector, Japanese equities nevertheless went sharply lower. The Nikkei declined by 2.88% for the week while the broader TOPIX Index fell by 3.55%. Losses were buffered by speculation that major central banks could adopt a less aggressive approach to monetary policy tightening in light of the week’s developments and concerns about broader weakness in the global economy. The yield on the 10-year Japanese government bond fell to 0.30%, from 0.42% at the end of the previous week, as growing risk aversion prompted investors to seek out safer assets. The yen strengthened to about JPY 133 versus the U.S. dollar from roughly JPY 135 the previous week, also due to a flight to safety.

Chinese stocks ended mixed after a volatile week as global banking concerns offset optimism about a recovering economy and further monetary support from Beijing. The Shanghai Stock Exchange Index gained by 0.63%, and the blue-chip CSI 300 Index fell by 0.21% in local currency terms. In Hong Kong, the benchmark Hang Seng Index gained by 1%. The People’s Bank of China (PBOC) announced its intention to cut the reserve requirement ratio (RRR) for most banks by 25 basis points for the first time this year in an attempt to ensure liquidity and boost the economy. The PBOC also injected a greater-than-expected RMB 481 billion into its financial system via its one-year medium-term lending facility, compared with RMB 200 billion in maturing loans. The moves follow PBOC Governor Yi Gang’s surprise reappointment for another term after he was widely expected to retire. Yi’s retention appeared to have a calming effect on the markets after the revamp of central government institutions under the State Council (China’s cabinet), the week before. Analysts view Yi’s retention as a bid to maintain financial stability in China’s recovering economy.  

The Week Ahead

The Fed rate hike decision and initial and continuing jobless claims are among the important economic data to be released in the coming week.

Key Topics to Watch

• Existing home sales
• Fed interest rate decision
• Fed Chair Powell press conference
• U.S. current account
• Initial jobless claims
• Continuing jobless claims
• New home sales
• Durable goods
• S&P Global flash U.S. services PMI
• S&P Global flash U.S. manufacturing PMI

Markets Index Wrap Up

Stock Markets

The broad-based S&P 500 Index took a deep dive amounting to 4.55% of its value over the previous week as investors unexpectedly received more tough talk from Federal Reserve Chair Jerome Powell regarding their forthcoming monetary policy stance. Powell and his fellow policymakers had more work to do to cool down inflation and the hot labor market. The S&P 500 Index fell to its lowest intraday level since January 5. The sell-down was precipitated by the index descending below both its 100-day and 200-day moving averages, a selling signal followed by technical traders. Large-caps were underperformed by small-caps while value stocks dropped further than growth stocks. As a result, the Russell 1000 Value Index was pushed into negative territory reckoned on a year-to-date basis. The markets began their descent on Tuesday morning after Fed Chair Powell testified before Congress that if inflation maintains its current trajectory, the policymakers were prepared to hasten the pace of tightening and raise rates higher than anticipated.

The Dow Jones Industrial Average (DJIA) plunged by a hefty 4.44% over the past week as the total stock market index lost 5.13% of its value from the week before. The technology tracking Nasdaq Stock Market Composite was slightly more resilient although it did plummet by 3.75%. The NYSE Composite also lost by 5.26%. The CBOE Volatility risk perception indicator shot up by 34.14% for the week. Within the S&P 500 financial stocks led the decline and accounted for the notable weakness in value stocks. Over the week, concerns mounted regarding the continued viability of Silicon Valley Bank, or SVB Financial, as customers withdrew their deposits after SVB, a technology-oriented regional bank, was forced to sell and realize losses in securities held on its balance sheet to meet capital requirements. The Wall Street Journal called this the second-biggest bank failure in U.S. history. On Friday morning, trading in SVB stock was halted, after which the Federal Deposit Insurance Corporation (FDIC) placed the bank under receivership to protect the depositors. Symptomatic of a contagion, stocks in other regional banks fell in response to SVB’s fall, albeit moderately, which suggested that SVB’s predicament was exceptional rather than systemic.   

U.S. Economy

Fed Chair Powell noted in his Congressional testimony that the process of pulling inflation back to the Fed’s long-term target of 2% will likely be rocky. After the broad reversal of the disinflationary trend in January, the stronger recent economic data suggested that the ultimate level of interest rates may be higher than expected, thus the caution against prematurely loosening policy. He also referred to the challenges posed by the tight labor market. Over the past week, mixed signals were received regarding what success was attained by the Fed’s past rate hikes in cooling wage pressures, if any. Surprising on the upside was payroll processor ADP’s tally of private sector employment that was released on Wednesday. The report showed an increase of 242,000 jobs in February which is approximately twice January’s increase. However, separate data on job openings missed the consensus expectations while fewer people than expected quit voluntarily. The latter is considered a better indicator of how Americans perceive the job market. The weekly unemployment claims figure that was reported the next day also hit their highest level since late December, although several one-off idiosyncratic factors may have been at work, as some have noted.

The closely watched official payrolls report showed nonfarm jobs in February to have increased by 311,000, well above the consensus estimate of 200,000. However, the unemployment rate rose unexpectedly from a five-decade low of 3.4% in January to 3.6% the month after. Average hourly earnings rose slightly less than expected, by 0.2%, due mainly to many new jobs opening in relatively low-paying sectors. Nearly 6 out of 10 jobs created in the private sector in February were in the leisure and hospitality and retail trade sectors.

As markets opened on Friday, the two-year yield fell from 4.9% to just above 4.6%. This appears consistent with speculation that SVB’s troubles might cause the Fed to temper its interest rate hikes to avoid further stresses in the financial system, spurring a plunge in short-term interest rates. The flight to safety on Friday left the yield on the benchmark 10-year U.S. Treasury note down by approximately 27 basis points for the week, as bond prices and yields move in opposite directions.

Metals and Mining

The gold market is once more showing its nature as a safe-haven asset as the week ends with the biggest bank failure since the early days of the 2008 Global Financial Crisis. On Friday, California state regulators seized SVB and appointed the FDIC as its receiver,  SVB was known to provide venture capital to tech startups and support for cryptocurrencies. After it announced plans to sell shares to raise capital for regulatory compliance, the bank saw a run on its deposits as clientele hurriedly flocked to withdraw whatever deposits they had in the bank. SVB needed to raise money to cover a $1.8 billion deficit after loss-making assets, mostly U.S. government bonds. The bank’s bond and mortgage-backed securities have taken a major hit as the Fed has aggressively raised interest rates to cool down inflation. The more dire the economic developments, which may soon move towards a recession, the better it is for the gold market as a safe-haven asset. Some analysts are predicting that gold prices may reach $2,000 an ounce by the end of this year.

In the week just ended, gold gained 0.63% from its previous week’s close at $1,856.48 to this week’s close at $1,868.26 per troy ounce. Silver lost some ground from last week’s close at $21.26 to this week’s close at $20.54 per troy ounce, a loss of 3.39%. Platinum also corrected from last week’s ending price of $982.66 to this week’s ending price of $964.88 per troy ounce, losing by 1.81%. Palladium also went down from last week’s close at $1,458.45 to this week’s close at $1,383.98 per troy ounce for a loss of 5.11%. the three-month LME prices for base metals were generally down for the week. Copper went from the previous week’s closing price of $8,958.50 to this week’s close at $8,853.00 per metric tonne, a loss of 1.18%. Zinc came down from the week-ago ending price of $3,048.00 to this week’s close at $2,974.00 per metric tonne for a drop of 2.43%. Aluminum, which ended at $2,399.50 a week ago, closed this past week at $2,328.00 per metric tonne for a loss of 2.98%.  Tin closed at $24,570.00 last week and at $23,351.00 per metric tonne this week, for a descent of 4.96%.

Energy and Oil

The big story over this past week was the prospect of higher and potentially even accelerated U.S. interest rate hikes, rattling most financial and commodities markets, oil and energy included. Concerns have been rekindled that the oil demand impact might be worse than initially expected, leading to the most precipitous weekly loss since January. Without any compelling bullish story to offset the shocks rippling through the financial markets in the next two weeks, bearish sentiment may likely continue to build in the oil markets. In the U.S., President Joe Biden is expected to put forth a budget that would scrap oil and gas subsidies worth tens of billions of dollars, including drilling incentives, although this proposal has little chance of successfully being passed by a divided Congress. Furthermore, a group of bipartisan U.S. senators has reintroduced the NOPEC bill on the House’s Judiciary Committee. The bill was first introduced 22 years ago; it may lead to the potential filing of lawsuits by U.S. authorities against OPEC+ national oil companies for price collusion.

Natural Gas

In local news, despite the partial restart of Freeport LNG’s repaired units, industrial regulators from the FERC and PHMSA have sent another list of requests to the operating company, asking it to address operator fatigue and the training status of new hires. In international news, the Middle Eastern island kingdom of Bahrain is seeking to cut domestic gas production amidst its decarbonization drive that relies heavily on new solar plants and simultaneously wants to build an LNG terminal to export liquefied natural gas to international markets.

For the report week from March 1 to March 8, 2023, the Henry Hub spot price fell by $0.09 from $2.59 per million British thermal units (MMBtu) at the beginning of the week to $2.50/MMBtu at the end of the week. The price of the 12-month strip averaging April 2023 through March 2024 futures contracts declined by $0.142 to $3.385/MMBtu. International natural gas futures prices this report week decreased to their lowest level since July 2021. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.55 to a weekly average of $14.21/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid LNG market in Europe, decreased by $1.44 to a weekly average of $13.66/MMBtu. In the corresponding week last year (for the week ending March 9, 2022), the prices in East Asia and at TTF were, respectively, $43,12/MMBtu and $61.08/MMBtu. 

World Markets

European shares fell in tandem with global markets due to concerns about shocks in the banking system and the possible effects of a prolonged period of high-interest rates. The pan-European STOXX Europe 600 Index descended by 2.26%. Major stock indexes in the region likewise lost ground. Germany’s DAX Index fell by 0.97%, France’s CAC 40 Index dropped by 1.73%, and Italy’s FTSE MIB Index declined by 1.95%. The UK’s FTSE 100 Index plunged by 2.50%.  Meanwhile, the Eurozone economic growth in the fourth quarter was revised downward from its initial estimate of 0.1% to 0.0%,  Consumer demand weakened in January. Retail sales grew much less than expected, by 0.3% sequentially, and dropped 2.3% from their levels one year ago. Over the week, eurozone policymakers pressed for the European Central Bank (ECB) to continue raising interest rates after its march meeting to control inflation.

Japan’s equities markets recorded modest gains for the week. The Nikkei 225 Index rose by 0.78% while the broader TOPIX Index rose by 0.60%. The increase was a sign of resiliency despite a sell-off in Japanese bank stocks on Friday, following a slump in their U.S. counterparts, as well as the Bank of Japan’s (BoJ) decision to leave its accommodative monetary policy unchanged in March. The yield on the 10-year Japanese government bond (JGB) was sent sharply lower by the central bank’s continued commitment to its ultra-loose stance on monetary policy. The yield on the 10-year JGB finished the week at 0.42%, from 0.50% at the end of the previous week. The yen weakened to about JPY 136.7 against the U.S. dollar, from around JPY 135.8 per greenback the prior week. The Japanese currency came under pressure due to the dovish policies of the BoJ, as well as stronger-than-expected U.S. economic data and hawkish messaging from the Fed that renewed fears of continued steep rate hikes.

Chinese equities fell back due to signs of weakening demand and a lower-than-expected 2023 growth target unveiled by Beijing. The Shanghai Stock Exchange slid by 2.95%, the worst weekly loss in more than two months, while the blue-chip CSI 300 fell by 3.96% in local currency terms. In Hong Kong, the benchmark Hang Seng Index plunged roughly by 6%, its largest weekly loss in more than four months. China’s consumer price index rose by 1% in February year-on-year, short of forecasts, and down from a 2.1% rise in the previous month. Core inflation rose 0.6% in February from 1% in January, as producer prices fell by more than expected due to lower commodity costs. China’s inflation remains muted compared to the U.S. and Europe, raising expectations that the central bank will maintain its supportive policy stance.

The Week Ahead

In the week ahead, the consumer price index, retail sales, and producer price index are among the important economic data scheduled for release.

Key Topics to Watch

• NFIB Optimism index
• Consumer price index
• Core CPI
• CPI (year over year)
• Core CPI (year over year)
• Retail sales
• Retail sales ex-autos
• Producer price index
• Core PPI
• PPI (year over year)
• Core PPI (year over year)
• Empire State manufacturing
• Business inventories
• Homebuilders survey
• Initial jobless claims
• Import price index
• Housing starts
• Building permits
• Philadelphia Fed manufacturing
• Industrial production
• Capacity utilization
• U.S. leading economic index
• Consumer sentiment

Markets Index Wrap Up

Stock Markets

Stock markets rebounded this week from last week’s plunge. The Dow Jones Industrial Average climbed by 1.75% while the total stock market index rose by 1.97%. The S&P 500 Index ascended by 1.90% while the technology-heavy Nasdaq Stock Market Composite gained by 2.58%. The NYSE Composite went up by 1.66%. Correspondingly, the risk perception tracker CBOE Volatility index fell by 14.67%.  The early strong performance of the stock markets this year gave way to last week’s plunge when equities experienced the worst weekly decline since the year began. Energy and materials shares were especially strong. Communication shares were propped by the outperformance of Facebook parent Meta Platforms. On the other hand, the Utilities sector underperformed. Low market volumes marked trading through the week, largely on the back of the lack of catalysts for speculation. Investor sentiment also appears to have gained support from the S&P 500 Index treading above its 200-day moving average, a technical support relied upon by traders. A contradictory development, however, is that overall durable goods posted their steepest decline since the height of the pandemic-related shutdowns in April 2020. Furthermore, for the first time since July 2020, wholesale inventories declined but retail inventories (excluding autos) modestly increased.

U.S. Economy

During the week, several important economic reports were released which, however, failed to lift the trading volumes due to their mixed nature eliciting a subdued reaction from investors. Nevertheless, there have been some noteworthy data points revealed in these reports. The Commerce Department revealed that orders for non-defense capital goods excluding aircraft rose by 0.8% in January. This metric is often used as an indicator of business investment, and the January figure compensated for the 0.7% increase in producer prices over the same month.

Aside from these latter developments, other evidence suggested the manufacturing sector was contracting at a slower rate while still weakening. In February, the manufacturing Purchasing Managers’ Index (PMI) of the Institute for Supply Management ticked higher for the first time since May. It nevertheless remained in contraction territory at 47.7, since levels below 50 are indicative of slowing activity. The Institute’s services PMI dipped slightly, although it was by less than consensus expectations and remained indicative of moderate expansion at 55.1. 

The yield on the benchmark 10-year U.S. Treasury note pulled back from a new three-month intraday high of 4.09% on Thursday and ended the week only slightly higher. This may be attributed to the comments by Atlanta Federal Reserve President Raphael Bostic that he still supported only a quarter-point rate increase at the Federal Reserve’s upcoming policy meeting despite the hot inflation data released the previous week. Bostic further stated that the Fed may be in a position to pause further rate hikes by mid to late summer. These developments appear to check at least one of the three boxes required to support a sustainable market recovery: (1) that inflation should start to descend, (2) that the Federal Reserve pause its rate-hiking cycle, and (3) that earnings revisions start to bottom.

Metals and Mining

February was a month full of disappointments for the precious metals markets, but gold appears to be making a comeback at the start of the new month as prices have held solidly above its $1,800 per ounce price support level. It has now ended the week above $1,850 per ounce.  The yellow metal ends its five-week losing streak and regained some impressive technical momentum with more than a 2% weekly gain. As a result, prices are above their 21-day moving average, a technical support level. The bullish momentum is enhanced by the fact that the gains have been made despite a significant rise in U.S. bond yields, pointing at intrinsic strength.

In the week just ended, gold came from $1,811.04 just one week ago to $1,856.48 per troy ounce this week, an increase of $2.51%. Silver rose by 2.41% from the previous week’s close at $20.76 to this week’s close at $21.26 per troy ounce. Platinum gained by 7.63% from its week-ago price of $913.03 to this week’s ending price of $982.66 per troy ounce. Palladium, which ended one week ago at $1,415.62, closed this week at $1,458.45 per troy ounce for a weekly gain of       3.03%. The three-month LME price of base metals ended mixed for the week. Copper came from the previous week’s close at $8,716.50 to this week’s close at $8,958.50 per metric tonne for a gain of 2.78%.  Zinc closed one week ago at $2,964.00 and this week at $3,048.00 per metric tonne, climbing 2.83% for the week. Aluminum closed last week at $2,335.50 and this week at $2,399.50 per metric tonne, a rise of 2.74%. Tin previously ended at $25,651.00 and this week at $24,570.00 per metric tonne, bucking the trend and tumbling by 4.21%.

Energy and Oil

Oil prices this week were bullish, and the main factor pushing this trend was China’s economic rebound. In February, the country’s PMI index surged to its highest reading since April 2012 at 52.6, a sign of the resurgence of industrial activity. The China bulls have rallied oil markets to such a degree that their optimism has eclipsed the rising inflation concerns in the European Union and increasing U.S. inventories. On Friday morning, however, the Wall Street Journal reported that the UAE debated leaving OPEC and boosting production, sending oil prices plummeting, resulting in a roller-coaster ride for oil for the week. In the meantime, the U.S. Department of Energy is mulling to start purchasing oil to partially refill the Strategic Petroleum Reserves that have been depleted by rounds of releases across 2022 to 2023. Depending on market conditions, top officials appear intent on buying 40 to 60 million barrels within the next year. 

Natural Gas

For the report week beginning Wednesday, February 22, and ending Wednesday, March 1, 2023, the Henry Hub spot price rose $0.51 from $2.08 per million British thermal units (MMBtu) on February 22 to $2.59/MMBtu on March 1. The March 2023 NYMEX contract expired Friday at $2.451/MMBtu, up by $0.28 from February 22. The April 2023 NYMEX contract price increased to $2.811/MMBtu, up by $0.51 from February 22 to March 1. The price of the 12-month strip averaging April 2023 through March 2024 futures contracts climbed by $0.42 to $3.527/MMBtu.

International natural gas futures prices continued to decrease this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $0.58 to a weekly average of $14.76/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $0.54 to a weekly average of $15.10/MMBtu, the lowest level since August 2021. In the week last year that corresponded to this week (the week ending March 2, 2022), the price in East Asia was $32.50/MMBtu while that at TTF was at $40.28/MMBtu.

World Markets

European equities rose as investors overcame their concerns about a possible return to restrictive monetary policies, focusing their attention instead on the improving economic outlook. The pan-European STOXX Europe 600 Index gained by 1.43%. Major indexes in the regions likewise advanced, with France’s CAC 40 Index rising by 2.24%, Germany’s DAX Index gaining by 2.42%, AND Italy’s FTSE MIG Index surging by 3.11%. The UK’s FTSE 100 inched higher by 0.87%. The European bond yields rose during the week as elevated inflation data sparked worries of renewed aggressive monetary policy tightening by the European Central Bank (ECB). The yield on Germany’s 10-year sovereign bonds climbed above 2.7%, while the Italian government bonds of the same maturity soared to new highs for 2023. In the Eurozone, the annual inflation rate eased to 8.5% in February, down from 8.6% in January. This may be attributed to a decline in energy costs, according to official data. Core inflation, which excludes energy and food costs because of their volatility, and which therefore gives a clearer indication of the underlying pricing pressures, ticked up from 5.3% to 5.6%. This implies that inflationary concerns are still far from over in the European region. The eurozone unemployment rate in January held steady at 6.7%, close to their record lows. The ECB President Christine Lagarde announced that there is likely to be a further half-point interest rate increase that will be forthcoming at the March 16 meeting.

Japan’s stock markets also gained during the week. The Nikkei 225 Index rose by 1.73% while the broader TOPIX Index climbed by 1.57%. The Bank of Japan (BoJ) governor nominee Kazuo Ueda emphasized monetary policy continuity which investors welcomed, as signs confirming the Chinese economic recovery became evident after the COVID lockdowns. The easing of entry requirements by Japan for arrivals from mainland China was another positive development that lifted the markets. There remains some uncertainty, however, regarding the likely peak in U.S. interest rates and this perception curbed some of the market gains for the week. The yield on the 10-year Japanese government bond (JGB) continued to linger about the 0.50% level at which the BoJ caps JGB yields. The yield crossed the BoJ’s ceiling during the week, however, amid upward pressure from the U.S. Treasury yields. The volatility of the U.S. Treasury yields reacted to strong data that stoked concerns about further Federal Reserve rate hikes. The yen traded within a narrow range for the week, at about JPY 136 against the U.S. dollar.

For the second week in a row, Chinese equities gained ground aheadof the National People’s Congress (NPC) meeting. Strong economic data raised prospects for a better-than-expected post-lockdown recovery. The Shanghai Stock Exchange rose by 1.87% while the blue-chip CSI 300 gained by 1.71% in local currency terms. Hong Kong’s benchmark Hang Seng Index finally advanced after four straight weeks of losses and added 2.79%. The meeting of the NPC, which is China’s Parliament, begins on Sunday, March 5, and is expected to last for one week. The meeting is held every five years and is put under scrutiny for signs concerning economic policy shifts and possible changes in senior leadership. The People’s Bank of China (PBOC) Governor Yi Gang announced at a Friday press briefing that the central bank could cut the reserve requirement ratio for banks to support the economy. The yuan exchange rate will be kept relatively stable this year, according to the governor. The PBOC released its quarterly policy report the week before, wherein it affirmed its prudent policy stance to support economic growth and stability in 2023. The central bank will also seek to maintain sufficient liquidity and credit growth while upholding its commitment to financial risk management and market-oriented foreign exchange policy.

The Week Ahead

Among the important economic data scheduled for release in the coming week are the unemployment rate, job openings, and jobless claims.

Key Topics to Watch

• San Francisco Fed President Daly speaks
• Factory orders
• Fed Chairman Powell testifies to Senate
• Wholesale inventories
• Consumer credit
• ADP employment
• U.S. trade balance
• Fed Chairman Powell testifies to House
• Job openings (JOLTS)
• Beige Book
• Jobless claims
• Fed Gov Waller speaks
• Employment report
• U.S. unemployment rate
• Federal budget

Markets Index Wrap Up

Stock Markets

The week’s major stock indexes were rocked to a major correction as a slew of upside inflation and growth reports that broke expectations were released. The broad S&P 500 Index plunged 2.67%, its worst weekly loss since early December. At its close on Friday, this index gave up approximately 35% of the rally that began in October, but at its present level, it is still 3.40% up for the year to date. The narrowly-focused Dow Jones Industrial Average fell by 2.99% and has moved into negative territory for 2023, while the total stock market index corrected by 2.72%. The Nasdaq Stock Market Composite lost even more, giving up 3.33% for the week. This is consistent with communication services and consumer discretionary stocks underperforming other sectors, although the declines were widespread, and growth stocks were only slightly behind value shares. The NYSE Composite is down by 2.37%, while the risk perception monitor (the so-called “fear index”), the CBOE Volatility indicator, is up substantially by 8.24%, although it remains slightly below its mid-December levels.

The data released over the week impacted expectations on the timing and extent of future Fed rate hikes. The futures markets had begun pricing in an approximate 27% probability of a 0.50% hike in the federal fund’s target rate at the policy meeting coming up in March. There is also an approximately 38% likelihood that the terminal rate would reach a target rate of 5.50% to 5.75% or higher. Commensurately, the expectations that the Fed would start cutting rates in the fall considerably dwindled. In the meantime, the growth and inflation data triggered a sell-off in U.S. Treasuries, causing the yield on the benchmark 10-year U.S. Treasury note to approach 4.00% for the first time since mid-November. Risk sentiment was weakened by the release of the minutes of the Fed’s last policy meeting.

U.S. Economy

The Commerce Department reported on Friday that core personal consumption expenditures (PCE) price index, which excludes food and energy, rose by 0.6% in January which exceeded expectations of an increase of 0.4%. This is also its biggest rise since August. Furthermore, December’s figure was also revised upward and pushed the year-over-year increase (which many consider to be the Federal Reserve’s preferred inflation indicator) from 4.6% to 4.7%, the first time inflation pace picked up since September. The consensus expectation was for another decline to about 4.3%. Personal spending gained by a solid 1.8% in January, the biggest increase in almost two years and similarly well above consensus estimates.

The sharp equities correction is taken by some as a red flag that inflation might have reversed course and begun to accelerate again as 2023 started. However, additional data suggested that consumers and employers were not yet deterred by the rising interest rates. The University of Michigan’s consumer expectations indicator in February was revised upwards to its best level in more than a year. Both initial and continuing jobless claims descended below consensus estimates. The sales of new single-family homes reached their highest level since March 2022, when 30-year mortgage rates were roughly 2.5 percentage points lower, indicative of solid household balance sheets. However, some major retailers reported disappointing earnings and offered cautious guidance during the week, which suggests that household budgets may undergo some tightening.

Metals and Mining

Expectations of lower gold prices were proven right as the yellow metal tested its support just above $1,800 per ounce this week. The two key factors that continue to weigh on gold prices are inflation and rising bond yields. The likelihood that the Federal Reserve may continue to aggressively raise interest rates depends on its perception of the need to control rising inflation. Rising rates may push yield higher, however, and this may draw investors away from non-yielding assets like precious metals and bring their money instead to the bond market. Currently, bond yields are rising as long-shot expectations start to build that the U.S. central bank could push rates above 6% in an aggressive tightening cycle. A shift in interest rate expectations is also creating new momentum for a strengthening U.S. dollar against a basket of global currencies. These trends point to a rather dismal gold market ahead.

In the week just ended, gold prices ended at $1,811.04 per troy ounce, lower by 1.70% from its close one week ago at $1,842.36. Silver closed this past week at $20.76 per troy ounce, down 4.46%   from the previous week’s close at $21.73. Platinum closed on Friday at $913.03 per troy ounce, lower by 0.89% from its close one week earlier at $921.21. Palladium ended at $1,415.62 per troy ounce this week, descending by 5.79% from its previous week’s close at $1,502.59. The three-month LME prices of base metals were also mostly down for the week. Copper ended this week at $8,716.50 per metric tonne, down by 3.02% from its close one week ago at $8,987.50.  Zinc closed this week at $2,964.00 per metric tonne, losing by 3.07% from its week-ago close at $3,058.00. Aluminum ended this week at $2,335.50 per metric tonne, lower by 2.18% from its closing price last week at $2,387.50. Tin ended 0.79% lower this week, closing at $25,651.00 per metric tonne compared to its close one week ago at $25,856.00.

Energy and Oil

This week, building U.S. crude inventories have added to the downward pressure on oil prices as of Friday morning. The report released by the Energy Information Administration (EIA) weighed particularly heavily on West Texas Intermediate (WTI), a benchmark representing oil produced in the U.S., and opening an arbitrage window into both Europe and Asia. The market reaction to another 7.6-million-barrel build was originally mitigated by speculation of a further production cut from Russia and rumors of returning Chinese demand. The relative weakness of WTI has prompted the Chinese to renew its buying of U.S barrels by the state-owned Sinopec and PetroChina. In the end, inflation fears and continued inventory build brought oil prices lower, with ICE Brent hovering around the $81 per barrel price level.

Natural Gas

For the report week beginning Wednesday, February 15, and ending Wednesday, February 22, 2023, the Henry Hub spot price fell by $0.36 from $2.44 per million British thermal units (MMBtu) to $2.08/MMBtu throughout the week. The price of the March 2023 NYMEX contract decreased by $0.297, from $2.471/MMBtu at the start of the report week to $2.174/MMBtu at the week’s end. The price of the 12-month strip averaging March 2023 through February 2024 futures contracts declined by $0.225 to $3.003/MMBtu. International gas futures prices decreased for this report week to their lowest levels since the third quarter of 2021. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $2.57 to a weekly average of $15.34/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $1.04 to a weekly average of $15.64/MMBtu. In the corresponding week last year (the week ending February 23, 2022), the price in East Asia was $25.81/MMBtu, and that at the TTF was $26.36/MMBtu.

World Markets

In Europe, shares fell on fears of renewed rate hikes as better-than-expected economic data and corporate earnings raised prospects that central banks may anticipate renewed inflationary pressures. The pan-European STOXX Europe 600 Index descended by 1.42% in local currency terms. The region’s major stock indexes likewise fell. Italy’s FTSE MIB Index plunged by 2.76%, France’s CAC 40 Index lost 2.18%, and Germany’s DAX Index slid by 1.76%. The UK’s FTSE 100 declined by 1.57%. Headline inflation in the eurozone was confirmed to have eased in January to an annual rate of 8.6% from 9.2% the month earlier. This was only slightly higher than the initial estimate, even after data from Germany indicated that consumer price growth remained elevated in Europe’s largest economy.  Underlying price pressures continued to increase, however, with the core inflation indicator, which excludes fuel and food prices, accelerating to 5.3% from the 5.2% measured in December. Meanwhile, business activity in the UK manufacturing and services sectors ticked up in February, contrary to expectations. According to the PMI survey, prices charged by companies eased only marginally during the month. Manu firms expressed the need to pass on higher wages, food costs, and energy bills.

In Japan, equities declined over the week, with the Nikkei Index slipping by 0.22% and the broader TOPIX Index inching down by 0.18%. Comments by incoming Bank of Japan (BoJ) Governor Kazuo Ueda that were perceived as dovish provided some support to markets on Friday. Incoming BoJ Governor Kazuo Ueda emphasized monetary policy continuity but also acknowledged that the current policy had side effects. These encouraging comments were outweighed, however, by general worries about the impact of possible further interest rate hikes by the U.S. Federal Reserve. Surging consumer prices further added pressure on the BoJ to start scaling back its massive stimulus program. These developments caused the yield on the 10-year Japanese government bond to linger around the BoJ’s 0.50% upper limit. The yen lost ground against the U.S. dollar, from JPY 134.1 at the end of the prior week to JPY 135.2 at the end of this week.

Chinese stocks bucked the global trend and advanced after three consecutive weeks of losses. Hopes for stepped-up regulatory support offset concerns surrounding elevated U.S. tensions with China. The Shanghai Stock Exchange Index gained by 1.34% and the blue-chip CSI 300 added 0.66% in local currency terms. In Hong Kong, the benchmark Hang Seng Index plummeted by 3.43% as a strengthening U.S. dollar added to concerns over the strength of China’s economic recovery. China’s yuan currency fell to a seven-week low against the greenback after the release of unexpectedly strong U.S. inflation data on Friday, raising expectations that the Federal Reserve may resume its aggressive rate increase policy. Signs of deteriorating U.S.-China relations, which is a key factor that has influenced currency trading in recent years, also exerted pressure on the yuan amid reports that the U.S. plans to increase the number of troops helping train Taiwanese forces. The U.S. is Taiwan’s largest weapons supplier and has recently increased its presence around the island to guard against a potential Chinese invasion. Analysts forecast that the People’s Bank of China (PBOC) will continue its accommodative policies to support the economy amid a sluggish property market, declining exports, and fragile consumer confidence. The PBOC instructed lenders, however, to control the pace of new loans after they reached a record level in January.

The Week Ahead

This week, the important economic data scheduled for release include unit labor costs, consumer confidence, and the trade balance.

Key Topics to Watch

• Factory orders
• Wholesale trade
• Consumer credit
• ADP employment
• U.S. trade balance
• Job openings (JOLTS)
• Beige Book
• Jobless claims
• Employment report
• Unemployment rate

Markets Index Wrap Up