Stock Markets

The holiday-shortened week ended lower across all the major indexes as Monday saw the markets closed in observance of the Labor Day holiday. According to the WSJ Markets report, the Dow Jones Industrial Average (DJIA) slipped 0.75% down as the DJ Total Stock Market Index gave up double that with a loss of 1.47%. The broad-based S&P 500 Index descended by 1.29% while the technology-heavy Nasdaq Stock Market Composite declined by 1.93%. The investor risk perception indicator, CBOE Volatility Index, rose by 5.73%. The dip in equities may be a technical correction from the previous week’s gains, but it is also driven by positive economic signals that sent interest rates higher. Growth stocks outperformed value shares, while large-cap counters fared better than small-caps by a wider margin.

A decline in Apple’s share price accounts for the deeper slump in the Nasdaq compared to the broader indexes. Apple’s sell-down was precipitated by news that Chinese government employees would henceforth be forbidden from using iPhones. Another source of discouragement for investors is reports that the upcoming iPhone15 will have a much higher tag price than current models. Also weighing down on the indexes were declines in NVIDIA and other chipmakers.   

U.S. Economy

While the week’s economic calendar was not especially heavy this week, the released reports seemed to drive investor sentiment by generally surprising on the upside. The Institute for Supply Management’s report on August services sector activity appeared to stand out as the main market mover. It shows that the services sector activity for that month jumped unexpectedly to its highest level since February. According to the report, new orders were growing at a faster pace but inventories had risen considerably as order backlogs fell sharply. Export orders likewise remained robust, despite the growing worries through the week about a sharp slowdown in the Chinese economy.

The data that emerged this week also showed that productivity rose by 3.5% last quarter which is the strongest productivity growth rate since 2020. If the distortions from the pandemic are excluded, the productivity rate registered was the highest reading since the third quarter of 2017. Stronger productivity should drive upward support to GDP, particularly when occurring simultaneously with growth in the labor force, as the next section shows. Rising productivity can exert a dampening effect on inflation, especially in a moderating wage-growth environment as is the case at present. This confluence of economic factors could actually help the Fed in pausing and possibly reversing the recent interest rate hikes.

The weekly jobless claims report that was released on Thursday came in lower than expected. This suggested that the strength in labor demand continues despite the solid increase in the unemployment rate from 3.5% to 3.8% in August. The number of Americans applying for unemployment in the previous week, which was expected to increase slightly, fell to 216,000, its lowest level in six months. Continuing claims fell to its lowest level since mid-July at 1.58 million. The jobless numbers triggered an increase in short-term bond yields. The yield on the two-year U.S. treasury note briefly returned above the 5% threshold on Thursday afternoon.

Metals and Mining

Most traders are focused on trading the top two precious metals, gold and silver, but they tend to ignore the precious metal that may be one of the most essential in the coming decade. Platinum has a growing potential overlooked by many, as industrial demand for it continues to grow in an environment where supply growth is stagnating. The market faces a deficit of one million ounces this year while total platinum demand in the second quarter this year increased by 27% compared to the second quarter of last year. At the same time, automotive demand rose by 19% compared to last year, according to the latest estimates from the World Platinum Investment Council. The automotive sector represents about 80% of global platinum demand. This precious metal is a critical element in catalytic converters, which are used to reduce harmful emissions in diesel and gasoline-powered engines.

The spot prices of precious metals fell across the board this week. Gold came from $1,940.06 last week and ended at $1,919.08 per troy ounce this week for a loss of 1.08%. Silver, which ended at $24.19 one week ago, closed at $22.93 per troy ounce this week for a drop of 5.21%. Platinum descended by 6.98% this week from last week’s e at $963.85 to end at $896.60 per troy ounce. Palladium lost 1.85% of its value from the previous week’s closing price of $1,221.87 to this week’s closing price of $1,199.23 per troy ounce. The three-month LME prices of base metals also took a dive over this week. Copper came from $8,500.50 last week to end at $8,242.50 per metric ton this week for a decline of 3.04%. Zinc, which closed last week at $2,485.50, ended this week at $2,443.50 per metric ton for a drop of 1.69%. Aluminum came from last week’s price of $2,237.00 to end this week at $2,183.50 per metric ton, registering a slide of 2.39%. Tin descended from its price last week of $25,806.00 to this week’s price of $25,573.00 per metric ton, a decline of 0.90%.

Energy and Oil

Weaker-than-expected macroeconomic data from China capped market sentiment earlier this week. However, firm support for ICE Brent to stay at around $90 per barrel was provided by the fourth consecutive crude inventory draw in the United States combined with another week-on-week drop in gasoline stocks. Global balances were not materially altered by the extension of Saudi and Russian supply and export cuts until December 2023. However, it reiterates the bullish narrative of light supply further down the road. In the meantime, the Biden administration canceled the last remaining oil and gas leases along the coast of the Arctic National Wildlife Refuge. Much to the ire of the Alaskan authorities, the administration claimed that the Trump-era lease sales were “seriously flawed” and were based on legal deficiencies.

Natural Gas

For the week spanning August 30 to September 6, 2023, the Henry Hub spot price remained flat at $2.49 per million British thermal units (MMBtu). Regarding the Henry Hub futures price, the price of the October 2023 NYMEX contract decreased by $0.286, from $2.796/MMBtu at the start of the week to $2.510/MMBtu at the week’s end. The price of the 12-month strip averaging October 2023 through September 2024 futures contracts declined by $0.138 to $3.208/MMBtu. The NYMEX January 2024 contract reflects a premium of about $1.17/MMBtu to the October 2023 contract.

The international natural gas futures prices decreased this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $0.07 to a weekly average of $13.26/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 $0.46 to a weekly average of $10.75/MMBtu. The corresponding prices last year (for the week ending September 7, 2022) to this week’s prices were $56.07/MMBtu in East Asia and $66.49/MMBtu at the TTF.

World Markets

The pan-European STOXX Europe 600 Index closed lower by 0.76% this week on concerns that elevated interest rates may push the economy into a slowdown and eventually a recession. Among the major stock indexes, Italy’s FTSE MIB slumped by 1.46%, France’s CAC 40 Index declined by 0.77%, and Germany’s DAX descended by 0.63%. The UK’s FTSE 100 Index bucked the general trend and rose by 0.18%. The yields on German and Italian 10-year sovereign bonds inched higher amid worries about the eurozone economy. The yield on the 10-year government bond in the U.K. ended higher but pulled back from the highs it attained midweek. A series of economic data provided more indications that the eurozone economy continues to incur obstacles. The gross domestic product (GDP) in the bloc ticked up by 0.1% in the second quarter while a drop in exports contributed to Eurostat’s downward revision of its initial estimate of 0.3% expansion. Weaker automotive fuel purchases were reflected in the drop in retail sales volumes in the eurozone by 0.2% sequentially in July. The year-over-year decline was 1.0%.

Japanese bourses were mixed this week. The Nikkei dipped by 0.3% while the broader TOPIX gained by 0.4%. Investor risk appetite was weighed down by worries about China’s economic slowdown and the impact on global demand. Japan’s economy may not be doing as well as originally thought as suggested by some weak economic data releases. Further dampening sentiment was a downward revision made to second-quarter economic growth. Japan’s second-quarter 2023 gross domestic product expanded by 4.8% quarter-on-quarter on an annualized basis, which is weaker than the 6,0% growth estimated preliminarily. Also coming in softer than anticipated were capital spending, private consumption, and public investment. The yield on the 10-year Japanese government bond (JGB) remained steady at around the 0.6% range. The yen weakened to around JPY 147 per U.S. dollar, its lowest level in more than 10 months, from the JPY 146 at the end of the earlier week. This prompted Japan’s Ministry of Finance to issue its strongest warnings to date on foreign exchange market intervention to prop up the end.

Chinese stocks fell back this week as the latest economic indicators confirmed speculation about the country’s weakening outlook. The Shanghai Composite Index declined by 0.53% while the blue-chip CSI 300 Index descended by 1.36%. The Hong Kong benchmark Hang Seng Index fell for the week that ended Thursday as financial markets were closed on Friday due to a heavy rainstorm that flooded the city. The private Caixin/X&P Global survey or services activity dropped to 51.8 in August which is below the forecast and July’s 54.1. The gauge remains above eh 50 threshold, indicating expansion for the eighth consecutive month,

 but it was the slowest increase since December, the outcome of the poor demand that is dragging China’s economy down further. The indicator is broadly consistent with the prior week’s nonmanufacturing Purchasing Managers’ Index (PMI), which also slowed to its lowest level his year. The official nonmanufacturing PMI remained in contraction for the fifth consecutive month but came in slightly above expectations. China’s trade fell by 8,8% in August from one year earlier, somewhat moderating from the sharp 14.5% drop in July. Imports shrank by 7.3%, and both readings were above expectations, suggesting that some sectors in China’s economy may be rounding the bottom. China’s renminbi currency fell to a record low of 7.36 against the U.S. dollar in overseas trading after the central bank set its yuan fixing rate at a two-month low.

The Week Ahead

Among the important economic data expected this week are the retail sales data, the CPI inflation report, and capacity utilization.

Key Topics to Watch

• Consumer price index
• Core CPI
• CPI (year-over-year)
• Core CPI (year-over-year)
• Initial jobless claims
• Producer price index
• Core PPI
• PPI (year-over-year)
• Core PPI (year-over-year)
• U.S. retail sales
• Retail sales minus autos
• Business inventories
• U.S. import prices
• Empire State manufacturing survey
• Industrial production
• Capacity utilization
• Consumer sentiment (prelim)

Markets Index Wrap Up

Stock Markets

Major indexes are up this week, helped by hopeful signs on the inflation front, although this was the first month since February that stocks closed negative. The Dow Jones Industrial Average (DJIA) gained 1.43% while the DJ Total Stock Market Index almost doubled this gain by moving up by 2.75%. The broad S&P 500 Index climbed 2.50% and technology-heavy Nasdaq Stock Market Composite surged by 3.25%. The NYSE Composite ascended by 2.06% and the Russell 1000 went up by 2.68%. The CBOE Volatility Index which tracks investor risk perception declined by 16.52%.

Growth shares were boosted by a decrease in longer-term interest rates over much of the week which reduced the implied discount on future earnings. The significant year-to-date gap between large caps and smaller cap stocks which outperformed this week. Many observers noted that during the week, bad news for the economy was considered good news for stock prices because of the interest rate implications. The big market push came Tuesday when the S&P 500 Index recorded its best one-day gain since June. On that day, job quits were announced to have considerably fallen. Markets are scheduled to be closed on Monday, September 4, in observance of the Labor Day holiday.

U.S. Economy

The Labor Department reported that job openings unexpectedly fell by 338,000 in July, hitting their lowest level since March 2001. As mentioned earlier, job quits, which are considered by some to be a more reliable indicator of the strength of the labor market, fell significantly. The unemployment rate hit its highest in 17 months. The closely watched nonfarm payrolls report released on Friday appeared to confirm loosening labor market conditions. Employers added 187,000 jobs in August which is slightly above consensus expectations; however, gains for the previous two months were revised lower by a total of 110,000. Average hourly earnings came in somewhat below expectations, increasing by only 0.2% for the month.

Most importantly, the unemployment rate ticked up from 3.5% to 3.8%, its highest level since February 2022. The labor force participation rate hit 62.8%, its highest level since the start of the pandemic in February 2020, as 736,000 people reentered the job market. Despite the slowdown in the labor market, people appeared to grow hopeful for a “no landing scenario,” that the economy would escape even a substantial slowdown in 2023. The Commerce Department reported on Thursday that personal spending jumped by 0.8% in July. This is above expectations and well above a 0.2% increase in consumer prices during the month. Then on Friday, the Institute for Supply Management reported that its gauge of manufacturing activity climbed unexpectedly to its best level since February, although it still indicated a contraction in the sector. Also surprising on the upside was a gauge of overall business activity in the Chicago region. 

Metals and Mining

While gold appears to show relative strength despite facing significant headwinds from rising bond yield and the U.S. dollar, the precious metals market continues to lack a catalyst that can drive gold back to the $2,000-per-ounce level and, hopefully after that, record highs. Gold prices hit a brick wall at $1,980 per ounce heading into the long weekend holiday. This level is a critical psychological level in gold’s long-term uptrend. So far, gold is stuck in a neutral trading channel, but it appears that when the right conditions have been met, gold has the potential to move northward. In the week just ended, some cracks appear to be forming in the U.S. labor market, an essential pillar of strength for the economy so far this year.

The precious metals spot market ended mixed for the week. Gold gained by 1.31% from its previous price of $1,914.96, closing at $1,940.06 per troy ounce this week. Silver, which closed at $24.23 the week before, ended this week at $24.19 per troy ounce which is slightly down by 0.17%.  Platinum ended this week at $963.85 per troy ounce, 1.63% higher than the previous week’s closing price of $948.43. Palladium, which ended the previous week at $1,227.74, closed this week at $1,221.87 per troy ounce, for a loss of 0.48%. The three-month LME prices of industrial metals were also mixed. Copper closed at $8,500.50 per metric ton, 1.69% higher than the previous week’s price of $8,359.50. Zinc, which ended one week ago at $2,394.00, closed this week at $2,485.50 per metric ton for a weekly gain of 3.82%.  Aluminum gained by 3.68% from its previous price of $2,157.50 to close the week at $2,237.00 per metric ton. Tin ended the week at $25,806.00 per metric ton for a loss of 0.25% from the previous week’s closing price of $25,870.00.        

Energy and Oil

An unusually tight oil market in the United States has resulted from continuous U.S. stock draws equivalent to a one million barrel per day decline over the past five weeks. This added upward pressure to oil prices despite the country’s economic woes. Adding to the bullish sentiment are widespread expectations of OPEC+ extending production and export cuts as well as recovering Chinese manufacturing activity adding to the demand. These pressures have pushed ICE Brent above the $87 per barrel price level. According to Russia’s deputy price minister Alexander Novak, OPEC+ members have agreed on the main parameters of production over the upcoming months but will only announce it next week. This suggests that Riyadh and Moscow are to continue their production and export cuts.

Natural Gas

For the report week beginning Wednesday, August 23, and ending Wednesday, August 30, 2023, the Henry Hub spot price fell by $0.10 from $2.59 per million British thermal units (MMBtu) to $2.49/MMBtu. Regarding the Henry Hub futures price, the September 2023 NYMEX contract expired Tuesday at $2.556/MMBtu, up by $0.06 for the week. The October 2023 NYMEX contract price increased to $2.796/MMBtu, up by $0.20 through the week. The price of the 12-month strip averaging October 2023 through September 2024 futures contracts rose by $0.05 to $3.345/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 decreased by $0.76 to a weekly average of $13.33/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 $1.13 to a weekly average of $11.22/MMBtu. During the week last year that corresponds to this week (i.e., the week from August 24 to August 31, 2022), the prices were $64,02/MMBtu in East Asia and $83.62/MMBtu at the TTF, the highest weekly average TTF price on record. Due to uncertainty about Australian LNG supplies amid the potential for labor stoppages, international natural gas prices have been volatile throughout August.

World Markets

European stock prices rose for the week reflecting investors’ optimism that interest rates would soon peak and that a recession, while still possible, would be short-lived and shallow. Equities rose on positive news of China’s efforts to bolster its beleaguered economy.  The pan-European STOXX Europe 600 Index climbed by 1.49%. Major European stock indexes in the UK, Germany, Italy, and France also advanced for the week. As core inflation data and comments from policymakers suggested that the European Central Bank (ECB) could be nearing the end of its monetary policy tightening cycle, European government bond yields edged further downward. The yields on the 10-year government bonds issued by France and Germany inched lower as did the yield on UK 10-year sovereign bonds which descended close to one-month lows on softer economic data.

Japan stock markets rose over the week. The Nikkei 225 Index rose by 3.4% while the broader TOPIX Index gained 3.7%. Expectations that the U.S. Federal Reserve was moving closer to pausing its interest rate hiking cycle were boosted by weaker-than-forecasted U.S. economic data that emerged during the week. China’s latest measures to boost its markets and economy were likewise welcomed by investors. In the meantime, the yield on the 10-year Japanese government bond dipped to 0.63% from 0.64%, its level at the end of the previous week. Weighing on yields was the announcement by the Bank of Japan (BoJ) of its intention to conduct bond-buying operations one day before its auction of 10-year notes. This is scheduled for the week beginning September 4. The yen strengthened from JPY 146.4 against the dollar a week ago to JPY 145.4 this week. It remains historically weak, however, prompting speculation that Japan’s monetary authorities could intervene in the foreign exchange markets to prop up the currency.

After Beijing issued a series of stimulus measures aimed at reviving the economy, Chinese stocks rose for the week. The blue-chip CSI 300 Index and Shanghai Composite Index both advanced for the week. The Hong Kong benchmark Hang Seng Index also rose for the four-day week that ended Thursday. Financial markets were closed on Friday due to an approaching typhoon. On the Friday preceding, China’s bank reduced the amount of foreign currency deposits that domestic banks are required to hold as reserves. The foreign exchange reserve requirement ratio was reduced from 6.0% to 4.0%, effectively freeing up more foreign currency in the local market to buy the renminbi currency. This helped to support the local currency which in August had fallen to its lowest level against the U.S. dollar since 2007. The central bank issued its directive hours after China’s financial regulator announced that it would reduce minimum down payments for homebuyers nationwide. It encouraged lenders to lower rates on existing mortgages.

The Week Ahead

This coming week, important economic data scheduled for release include the July factory orders, the Fed Beige Book, and the ISM Services PMI report for August.

Key Topics to Watch

• Factory orders
• U.S. trade deficit
• S&P final U.S services PMI
• ISM services
• Fed Beige Book
• Initial jobless claims
• U.S. productivity (revision)
• Unit-labor costs (revision)
• Philadelphia Fed President Patrick Barker speaks
• Chicago Fed President Austan Goolsbee speaks
• New York Fed President John Williams speaks
• Atlanta Fed President Raphael Bostic speaks (Sept. 7, 3:45 p.m.)
• Atlanta President Raphael Bostic speaks (Sept. 7, 7 p.m.)
• Dallas Fed President Lorie Logan speaks
• Wholesale inventories
• San Francisco Fed President Mary Daly speaks
• Consumer credit

Markets Index Wrap-Up

Stock Markets

The Dow Jones Industrial Average (DJIA) moved marginally lower this week by 0.45% although the DJ Total Stock Market inched higher by 0.72%. The broad S&P 500 Index also gained by 0.82% with small caps losing ground and midcaps gaining. The technology-heavy Nasdaq Stock Market Composite surged by 2.26% while the NYSE Composite moved up by 0.11% and the Russell 1000 by 0.79%. The CBOE Volatility Index, which tracks investor risk perception, declined by 9.36%, according to data from the WSJ Markets.

The Federal Reserve’s pronouncement in this week’s annual Jackson Hole symposium about future interest rate hikes remained hawkish but was noticeably more balanced than last year. This was seen as catering favorably for equities and bonds, although uncertainty remains concerning what policy measures are still needed to deal with the higher-than-target inflation readings. Powell conveyed that the Fed remains committed to defeating inflation even though it may cause “some pain” for U.S. households. His message was somewhat more nuanced, however, emphasizing that future Fed decisions will be based on the data, indicating that the policy-making body is keeping its options open. The Fed’s mixed signals muted trading for the week.

Growth stocks outperformed value shares this week as investors responded to substantial earnings and revenue reports by artificial intelligence chipmaker NVIDIA. Earlier in the week, financials pulled back after S&P Global downgraded its credit rating of five regional banks. The downgrade was, in part, due to stresses in the commercial real estate lending market. A generally cautious picture regarding the health of the U.S., consumer market was painted by second-quarter results reported by some retailers. Department store operator Macy’s shares fell sharply as a result of reporting a drop in earnings and warned of growing consumer caution coupled with rising credit card delinquencies. Nordstrom, Macy’s competitor, also reported rising late payments on its credit cards in issuing a cautious outlook, although their realized earnings and revenues beat estimates. Nordstrom, specialty retailer Dick’s Sporting Goods, and discount chain Dollar Tree all noted that earnings suffered due to exceptionally high levels of theft from their stores.

U.S. Economy 

According to the Fed, economic growth remains more resilient even by their own expectations, although some downside is still expected in reaction to the impact of past, and possibly future, rate hikes through the economy. Policy rates are likely nearing or at their peak. In the meantime, the durable goods orders data released on Thursday indicated that a somewhat higher degree of business caution was prevalent in some areas. Durable goods orders excluding defense and transportation, a commonly accepted proxy for business investment, rose by 0.1% in July although it was more than offset by a downwardly revised 0.4% contraction in June.  S&P Global’s index of manufacturing activity also fell more than expected in August. This indicator reversed most of July’s strong gain and moved further back into contraction territory.

Despite the highest mortgage rates in years, the housing sector appeared more robust with new home sales ascending to their highest level in July since early 2022. On Thursday, Freddie Mac reported that the 30-year fixed rate mortgage had reached its highest level since 2001. However, existing home sales declined and missed expectations. In the Jackson Hole, Wyoming Fed symposium, Powell admitted that the higher rates had slowed growth in wages and industrial production even as tightening bank lending standards were colling the economy. He noted that economic growth, on the other hand, remained above its longer-term trend. Furthermore, the housing sector also appeared to be regaining momentum after slowing sharply over the past one and a half years.

Metals and Mining

Despite the many challenges that faced the gold market, prices refuse to go lower, possibly indicating that strong support exists at current levels. Among the challenges was the increase in 10-year bond yields to its highest in 15 years. Higher bond yields traditionally bode ill for gold prices because they raise the opportunity cost of precious metals, a nonyielding asset. This week the gold market did see some initial weakness, but this was quickly dispelled as prices were looking to start the weekend with a 1% gain, ending four weeks of losses. Simultaneously, silver is ending the week up as it saw a modest short squeeze. Despite its current strength, however, it is unlikely that gold has the momentum to rally back to $2,000 per ounce anytime soon, with the Fed’s prevailing policy addressing stubborn inflation and a relatively tight labor market.

This week, the spot prices of precious metals ended mixed. Gold closed the week at $1,914.96 per troy ounce, up by 1.36% from last week’s close at $1,889.31. Silver ended at $24.23 per troy ounce, higher by 6.51% from the previous week’s close at $22.75. Platinum ended the week at $948.43 per troy ounce, higher by 3.70% from the previous week’s close at $914.58. Palladium bucked the trend to close at $1,227.74 per troy ounce, down by 2.37% from the earlier week’s close at $1,257.57. The three-month LME prices of industrial metals were generally up. Copper, which closed at $8,235.50 last week, rose by 1.51% to close at $8,359.50 per metric ton. Zinc, which ended one week ago at $2,298.00, closed this week at $2,394.00 per metric ton for a gain of 4.18%. Aluminum, which last traded at $2,145.50 last week, closed this week at $2,157.50 per metric ton for a gain of 0.56%. Tin gained 2.23% from the previous week’s close at $25,305.00 to this week’s close at $25,870.00 per metric ton.

Energy and Oil

Oil prices this week were weighed heavily down by rumors of a US-Venezuela rapprochement and the prospect of Kurdish oil exports returning to the market. However, some of the downward pressure was counter-balanced by healthy U.S. crude inventory draws and lower-than-expected product stock levels in Europe. The U.S. Federal Reserve’s Jackson Hole meeting this week also failed to surprise in either direction; therefore, in the absence of any major turns, oil prices ended the week sideways with another very minor weekly loss.

Natural Gas

In the first six months of 2023, the U.S. exported more liquefied natural gas (LNG) than any other LNG-exporting country in the world, according to data from CEDIGAZ. the increase in LNG exports from the U.S. was mostly due to Freeport LNG’s return to service and continued growth in global LNG demand, particularly in Europe. Following the U.S. was Australia as the world’s second-largest exporter. The European Union (EU 27 plus the UK) reprised its 2022 position as the main destination for U.S. LNG in the first half of 2023, accounting for 67% of total U.S. exports which increased by 14% over the 2022 annual average. The Netherlands, the U.K., France, Spain, and Germany accounted for 77% of total U.S. LNG exports to Europe.

For this report week from August 16 to August 23, 2023, the Henry Hub spot price rose by $0.04, from $2.55 per million British thermal units (MMBtu) to $2.59/MMBtu. The price of the September 2023 NYMEX contract decreased by $0.095 from $2.592/MMBtu at the start of the week to $2.497/MMBtu at the end of the week. The price of the 12-month strip averaging September 2023 to August 2024 futures contracts descended by $0.115 to $3.224/MMBtu.

International natural gas futures prices increased for this report week. The weekly average front-month future prices for LNG cargoes in East Asia increased by $2.33 to a weekly average of $14.09/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 $0.60 to a weekly average of $12.35/MMBtu. In the week in 2022 that corresponded to this week (August 17 to August 24, 2022), the prices were $59.01/MMBtu in East Asia and $77.60/MMBtu at the TTF.

World Market

In Europe, there was some optimistic macroeconomic news that incentivized investors to push stock prices higher. The pan-European STOXX Europe 600 Index inched up by 0.66% as expectations grew that interest rates may soon peak and European natural gas prices dropped. The major stock indexes in the region generally ended higher. Italy’s FTSE MIB advanced by 1.61%, France’s CAC 40 Index ascended by 0.91%, and Germany’s DAX climbed by 0.37%. The UK’s FTSE 100 Index gained by 1.05%. Eurozone bond yields declined and the 10-year German sovereign yields closed lower. Economic data indicated that the European economy was weakening, leading to growing expectations in the financial markets that future interest rates would not increase much further.

Japanese stocks rose this week as the market rallied from the declines of the previous week to chalk up four consecutive days of gains before giving up much of the gains in Friday’s trading. The broad TOPIX ended up 1.3% while the benchmark Nikkei 225 closed the week higher by 0.6%. Japanese investors appeared unaffected by a softer-than-hoped-for policy response from China to address their slowing growth and a building property crunch. Encouraging domestic data announcements further buoyed the markets. Both manufacturing and services sector activity combined to bring flash composite PMI data to increase to 52.6 in August, up from 52.2 in July. While Japan’s factory activity declined for a third consecutive month in August, the data shows that the rate of decline was decelerating. A 3.1% rise in Japan’s core consumer prices in July was generally well received although various inflation readings during the week provided mixed messages. The yen continued to weaken against the dollar, a trend that prevailed over recent months. This week it finished in the low JPY 146 range against the U.S. dollar, which is close to levels reached in September-October 2022, prompting intervention from the Bank of Japan.

Chinese stocks ended lower for the week in line with growing investor pessimism about the country’s economic outlook. The Shanghai Composite Index as well as the blue-chip CSI 300 Index both suffered weekly declines, adding to their year-to-date losses. The Shanghai Composite Index is at its lowest level since December of last year, while the CSI 300 Index is trading at its lowest level since November 2022. The Hang Seng Index, Hong Kong’s benchmark which entered a bear market Friday of the preceding week, retraced to end up marginally higher for the week, although it also is at its lowest level since November. Several factors contributed to an erosion of confidence in China’s economy, among which are disappointing domestic economic data, signs of deflation, record youth unemployment, and continued liquidity problems in the debt-laden property sector. The specter of accelerated capital outflows is being raised by signs of deteriorating growth and a sense that Beijing has relatively few good options to arrest the downturn. Over the 13 trading days through Wednesday, overseas funds sold the equivalent of US $10.7 billion from the mainland market. However, the risks of a systemic crisis emanating from China’s property sector appear low.   

The Week Ahead

Among the important economic data scheduled for release this week are the July PCE inflation report, the August unemployment rate, and nominal personal income and spending.

Key Topics to Watch

• S&P Case-Shiller home price index (20 cities)
• Job openings
• Consumer confidence
• ADP employment
• GDP (revision)
• Advanced U.S. trade balance in goods
• Advanced retail inventories
• Advanced wholesale inventories
• Pending home sales
• Initial jobless claims
• Personal income (nominal)
• Personal spending (nominal)
• PCE index
• Core PCE index
• PCE (year-over-year)
• Core PCE (year-over-year)
• Chicago Business Barometer
• U.S. nonfarm payrolls
• U.S. unemployment rate
• U.S. hourly wages
• Hourly wages year-over-year
• ISM manufacturing
• Construction spending

Markets Index Wrap Up

Stock Markets

Stocks fell over the week sending all the major indexes downward. The Dow Jones Industrial Average (DJIA) slumped by 2.21%, not far from the DJ Total Stock Market’s 2.24% drop. The broad-based S&P 500 Index declined by 2.11% while the technology-heavy Nasdaq Stock Market Composite fell even further by 2.59%. The NYSE Composite Index descended by 2.44%. Not surprisingly, the risk indicator CBOE Volatility Index rose by 16.58%. Part of the decline may be accounted for as part of a healthy pullback strategy, although there is no doubt that sentiment was affected by developments in the geopolitical environment and a recalibration in investors’ realistic economic expectations due to the recent optimistic economic news losing steam.

This is the third consecutive week that stocks ended lower. Investor sentiment was apparently dampened by a sharp increase in longer-term bond yields and concerns that China is facing a sharp economic slowdown. The S&P 500 Index has closed the week down by 5.15% from its intraday peak on July 26. Although growth shares should weaken the most in theory in reaction to rising rates placing a greater discount on future earnings, they are instead holding up moderately better than value stocks, as shown by the Russell 1000 Growth Index. Small-cap stocks underperformed the rest of the market. According to traders, the market’s swing appeared to have been accentuated by program trading, technical factors, and thin summer trading. Nevertheless, shifting expectations for the economy will likely continue to drive market movements for the second semester of 2023.

U.S. Economy

The sharp rise in inflation rates the economy has experienced since 2022 appears to be tapering off, which means that it is unlikely that the Federal Reserve will resume its policy of increasing interest rates to keep inflation under control. The focus of economic and monetary policymakers has shifted from increasing inflation to slowing growth. In the year thus far, longer-term interest rates climbed significantly, causing the 10-year Treasury yield to hit a new high for the year in the past week. It appears that there is a resiliency in economic growth prompting the market to accept that the Fed may continue to raise interest rates in the future, which resulted in the record high reached by the 10-year Treasury yield last week.  

While household spending may slow as the year heads towards its end, this does not spell a significant retreat in consumer spending from the market altogether. The likelihood of a rolling recession is still intact, which means different areas of the economy will alternate in their slowdown which will result in a mild deceleration in the overall GDP. Spending remained strong in July, according to the recent retail sales report, although the underlying trends showed that sending habits are shifting. Sales of household furnishings, including furniture and appliances, vehicles, electronics, and other large-ticket items, declined. If the economy can sidestep a hard recession, which is the likely outcome due to healthy employment conditions and strong consumer finances, then there appears no reason that the financial markets will return the steady gains it has made since the bear market bottomed out last year.

Metals and Mining

The metals market this week responded to the movements in other financial and commodities markets. On the last day of trading, gold prices hit another five-month low overnight as rising U.S. treasury yields and a rally in the U.S. dollar index created headwinds causing sellers to dominate in the gold and silver markets. Foreign markets also caused ripples as the Chinese economy continued to soften, prompting the country’s central bank to promise further stimulus measures and support the depreciating yuan. Meantime, minutes of the last FOMC meeting released on Wednesday afternoon sent signals that the Fed remains committed to reining in the U.S. inflation. The market read the minutes as leaning hawkish, causing the rise in U.S. treasury yields. However, gold closed slightly higher for the last trading day, ending nine consecutive daily declines and lower lows.

The spot prices of precious metals ended lower this week. Gold closed at $1,889.31 per troy ounce this week, down by 1.28% from its closing price of $1,913.76 the week before. Silver ended trading almost unchanged, from last week’s price of $22.69 to this week’s price of $22.75 per troy ounce, marginally up by 0.26%. Platinum dipped by 0.16% from last week’s closing price of $916.07 to this week’s closing price of $914.58 per troy ounce. Palladium, previously at $1,299.07, ended this week at $1,257.57 per troy ounce for a decline of 3.19%.

The three-month LME prices of industrial metals have also lost some ground for the week. Copper came from $8,386.00 the week before to $8,235.50 per metric ton this past week for a decline of 1.79%. Zinc, previously at $2,457.00, closed this week at $2,298.00 per metric ton, a descent of 6.47%. Aluminum closed this week at $2,145.50 per metric ton, lower by 2.65% from the earlier week’s closing price of $2,204.00. Tin, formerly at $26,885.00, descended by 5.88% to close the week at $25,305.00 per metric ton.

Energy and Oil

The upside for crude oil prices is no longer as clear as it was two weeks ago even though backwardation in oil markets reached the widest level since April and inventories are declining globally. Backwardation refers to the condition when the current price, or spot price, of crude is higher than prices trading in the futures market. The recent minutes of the FOMC meeting showed that the Fed members were divided over the need for further rate hikes, thereby cautioning against market hopes of a soft recession. Furthermore, Chinese economic woes were again resurrected, causing Brent to move lower week-on-week to end at $84 per barrel.  

Natural Gas

For the report week from Wednesday, August 9, to Wednesday, August 16, 2023, the Henry Hub spot price fell by $0.36 from $2.91 per million British thermal units (MMBtu) – its highest price since January 2023 – to $2.55/MMBtu, aligning with the decline in the Henry Hub futures price. The price of the September 2023 NYMEX contract decreased by $0.367 from $2.959/MMBtu to $2.529. The price of the 12-month strip averaging September 2023 through August 2024 futures contracts declined by $0.133 to $3.340/MMBtu. Regarding regional spot prices, natural gas spot prices fell at most locations during this report week, except in Southern California. Price changes this week ranged from an increase of $2.85/MMBtu at SoCal Citygate to a decrease of $0.42/MMBtu at Sumas on the Canada-Washington border.

International natural gas futures prices increased this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.78 to a weekly average of $11.76/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 $1.40 to a weekly average of $11.75/MMBtu. During the week last year corresponding to this report week (the week from August 10 to August 17, 2022), the prices were $49.94/MMBtu and $65.07/MMBtu in East Asia and at the TTF, respectively.

World Markets

Stocks fell in Europe due to growing fear of growing uncertainty surrounding China’s economic outlook as well as the likelihood of a prolonged elevated interest rate regime in Europe. The pan-European STOXX Europe 600 Index plunged by 2.34%, while major stock indexes likewise softened. Germany’s DAX declined by 1.62%, Italy’s FTSE MIB lost 1.81%, and France’s CAC 40 Index gave up by 2.40% for the week. The UK’s FTSE Index plummeted by 3.48%. UK’s markets reacted to the report of wage growth accelerating, thus bolstering the perception that inflation rates will again increase. This exerted further pressure on the Bank of England (BoE) to further raise interest rates.to put the arrest a possibly heating economy. Average weekly earnings (excluding bonuses) in the UK climbed by 7.8% in the three months through June from 7.4% in the three months through May. Services prices, which are seen by the BoE as the best predictor of underlying domestic inflation, speeded up to its highest level since March 1992 at 7.4%.

Japan’s stock markets declined over the week amid concerns regarding the broader impact of China’s macroeconomic weakness and its troubled property sector. The Nikkei 225 Index receded by 3.2% and the broader TOPIX Index fell by 2.9%. Tourism-related stocks led the shares whose prices declined most notably. The yield on the 10-year Japanese government bond (JGB) increased to 0.64% from 0.58%, its yield level at the end of the previous week. This was the result of the Bank of Japan’s (BoJ’s) monetary policy adjustment in July, the purpose of which was to allow JGB yields to more freely rise by turning its 0.5% yield ceiling from a rigid limit to a reference point. The yen softened to around HPY 145.5 versus the U.S. dollar, from its previous exchange rate of about JPY 144.9 the week earlier. Japanese authorities were prompted to intervene in the foreign exchange market in September 2022 to stem the currency’s decline when it traded at its lowest level in nine months. Meanwhile, Japan’s GDP grew by 6.0% quarter-on-quarter in the three months to the end of June 2023, driven largely by strong exports, and exceeding the 2.9% forecast by economists.

China’s equities succumbed to growing pessimism about the country’s flagging economic recovery. The Shanghai Stock Exchange Index dropped by 1.80% and the blue-chip CSI 300 fell by 2.58%. Hong Kong’s benchmark Hang Seng Index plunged by 5.89%, its biggest weekly fall in five months. According to official data for July, China’s economic activity continued to soften overall. Retail sales and industrial output advanced at a slower-than-expected rate in July compared to their readings one year ago. Also falling short of forecast was the fixed asset investment growth for the first seven months of 2023. Urban unemployment worsened slightly, edging up from June’s 5.2% to July’s 5.3%. New home prices in 70 of China’s largest cities fell by 0.23% in July from June, when they declined for the first time this year. Recent developments suggest that the strength of the recovery of China’s property sector may be faltering, and it may not sustain the growing stabilization it showed earlier this year.

The Week Ahead

The important economic data to be released in the coming week include the Purchasing Managers’ Index for services and manufacturing and the Michigan consumer sentiment survey.

Key Topics to Watch

• Existing home sales
• S&P flash U.S services PMI
• S&P Flash U.S. manufacturing PMI
• New home sales
• Fed officials interviews from Jackson Hole summit
• Initial jobless claims
• Durable goods orders
• Durable goods minus transportation
• Powell gives opening speech at Jackson Hole summit
• University of Michigan consumer sentiment final

Markets Index Wrap Up

Stock Markets

The stock markets consolidated over the past week resulting in mixed readings for the major U.S. indexes. According to the WSJ report on the markets, the Dow Jones Industrial Average (DJIA) inched up by 0.62% while the total stock market index slipped down by 0.52%. The broad S&P 500 Index dipped by 0.31% and the technology-heavy Nasdaq Stock Market Composite lost by 1.90%. The NYSE Composite rose by 0.45%. The CBOE Volatility Index, an indicator of perceived risk in the markets, fell by 13.22%. The market is seen to be taking a breather to digest the gains made over the strong rally during the first semester of this year where the S&P rose by 18% and the Nasdaq by 30% from March to July.

Light volumes marked the sideways movement in the indexes as investors weighed the improving inflation data against the recent rise in long-term interest rates. The light trading is also consistent with the summer vacation season and the end of the quarter earnings reporting We may expect to see a technical correction by 5% to 10% as the markets head into August and September which tend to historically be more volatile months. Investors should not be alarmed as they see the indexes coming down as this development is a healthy one and may present some opportunities for bargain-hunting. It may also signal the early beginnings of a longer-term bull market, especially with expected improvements in many fundamental indicators such as inflation, interest rates, and the GDP.

Midweek healthcare stocks rose as evidence was reported of the efficacy of diabetes drugs in treating obesity and related ailments. Meanwhile, information technology stocks underperformed due to concerns that rising interest rates may reduce the value of their future profits. Also exhibiting weakness were industrial stocks which is attributed to worries over a potential strike by the United Auto Workers union. Financial stocks briefly experienced a sell-off on Tuesday morning as Moody’s Investors Service lowered its ratings for ten small- and mid-cap banks. The same rating agency placed six other entities on downgrade watch. The cause for the downgrade was funding costs and the banks’ exposure to the struggling commercial real estate sector.

U.S. Economy

Economic reports were relatively light over the past week, although closely watched inflation data were released and caused some excitement among investors. Stocks jumped on Thursday’s opening bell on reports that the Labor Department’s consumer price index (CPI) advanced by 0.2% in July. This brought the CPI’s increase to 3.2% year-over-year which is slightly below expectations. Continuing pressure from shelter costs was offset by a slight drop in airline fares. As the day progressed, however, enthusiasm over the CPI data waned, and on Friday producer prices were reported to rise by 0.3% in the month which exceeded expectations slightly. Producer prices increased by 0.8% year-over-year, which is still well below the 2% Federal Reserve’s overall consumer inflation target. July marked the first annual increase in the PPI in more than a year.

The better-than-expected economic growth is perhaps the factor that drove the most notable shift in market and investor sentiment. The notion that the economy may avoid a recessionary period and may likely grow above trend this year seems to have been embraced by the markets. The Fed’s own GDP-Now forecasting tool is pointing to third-quarter U.S. GDP growth of a notable 4.1%. Towards the later part of 2023 to early 2024, some form of a rolling downturn could be possible. Parts of the economy, like manufacturing and housing, may stabilize while other economic segments, such as services, may soften. We may avoid a traditional hard recession of consecutive quarters of negative growth while still seeing a cooling in growth to below trend,

Metals and Mining

When opportunity costs are rising, few investors will prefer to hold an aggressive position in gold when they can get a 4% yield in short-term money markets, which explains the current weak investor demand in the gold market. Investors could expect to earn practically risk-free returns with short-term treasury bills with the growing expectations that the U.S. economy will see a soft landing. However, gold should not be written off as irrelevant as there is one segment of the marketplace that continues to accumulate gold. Central banks continue to buy gold because their faith in the U.S. dollar continues to weaken, despite demand being down from record levels since last year. Gold is a direct vote against the dollar, and fund managers expect central bank gold demand to continue to support gold prices and possibly drive them higher toward the end of the year.

Precious metals were generally down for the week. The spot price of gold ended at $1,913.76 per troy ounce, down by 1.50% from the previous week’s close at $1,942.91. Silver closed at $22.69 per troy ounce, a loss of 3.98% from its close last week at $23.63. Platinum’s spot price ended this week at $916.07 per troy ounce, down by 1.07% from last week’s close at $925.95. Palladium bucked the trend to end at $1,299.07 per troy ounce, gaining 3.07% over last week’s close at $1,260.35. The three-month LME prices of base metals have also gone down. Copper, which ended the previous week at $8,611.00, closed this week at $8,386.00 per metric ton, down by 2.61%. Zinc, previously priced at $2,485.00, closed this week at $2,457.00 per metric ton, down by 1.13%. Aluminum, which ended the week earlier at $2,230.00, ended this week at $2,204.00 per metric ton for a loss of 1.17%.  Tin, previously priced at $28,023.00, closed this week at $26,885.00 per metric ton for a decline of 4.06%.

Energy and Oil

As physical tightness was felt across all continents, backwardation in Brent and WTI futures continued. However, a large U.S. inventory build and China’s uncertain outlook have capped oil prices. ICE Brent was trading at $86.44 per barrel and WTI maintained below $83 per barrel as of Friday morning. The market sentiment was sought to be influenced by international organizations as the IEA lowered its 2024 demand forecast by 150,000 barrels per day (b/d) even as OPEC raised its oil demand outlook over the next year. OPEC reiterated its upbeat forecast, announcing that it expects its global crude consumption to rise by 2.25 million b/d. This compares to a growth of 2.44 million b/d this year, concurrently increasing this year’s GDP growth forecast to 2.7% from 2.6%. Price stagnation has continued to prevail over the market at the moment.  

Natural Gas

Global liquefied natural gas (LNG) import capacity is expected to grow by 16%, or 22.8 billion cubic feet per day, from 2023 to 2024, compared to 2022. Import capacity, also known as regasification capacity, grew as three countries (Germany, the Philippines, and Vietnam) began importing LNG for the first time in the first seven months of 2023. Antigua and Barbuda, Australia, Cyprus, and Nicaragua are expected to begin LNG importation for the first time by the end of next year, while several other countries are in advanced stages of developing LNG import capacity. Asia will lead the growth in global regasification capacity, accounting for 52% of the total capacity additions in 2023-2024. Europe will account for 38% and other countries for 10%.

For this report week beginning Wednesday, August 2, and ending Wednesday, August 9, 2023, the Henry Hub spot price rose by $0.48 from $2.43 per million British thermal units (MMBtu) to $2.91/MMBtu. The last time the Henry Hub traded above $2.90/MMBtu was when it traded at $3.08/MMBtu on January 25, 2023. The price of the September 2023 NYMEX contract increased by $0.482, from $2.477/MMBtu at the start of the report week to $2.959 at the end of the week. The price of the 12-month strip averaging September 2023 through August 2024 futures contracts rose by $0.308 to $3.472/MMBtu.

International natural gas futures prices ascended for this report week. The weekly average front-month futures prices for LNG cargoes in East Asia increased by $0.07 to a weekly average of $10.98/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $1.42 to a weekly average of $10.35/MMBtu. The corresponding prices for the same week last year (the week from August 3 to August 10, 2022) were $44.61/MMBtu in East Asia and $59.16/MMBtu at the TTF.

World Markets

In Europe, stocks ended little changed. The pan-European STOXX Europe 600 Index moved sideways while major stock indexes in the region were mixed. Germany’s DAX fell by 0.75%, the UK’s FTSE 100 Index declined by 0.53%, while Italy’s FTSE MIB dropped by 1.09%. France’s CAC 40 Index, on the other hand, climbed by 0.34%. The lackluster trading week was attributed to increasing concerns about a potential economic slowdown in China and the Italian government’s decision to seek a windfall tax on bank profits. As investors weighed the possibility that inflationary pressures might remain elevated, European government bond yields rebounded from intraweek lows. The yield on the benchmark 10-year German government bond rose above 2.50%, while Swiss and French bond yields range-traded within a narrow margin. The benchmark 10-year U.K. government bond yield ticked higher as expectations were raised that the Bank of England would continue to tighten monetary policy on the back of strong economic growth data.

Japan’s equities markets climbed over a holiday-shortened week. The Nikkei 225 Index gained approximately 0.9% while the broader TOPIX Index rose by about 1.3%. A favorable backdrop was provided by optimistic earnings forecasts from some major Japanese companies. Meanwhile, tourism-related shares were boosted by news that China would soon approve the resumption of Japan-bound group tours for its citizens. The yield on the 10-year Japanese government bond (JGB) dipped to 0.58% from a nine-year high of 0.65% attained at the end of the preceding week. The yen weakened to about JPY 144.6 against the U.S. dollar, from around JPY 141.7 the week before. The currency continues to be weighed down by Japan’s interest rate differential with the U.S. as the Bank of Japan (BoJ) maintains its ultra-accommodative stance.

China’s stock markets retreated as investor sentiment reacted to mounting evidence that the country’s recovery may have already peaked. The Shanghai Stock Exchange Index slumped by 3.01% while the blue-chip CSI 300 plummeted by 3.39%. The Hong Kong benchmark Hang Seng Index lost 2.38%. According to China’s inflation data, consumer and producer prices fell in tandem for the first time since November 2020, highlighting the weak demand throughout the economy. The CPI slid by 0.3% in July year-on-year and moved into contraction territory for the first time since February 2021. The PPI fell by 4.4% year-on-year which was worse than expected, but slowed down from its June decline of 5.4%. The data reinforced concerns that China’s economy had entered a deflationary period, which offset optimism about the government’s latest efforts to shore up demand. The State Council announced last month new measures to boost consumer spending which temporarily spurred hopes of stronger demand.

The Week Ahead

The important economic data expected to be released in the coming week include retail sales data, leading economic indicators, and the FOMC minutes from the July meeting.

Key Topics to Watch

• U.S. retail sales
• Retail sales minus autos
• Import price index
• Import price index minus fuel
• Empire State manufacturing survey
• Business inventories
• Minneapolis Fed President Kashkari speaks
• Housing starts
• Building permits
• Industrial production
• Capacity utilization
• FOMC minutes of July meeting
• Initial jobless claims
• Philadelphia Fed manufacturing survey
• U.S. leading economic indicators

Markets Index Wrap Up

Stock Markets

In the week just ended, all major indexes ended down on news that Fitch, one of the “Big Three” credit rating agencies, downgraded the U.S. debt rating from AAA to AA+. The Dow Jones Industrial Average (DJIA) is down by 1.11% while the DJ total stock market index fell by 2.19%. The broad-based S&P 500 declined by 2.27% and the technology-heavy Nasdaq Stock Market Composite plummeted by 2.85%, suffering the heaviest losses for the week. The NYSE Composite fared slightly better although it came down by 1.79%. CBOE Volatility, which tracks risk perception, rose by 28.28%. This week’s downgrade was only the second in the history of the U.S., the first being the decision by Standard & Poor’s in August 2011. The unexpected development was the first negative surprise in a long time and draws the market’s attention to the worsening fiscal outlook of the country. Fitch said that its decision “reflects governance and medium-term fiscal challenges.”

The week was busy with corporate earnings releases. Investors were particularly keen on news of performances by mega-caps Amazon and Apple which were announced after trading on Thursday. Amazon performed better than expected driven by the strength of its core retail business and causing it to rally by more than 9% on Friday’s opening bell.  On the other hand, Apple disappointed on a mixed report that showed that its services business continued to excel but iPhone sales were lower than expected. The communications company traded down by 3%.

U.S. Economy

In the closely-watched monthly nonfarm payroll report issued by the Labor Department, hiring appears to have slowed from its faster pace at the start of the year. In July, employers added 187,000 jobs which is roughly the same as June’s downwardly revised 185,000 jobs and lower than expectations. While the labor market data still showed health over the past two months, there is an evident slowdown from the first five months of the year when an average of 287,000 jobs were added per month. Unemployment this week was reported at 3.5%, a slight improvement from the 3.6% reported for the prior month. Wage growth was unchanged from June which was 4.4% over the 12-months.

Results of the Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics were released earlier in the week. They showed a modest drop in the number of job openings in June, although layoffs fell for a third straight month. Coming in better than expected was ADP’s private employment survey, although it did show that hiring slackened to 324,000 from 455,000 in June. In other developments, the Institute for Supply Management (ISM) manufacturing Purchasing Managers’ Index was reported at 46.4, slightly lower than the consensus expectation of 46.9. This is the ninth straight month that the manufacturing PMI came in under 50, the borderline indicator for contraction. Meanwhile, treasury yields jumped higher, with the yield on the benchmark 10-year U.S. Treasury note increasing from 3.95% at the end of the previous week to nearly 4.20% early on Friday. Following the release of the jobs report, yields decreased to about 4.05%.  

Metals and Mining

The markets for precious and base metals hardly moved this week when the financial markets were surprised late Tuesday when Fitch downgraded the U.S. Long-Term Foreign-Currency Issuer Default rating. Fitch said in its announcement that it sees the U.S. general government deficit rising to 6.3% and 6.9% of GDP in 2024 and 2025, respectively. When U.S. sovereign debt was last downgraded by S&P in 2011, a rally drove gold prices above $1.900 an ounce, a record high at the time. This time, however, gold prices hardly moved from their support as they continued to move sideways within a steady range. This is because the fear in the marketplace is not as palpable as it was in 2011 when the global economy was still recovering from the 2008 financial crisis. This time growth has been robust so far as the world economy emerges from the coronavirus pandemic and the labor market remains strong.

The spot prices in precious metals moved sideways for the week. Gold came down slightly by 0.85%, from its previous week’s close at $1,959.49 to this week’s close at $1,942.91 per troy ounce. Silver slid slightly by 2.92%, from its closing price last week of $24.34 to its closing price this week of $23.63 per troy ounce. Platinum ended this week at $925.95 per troy ounce, down by 1.35% from last week’s closing price of $938.64. Palladium inched up this week to $1,260.35 per troy ounce, 0.84% higher than last week’s closing price of $1,249.86.  The three-month LME prices for base metals hardly did any better. Copper ended the week at $8,611.00 per metric ton, down by 0.59% from last week’s close at $8,662.50. Zinc closed this week at $2,485.00 per metric ton, down slightly by 0.50% from the previous week’s $2,497.50 close. Aluminum ended this week at $2,230.00 per metric ton, higher by 0.36% from last week’s close at $2,222.00. Tin ended the week at $28,023.00 per metric ton, down by 2.49% from the earlier week’s close at $28,740.00.             

Energy and Oil

For the sixth straight week, oil prices have been set by the coordinated supply-side management of Saudi Arabia and Russia, and this will continue to prevail as the two OPEC+ heavyweights extend their production and export cuts into September. Friday’s attack on Russia’s Black Sea oil terminals and swelling backwardation appears to set the scenario for further upside on the price of crude as Brent has moved above $85 per barrel, the highest level since March. In a press release published by Saudi Arabia’s news agency SPA, the KSA has pledged to extend its voluntary production cut of one million barrels per day until next month, suggesting that we may see further cuts should they prove necessary. Meanwhile, Russia pledge to reduce crude oil exports by 300,000 barrels per day in September, down from 500,000 barrels per day in August. The report was released less than one hour after Riyadh’s announcement of its production cut extension, suggesting close coordination between the two pronouncements.

Natural Gas

For this report week starting Wednesday, July 26, and ending Wednesday, August 2, 2023, the Henry Hub spot price fell by $0.18 from $2.61 per million British thermal units (MMBtu) to $2.43/MMBtu. The August 2023 NYMEX contract expired Thursday at $2.492/MMBtu, down by $0.17 from the start of the week. The September 2023 NYMEX contract price descended to $2.477/MMBtu, down by $0.22 for the week. The price of the 12-month strip averaging September 2023 through August 2024 futures contracts decreased by $0.16 to $3.164/MMBtu.

The international natural gas futures prices declined this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia declined by $0.21 to a weekly average of $10.91/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, descended by $0.75 to a weekly average of $8.92/MMBtu. In the week last year corresponding to this week (i.e., the week from July 27 to August 3, 2022), the prices were $43.97/MMBtu in East Asia and $59.54/MMBtu at the TTF.

World Markets

The pan-European STOXX Europe 600 Index closed 2.44% lower, mostly in response to higher U.S. bond yields and a host of disappointing European earnings reports that dampened investor appetite for riskier assets. Following suit and registering lower weekly performance were major country stock indexes. France’s CAC 40 Index declined by 2.16%, Italy’s FTSE MIB lost 3.10%, and Germany’s DAX slumped by 3.14%. The UK’s FTSE 100 Index dropped 1.69%. As resilient economic data suggested that a global recession may be avoided, European government bond yields broadly climbed. The yield on the 10-year German government bond climbed to its highest level since March. After the Bank of England (BoE) raised borrowing costs for a 14^th consecutive time, the yield on the benchmark 10-year government bond in the UK stabilized below 4.5%. The BoE raised its key interest rate by 0.25% to 5.25%, the highest it has been in the last 15 years. The central bank warned that rates were likely to remain elevated for some time. It stated that “the MPC (Monetary Policy Committee) will ensure that the Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target.” The BoE predicted that the inflation rate will fall at a faster rate than its May forecast, to 4.9% by the end of 2023.  Economic growth will likely remain hardly changed at 0.5% for 2023 and 2024.

Japanese stocks softened in reaction to the U.S. sovereign credit rating downgrade by Fitch that adversely affected global investor risk appetite. The Nikkei 225 Index charted a 1.7% loss for the week while the broader TOPIX Index followed suit, ending lower by 0.7%. Japanese stock markets fell despite the support provided domestically by a strong corporate earnings season. Many companies saw output recover post-pandemic and benefitted from the weak yen and rising prices. The yield on the 10-year Japanese government bond (JGB) increased to a nine-year high of 0.65%, from 0.55% where it ended the previous week. This was in response to the July monetary adjustment by the Bank of Japan (BoJ) to effectively allow interest rates to rise more freely. The yen weakened to about JPY 142.6 against the U.S. dollar, from around JPY 141.1 the preceding week, given the BoJ’s continued commitment to its accommodative position and Japan’s wide interest rate differential with the U.S. Speculation was rife that Japan’s Ministry of Finance may likely intervene in the foreign exchange markets to prop up the value of the yen.

Chinese stocks advanced as Beijing’s supportive stance offset investor concerns regarding the latest batch of disappointing economic data. The blue-chip CSI 300 advanced by 0.7% while the Shanghai Stock Exchange Index rose by 0.37%. The State Council, China’s cabinet, announced new measures that aimed to revive consumption. The wide-ranging policies concentrated on easing restrictions on consumption in several sectors, among which are autos, real estate, and services. Local regions were likewise encouraged to provide subsidies for home appliance purchases and home renovation materials in rural areas. There was no mention, however, of any direct cash support for customers to bolster spending which is among the measures called for by some analysts. In the meantime, China’s official manufacturing Purchasing Managers’ Index (PMI) climbed to 49.3 in July in line with expectations. It remains below the 50-point threshold between expansion and contraction, which was consistent over four consecutive months. The non-manufacturing PMI weakened to 51.5 which was lower than expected, from 53.2 in June. New home sales by China’s top 100 developers dropped by 33.1% in July from one year earlier, extending declines for a second month in a row.

The Week Ahead

The consumer price index (CPI) and producer price index (PPI) inflation data and the trade balance are among the important economic data scheduled for release in the coming week.

Key Topics to Watch

• Consumer credit
• NFIB optimism index
• Philadelphia Fed President Harker speaks
• U.S. trade balance
• Richmond Fed President Barkin speaks
• U.S. wholesale inventories
• Initial jobless claims
• Consumer price index for July
• Core CPI for July
• CPI (year-over-year)
• Core CPI (year-over-year)
• Treasury budget
• Producer price index for July
• Core PPI for July
• PPI (year-over-year)
• Core PPI (year-over-year)
• Consumer sentiment (prelim)

Markets Index Wrap Up

Stock Markets

The major indexes were up this week as investors perceived that inflation was easing, the Federal Reserve may be ending its restrictive cycle, and economic growth remains resilient. The Dow Jones Industrial Average (DJIA) recorded its 13^th consecutive daily gain on Wednesday, its longest winning streak since 1987, before closing on Friday with a 0.66% weekly gain. The total stock market inched up 0.97% for the week, while the S&P 500 Index gained 1.01%. Technology tracker Nasdaq Stock Market Composite outperformed with a rise of 2.02%. and the NYSE Composite climbed by 0.46%. The indicator of perceived risk, CBOE Volatility, dipped by 1.99%.

The Nasdaq’s relatively strong performance may be attributed to the continued market enthusiasm this year surrounding AI (artificial intelligence), the market’s stellar performance of late is due to a trifecta of better macro trends, namely: economic growth resilience, continued inflation moderation, and the forthcoming end to rate hikes by the Fed and other global central banks. Despite the investor optimism, trading this week was relatively muted as the summer vacation season diverted some of the attention from the Federal Reserve Policy meeting, some high-profile corporate earnings reports, and the release of economic data. Growth stocks easily outperformed their value counterparts.

U.S. Economy

The release of the second-quarter U.S. GDP report was the focus of this week’s economic news. The key growth indicator surprised on the upside. The annualized GDP growth was 2.4%, exceeding the estimate of 1.8%, and accelerated from the previous quarter’s 2% growth rate. Underlying this resilience was the strength in business investment and a rebuild of inventories among companies. Notably, personal consumption, a primary economic driver, was 1.6%. This figure exceeded expectations of 1.2%, although it indicated some economic cooling when viewed against the first quarter’s 4.2% annualized growth rate.

Despite some indication of slowing, the GDP data did not show signs of an imminent downturn or recession. More likely, the economy may undergo what analysts refer to as a “rolling recession” where parts of the economy (e.g. manufacturing) may be bottoming and recovering while other parts (e.g. services) may yet have to soften. Thus, although the economy may further descend towards the end of the year, the occurrence of a hard recession seems unlikely.

This quarter’s GDP report appears to paint the picture of progressively moderating inflation even as growth continues to accelerate. The headline GDP price index dipped to an annualized 2.2% against an expected 3% and well below the previous quarter’s 4.1% reading. The Fed’s preferred inflation indicator, core PCE inflation, also slowed in June to 4.1% year-over-year. This is below expectations of 4.2% and the previous month’s 4.6% reading. The slowdown in both inflation and core inflation is a welcome development for the Fed. It is a sign of easing price pressures even while growth remains solid.   

Metals and Mining

A historic shift became evident from the results of a new investor survey from State Street Global Advisors that was recently released. A surprising trend in the gold market emerged showing Millennials as having the highest percentage of gold (17%) in their investment portfolio. Both Baby Boomers and Generation X hold approximately 10% of their portfolio in gold. The interest of Millennials in this asset class represents an unprecedented untapped potential. Gold was hitherto perceived as an outdated, archaic asset, viewed as an investment tool for the older generation, a dwindling customer base. The revelation that gold is attracting a larger, younger, and increasingly affluent investor pool may point to the prospect of the greatest generational transfer of wealth in history. A New York Times article published in May made an in-depth analysis of this trend and noted that an expected $84 trillion will be passed down from the older generations to the Millennials and Generation Xers through 2045. The affinity of these generations for gold may provide strong support for the growth of this asset class.

This past week, the precious metals spot market continued its consolidation. Gold closed at $1,959.49 per troy ounce, 0.12% lower than the previously weekly close at $1,961.94. Silver ended this week at $24.34 per troy ounce, down by 1.10% from the previous week’s close at $24.61. Platinum ended this week at $938.64 per troy ounce, a drop of 2.82% from the previous closing price of $965.84. Palladium closed the week at $1,249.86 per troy ounce, a loss of 3.51% from the closing price of $1,295.34 a week earlier. On the other hand, the three-month LME prices of base metals generally moved up. Copper, formerly at $8,485.50, closed this week at $8,662.50 per metric ton, up by 2.09%. Zinc, which ended the previous week at $2,383.50, closed this week at $2,497.50 per metric ton, higher by 4.78%.  Aluminum, which closed last week at $2,201.00, ended this week at $2,222.00 per metric ton which is higher by 0.95%. Tin, which last week was priced at $28,715.00, rose by 0.09% to close this week at $28,740.00 per metric ton.

Energy and Oil

The GDP readings for the second quarter showed the U.S. economy’s resiliency and underlying strength and accounted for the recent rally in oil prices. Investors became optimistic about the possibility of a soft landing in the upcoming recession. The prospects of Chinese refiners suddenly buying significantly less than they do now due to China’s hoarding of crude is perceived as a negative factor in the upcoming months, however, analysts view this as exerting little downside impact on ICE Brent. The latter ended this week around $83 to $84 per barrel and posted another week-on-week gain. China oil stockpiles shot through the roof, boosted by all-time high imports of Russian crude and doubling of Iranian flows year-on-year. As a result of this hoarding, China has amassed almost 1 billion barrels in crude inventories, the highest level of stocks in almost three years, potentially drawing from them in the second half of this year.

Natural Gas

For this report week starting Wednesday, July 19, to Wednesday, July 26, 2023, the Henry Hub spot price rose by $0.10 from $2.51 per million British thermal units (MMBtu) at the beginning of the report week to $2.61/MMBtu at the end of the report week. The price of the August 2023 NYMEX contract increased by $0.062 from $2.603/MMBtu to $2.665/MMBtu throughout the report week. The price of the 12-month strip averaging August 2023 through July 2024 futures contracts ascended by $0.118 to $3.259/MMBtu.

International natural gas futures price movements ended mixed this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia declined by $0.10 to a weekly average of $11.13/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 $1.00 to a weekly average of $9.67/MMBtu. In comparison, for the same week last year (that is, the week from July 20 to 27, 2022), corresponding prices were $39.96/MMBtu in East Asia and $53.64/MMBtu at the TTF.

World Markets

Despite the Federal Reserve and the European Central Bank (ECB) announcing interest rate hikes, the pan-European STOXX Europe 600 Index and the major indexes (Italy’s FTSE MIB, France’s CAC 40, Germany’s DAX, and the UK’s FTSE 100) all realized gains over the past trading week. Investor sentiment turned optimistic in light of the dovish tone adopted by the global monetary policymakers. Reports from China early in the week that authorities there are considering adopting additional measures to boost the world’s second-largest economy gave additional incentive for investors to take positions in the market. Eurozone bond yields rose on concerns that Japanese yields may rise and prompt an exodus of Japanese investors from that market, but as the week wore on, yields steadied. For instance, the yield on Germany’s 10-year sovereign bond rose above 2.56% before closing the week at about 2.49%. Similar volatility was experienced by Swiss and French bonds. UK government bond yields likewise ended higher. Annual inflation in the euro area was reported at 5.5% in June, down from 6.1% in May but still higher than the ECB’s target of 2%.

Japan’s stock markets advanced over the past week. The Nikkei 225 Index was up by 1.4% while the broader TOPIX Index gained 1.3%. Investors were pleasantly surprised when the Bank of Japan (BoJ) tweaked its monetary policy. The BoJ announced that it would increase its flexibility around its yield curve control (YCC) target. The central bank likewise revised its forecast for consumer price inflation upward in fiscal 2023, as was generally expected. The yield on the 10-year Japanese government bond (JGB) climbed to 0.55% – its highest level in around nine years – from 0.48% where it was at the end of the previous week. The move was on the back of the BoJ’s recent monetary policy tweak and in anticipation of further normalization. The yen strengthened to approximately JPY 139.8 versus the U.S. dollar, from JPY 141.8 the week before.

Chinese stocks rallied in response to Beijing’s indications that it will provide more stimulus to support the economy. The blue-chip CSI 300 surged by 4.47% while the Shanghai Stock Exchange Index gained by 3.42%. The Hong Kong benchmark, Hang Seng Index advanced by 4.41%. China’s top decision-making body, the Communist Party’s Politburo led by President Xi Jinping, pledged to boost domestic consumption with its new stimulus package in response to a flagging recovery from the pandemic lockdowns that ended in December. Officials also announced support for the ailing real estate sector after the Politburo’s most recent meeting during which it set policies addressing economic concerns for the rest of 2023. No specific policy measures were announced, however, other than signaling a pro-growth stance. As China continues to struggle with weak demand, economists lowered their growth forecasts for the country’s gross domestic product for the year. GDP is expected to expand by 5.2% in 2023, down from the previous estimate of 5.5%. Growth from 2024 is expected to be 4.8%. The revisions were made in response to China’s announcement that its economy grew at a slower-than-expected pace in the second quarter due to weakening domestic and external demand.

The Week Ahead

Among the important economic data that were scheduled for release this week are labor market, manufacturing, and services data.

Key Topics to Watch

• Chicago Business Barometer
• Fed senior loan survey
• S&P final U.S. manufacturing PMI
• Job openings
• ISM manufacturing
• Construction spending
• ADP employment
• Initial jobless claims
• U.S. productivity (prelim)
• S&P final U.S. Services PMI
• ISM services
• Factory orders
• U.S. nonfarm payrolls
• U.S. unemployment rate
• U.S. hourly wages
• Hourly wages year over year

Markets Index Wrap Up

Stock Markets

Stocks were mostly up over the past week as company earnings reports provided some buying motivation for investors. According to the WSJ Markets report, the Dow Jones Industrial Average (DJIA) rose by 2.08% while the total stock market index registered a 0.75% gain. The broad S&P 500 Index nudged up by 0.69% while the technology-heavy Nasdaq Stock Market Composite bucked the trend to fall slightly by 0.57%. The NYSE Composite gained 1.55%. The CBOE Volatility Index, a risk perception indicator, increased by 1.95%. The slump in technology shares accounted for the lower-than-expected quarterly results for Tesla and Netflix. On Thursday, Tesla plunged by 9.74%, its biggest single-day decline since April 20, after the company reported a drop in its second-quarter gross margins to its lowest in four years, followed by CEO Elon Musk’s announcement of more price cuts ahead. Netflix, on the other hand, tumbled by 8.41%, its biggest one-day percentage loss since December 15, after the company’s announcement that its quarterly revenues failed to meet estimates.

Overall, however, the big picture shows the resilience of equities as they continue to rally sharply off the October bear-market low. They have recovered the majority of their 26% decline between January and October 2022, as the S&P 500 Index ended within 6% of its all-time high. The earnings reports indicate that companies have adequately steered through high but falling inflation (due to labor and import costs) and strong but moderating demand due to sales. The run in the markets since May is attributable to increasing optimism that the economy may see a “goldilocks” phenomenon – that economic conditions are neither too hot to prevent inflation from further decline, nor too cold for a recession to take place. While this may be possible, caution is still warranted because the sharp market rally, up by 12% since May, may be premature, too much too soon, and a correction may be imminent.

U.S. Economy

This phase of the economic cycle may be set apart by the hitherto unconventional labor market which provides its pillar of support. The consumer-spending growth registered higher than 4% in the first quarter of this year, thanks mostly to half-century lows in unemployment and elevated wage growth. Household consumption seems to be the source of the economy’s growth since consumer spending growth rates have risen by more than double the overall GDP growth rate. While currently, the labor market remains robust, there are early signals that it is gradually softening. A credible leading indicator is initial jobless claims. Although it has not yet shown a collapse in employment, the three-week moving average in weekly initial jobless claims has risen by nearly 20% over the past six months. Some emerging fatigue is becoming evident based on the trends in jobless claims, labor turnover, and hourly earnings, which may become more evident in the second semester of this year. Unemployment may see a modest rise in the coming months, simultaneous with a slowdown in monthly job and wage gains, and finally culminating in slower consumer spending. This development will reduce much of the driving force behind GDP growth.

While the deceleration in personal consumption is likely to knock some of the wind out of the economy’s sails, other components of economic growth may start to pick up in the form of a “rolling recession” to support a gentler slowdown. Already starting to emerge are measurable downturns in housing activity, manufacturing, and business investment. There are also some encouraging early signs of production stabilization, and a rebound in residential investment may be likely, according to the latest reads on the housing market. Some resiliency in business spending is also likely as input and labor costs moderate. These developments may take place in time to offset the softening in consumer spending. Overall GDP may not plunge dramatically, although underlying areas of economic activity are undergoing recessionary conditions.

The markets may experience some positive impacts from a slowing economy. A softening in consumer spending may contribute to lowering the inflation rate, which in turn may cause the Federal Reserve to hold back and even reverse its restrictive monetary policy. The Fed may then be enticed to adopt interest rate cuts in 2023. In the meantime, though, the Fed will continue to focus on controlling inflation at the expense of economic momentum, possibly hiking interest rates by another 0.25% or a quarter point at its next meeting on July 26. Hopefully, rates will be held steady over the rest of the year.

Metals and Mining

There had been much excitement two weeks ago on news from Russian sources that the BRICS countries (Brazil, Russia, India, China, and South Africa) were on the verge of creating a gold-backs BRICS trading currency. This meant the creation of a new gold standard, according to speculators. The optimism was premature, however. South Africa’s ambassador to BRICS, Anil Sooklal, debunked the news that such an announcement was imminent. It is not surprising that the establishment of a gold-back trading currency was outrightly dismissed since many economists said that a new gold standard would be unrealistic. Such would disrupt economic stability through deflation. Nevertheless, gold is still seen to play an essential role as a monetary metal. In the press briefing, more than 40 countries have indicated an interest in joining BRICS, the block of major developing countries.

Over the past week, precious metals generally ended mixed. Gold ascended slightly by 0.34%, from its week-ago close at $1,955.21 to its recent weekly close at $1,961.94 per troy ounce. Silver ended 1.36% lower from its price during the previous week of $24.95 to its recent closing price of $24.61 per troy ounce. Platinum ended this week at $965.84 per troy ounce, lower by 1.07% from its previous price of $976.25. Palladium closed this week at $1,295.34 per troy ounce, 1.37% higher than last week’s close at $1,277.84.  The three-month LME prices for base metals were mostly down for the week. Copper closed at $8,485.50 per metric ton, down by 0.17% from its week-go price of $8,673.50. Zinc ended this week at $2,383.50 per metric ton, lower by 2.28% from last week’s closing price of $ 2,439.00. Aluminum closed the week at $2,201.00 per metric ton, down by 3.32% from last week’s closing price of $2,276.50. Tin ended this week at $28,715.00 per metric ton, down by 0.33% from last week’s close at $28,809.00.                    

Energy and Oil

This week, U.S. SPR stocks saw their first replenishment in more than two weeks, simultaneous with another week-on-week decline in oil inventories (i.e. by a mere 0.7 million barrels of oil). Bullish indicators were capped by a strengthening U.S. dollar causing prices to trend sideways. Also weighing on the market was resurgent speculation regarding the upcoming OMC meeting of the Federal Reserve which is scheduled for the coming week. On the back of these developments, ICE Brent continues to hover around $80 per barrel and the WTI remains slightly above $76 per barrel. In local developments, the U.S. Senate, by a vote of 85-14, overwhelmingly decided in favor of an amendment to the annual defense bill that would ban exports of strategic petroleum reserves to China. Last year, the U.S. sold 2 million barrels of oil to Chinese buyers, a fraction of “normal” crude sales.

Natural Gas

For the report week that began on Wednesday, July 12, and ended on Wednesday, July 19, 2023, the Henry Hub spot price fell by $0.04 from $2.55 per million British thermal units (MMBtu) at the start of the week to $2.51/MMBtu at the end of the week. The price of the August 2023 NYMEX contract decreased by $0.029, from $2.632/MMBtu to $2.603 throughout the report week. The price of the 12-month strip averaging August 2023 through July 2024 futures contracts declined by $0.04 to $3.141/MMBtu.

Prices of international natural gas futures decreased during this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $0.82 to a weekly average of $11.22/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 $1.12 to a weekly average of $8.67/MMBtu. In the corresponding week last year (the week that began on July 13 and ended on July 20, 2022), the prices were $38.11/MMBtu and $47.59/MMBtu in East Asia and at the TTF, respectively.

World Markets

European stocks rose on Friday to bring the week’s trading up, together with major indexes. The pan-European STOXX Europe 600 Index gained by 0.95% in local currency terms. A generally optimistic sentiment prevailed on evidence that inflation was gradually slowing, leading investors to speculate that the slowdown may eventually herald the end of monetary policy tightening, Major indexes arrived at modest gains for the week. France’s CAC 40 Index rose by 0.79%, Italy’s FTSE MIB gained by 0.67%, and Germany’s DAX advanced by 0.45%. The UK’s FTSE 100 Index outperformed the other European indexes, surging by 3.08% for the week. This was partially attributed to the depreciation of the British pound against the U.S. dollar. The FTSE 100 Index includes many multinational companies with overseas revenues, and the depreciation is seen to nominally elevate these companies’ foreign revenues in pound sterling terms.  European government bond yields inched lower due to the cooling of U.S. inflation, while the UK raised investor expectations that the major central banks are close to ending monetary tightening. Yields on Italy’s 10-year sovereign bonds dropped briefly below a one-month low of 4%. Yields on the 10-year government bonds in the UK declined also due to faster-than-expected slowing inflation. The European economy remained unchanged, avoiding an expected recession.

Japan’s stock markets were mixed for the week. The Nikkei 225 fell by 0.3% while the broader TOPIX index gained 1.0%. Investor sentiment was cautious ahead of the Bank of Japan’s (BoJ’s) monetary policy scheduled for July 27-28, slightly dampening expectations that Japan’s central bank would adjust its yield curve control (YCC) framework. A high June core consumer price inflation reading, while in line with expectations, somewhat pressured the BoJ to tighten its policy and adjust its inflation forecasts upward. The yield on the 10-year Japanese government bond thus rose slightly to 0.48% from the 0.47% yield at the end of the previous week. The yen softened to around JPY 141.82 against eh U.S. dollar from the prior week’s exchange rate at about JPY 138.76 to the greenback.

China’s stock markets pulled back for the week in reaction to the latest economic data pointing to a struggling economic recovery. The blue-chip CSI 300 declined by 1.98% while the Shanghai Stock Exchange Composite Index tumbled by 2.16% in local currency terms. Hong Kong’s benchmark Hang Seng Index fell by 1.74% from its level the previous week. China’s second-quarter gross domestic product (GDP) expanded by 6.3% year-over-year which, although faster than the 4.5% growth seen in the first quarter, fell below expectations. The economy grew by 0.8% quarterly, down from the 2.2% expansion recorded for the first quarter. The quarterly readings are more reliable than the year-on-year growth rates when gauging China’s underlying economic growth due to the distortionary effect of the pandemic lockdowns in Shanghai and other cities. Unemployment is steady at 5.2% in June, but youth unemployment shot up to a record 21.3%. 

The Week Ahead

Important economic data expected to be released in the coming week include the Federal Open Market Committee (FOMC) meeting, the advanced GDP report, and personal consumption expenditure (PCE) data.

Key Topics to Watch

• S&P “flash” U.S. manufacturing PMI
• S&P “flash” U.S. services PMI
• S&P Case Shiller home price index (20 cities)
• Consumer confidence
• New home sales
• FOMC decision on interest rate policy
• Fed Chairman Powell press conference
• Initial jobless claims
• Durable goods orders
• Durable goods minus transportation
• GDP (advanced report)
• Advanced U.S. trade balance in goods
• Advanced retail inventories
• Advanced wholesale inventories
• Pending home sales
• Personal income (nominal)
• Personal spending (nominal)
• PCE index
• Core PCE index
• PCE (year-over-year)
• Core PCE (year-over-year)
• Employment cost index
• Consumer sentiment (final)

Markets Index Wrap Up

Stock Markets

The equities market experienced a week of strong gains as investor confidence returned with data showing continued cooling inflation signals. The Dow Jones Industrial Average shot up by 2.29%. The S&P 500 Index surged by 2.42%, ending the week at 6.5% below the record intraday peak it set early last year. The Nasdaq Stock Market Composite jumped by 3.32% although it remained 12.94% below its all-time high. The NYSE Composite also climbed by 2.35%. Understandably, the CBOE Volatility Index, which measures investors’ risk perception, dipped by 10.05%. Outperformers within the S&P 500 were casino operators, regional banks, and asset managers. Underperformers included some of the major pharmaceutical firms and the defensive consumer staples sector. The official start of the earnings season was on Friday, with major banks reporting second-quarter results.

The major stimulus of last week’s rally was the release of consumer price index (CPI) inflation data on Wednesday. In June, both headline and core (i.e., food and energy prices excluded) inflation increased by only 0.2% which was slightly below expectations. The annual increase in headline inflation slowed to 3.0%, its lowest annual growth rate since March 2021. Core inflation also slowed to 4.8%, its slowest since October 2021. The Federal Reserve will still likely raise interest rates this month, but the sharp deceleration in both consumer and producer prices reported this week (albeit due largely to base effects) has weakened the rationale for further monetary tightening.

U.S. Economy

The inflation slowdown may be attributed several categories, mainly goods, housing, and services excluding housing. Goods inflation declined by 0.1% month-over-month even with a modest drop in used-vehicle prices. Optimism is spurred mainly by timely industry data which may bring used-car prices down even more. The Manheim Used Vehicle Value Index fell by 4.2% in June from the previous month and 10.3% from last year. The Index tends to lead the used-car price component of the CPI by two months and appears to be the biggest monthly drop since early in the pandemic. The huge drop in this key driver of core inflation suggests that there will be further easing in price pressures moving forward.

Regarding housing, it was once more the largest contributor to the increase in core CPI, however, the monthly increase in June was the smallest increase in rents since the end of 2021. We should expect housing inflation to continue to improve in the coming months, based on the historical lag between the time when inflation of newly signed rental contracts falls and the time it is reflected in the official data.

Finally, services excluding shelter (housing), a “supercore” measure highlighted by the Fed and which is largely a function of the labor market, continued to improve. This statistic, which is largely a function of the labor market, showed that the indicator fell to 4% in June, the smallest increase since December 2021. The reduction was largely due to a reduction in airfares, which in return was most likely driven by lower jet fuel prices, a phenomenon which probably will not be repeated. Despite this fact, it is noteworthy that services inflation continues to cool, despite unemployment treading close to its historic lows.

Metals and Mining

The weak inflation figures that were released this week pushed the gold market and other precious metals to their highest point in the last three consecutive weeks. Gold prices are holding solidly north of $1,950 per ounce. While investors are beginning to turn bullish, there is still sufficient reason to be cautious at these levels. The Federal Reserve’s monetary policies remain consistently restrictive despite both CPI and PPI showing some cooling and the rationale for further interest rate hikes begins to weaken.  Consumer prices are up by 3.0% for the year, its lowest annual increase since March 2021, and core inflation rose 4.8% for the year in June. While inflation is headed in the right direction, it remains elevated and the Fed did announce more rate hikes are likely before the year is out. Should yields increase as a result, gold and other precious metals will stay bearish since they are assets that produce no yields.

This past week, the spot prices of precious metals jumped higher. Gold, which began at $1,925.05, landed at $1,955.21 per troy ounce, up by 1.57% for the week. Silver ended the week at $24.95 per troy ounce, gaining 8.06% from its closing price last week at $23.09. Platinum gained 6.83% this week over last week’s closing price of $913.87, ending at $976.25 per troy ounce. Palladium, which ended one week ago at $1,250.11, closed this week at $1,277.84 per troy ounce, up by 2.22%. The three-month LME price of base metals also trekked higher. Copper ended this week at $8,673.50 per metric ton, 4.99% higher than its previous week’s close at $8,261.50. Zinc ended this week at $2,439.00 per metric ton, 3.19% higher than last week’s closing price of $2,363.50. Aluminum closed this week at $2,276.50 per metric ton for a gain of 6.93% from last week’s closing price of $2,129.00. Tin ended this week at $28,809.00 per metric ton, up slightly by 0.98% over last week’s closing price of $28,530.00.    

Energy and Oil

Oil prices this week were boosted by news of a market drop in U.S. inflation growth. ICE Brent prices were pushed above the $80 per barrel level for the first time since May. Additionally, backwardation is steepening again due to Russia’s export curbs, and Saudi Arabia’s production cuts this week are one more creating more tightness in the oil supply. In its latest Oil Market Report, the OPEC forecasted demand growth in 2024 to be 2.25 million barrels per day (b/d). This figure is only slightly lower than its revised figure for 2023 at 2.44 million b/d, double that of the International Energy Agency. The oil market is therefore set to experience its largest gain in months, likely discounting the bigger-than-expected build in U.S. crude inventories.

Natural Gas

In the first six months of 2023, natural gas deliveries by pipeline to U.S. liquefied natural gas (LNG) export facilities (LNG feed gas) averaged 12.8 billion cubic feet per day (Bcf/d). This was more than the 2022 annual average by 1.0 Bcf/d (8%), and 0.5 Bcf/d (4%) more than the first six months of 2022. Mild winter temperatures and above-average storage inventories in the northern hemisphere decreased spot LNG prices so far this year, which may provide an incentive to increase LNG importation, particularly in the relatively more price-sensitive Southeast Asian countries.

For this report week from Wednesday, July 5, to Wednesday, July 12, 2023, the Henry Hub spot price fell by $0.09 from $2.64 per million British thermal units (MMBtu) to $2.55/MMBtu. The price of the August 2023 NYMEX contract decreased by $0.025, from $2.657/MMBtu at the start of the week to $2.632/MMBtu at the week’s end. The price of the 12-month strip averaging August 2023 through July 2024 futures contracts declined by $0.028 to $3.181/MMBtu.

International natural gas futures prices declined for this report week. The weekly average front-month futures prices for LNG cargoes in East Asia dipped by $0.09 to a weekly average of $12.04/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 $1.43 to a weekly average of $9.78/MMBtu. In the corresponding week last year (the week from July 6 to July 13, 2022), the prices were $39.13/MMBtu and $51.88/MMBtu in East Asia and at the TTF, respectively. For August-October as of July 12, forward prices were higher in East Asia compared with the TTF.

World Markets

Taking their cue from the U.S., stock exchanges in Europe surged during the week. The pan-European STOXX Europe 600 Index closed the week higher by 2.95%, its biggest weekly gain in the past three-and-a-half months. Signs of cooling inflation in the U.S. were perceived by European investors as a sign that interest rates are close to their peak. Europe also gained optimism on news that China extended support measures to its property sector, thus increasing expectations that additional economic stimulus may be forthcoming. European stock indexes advanced, with France’s CAC 40 Index surging ahead by 3.69%, Germany’s DAX gaining by 3.22%, and Italy’s FTSE MIB climbing by 3.19%. The UK’s FTSE Index 100 added 2.45%. The slowing U.S. inflation measures suggested that the Fed is close to ending its policy-tightening cycle. In response, European government bond yields fell and UK bond yield likewise slid, although robust wage data seemed to have slowed the descent. Also, the minutes of the European Central Bank’s (ECB) June meeting showed support for additional rate increases to stave off persistently high inflation in the region.

The Japanese stock markets bucked the trend of their Asian counterparts, failing to take advantage of a regional rally spurred by positive developments in China. The Nikkei 225 Index moved sideways while the broader TOPIX Index slid by 0.73%. There was upward pressure on Japan’s domestic yields as expectations grew that the Bank of Japan (BoJ) could adjust its yield curve control framework as soon as its July 27-28 meeting. The last instance of such an adjustment was made in December 2022. The yield on the 10-year Japanese government bond (JGB) ascended to 0.47% from what was previously 0.44%, inching closer to the 5.0% level at which the BoJ caps JBG yields. The yen firmed up to about JPY 138 against the U.S. dollar, from around JPY 142 the previous week, in anticipation of monetary policy normalization and the possibility that the BoJ may raise its inflation outlooks for this fiscal year in July. On the other hand, the dollar struggled as U.S. producer prices grew by less than expected in June. This was seen by investors as a heightened possibility that the U.S. Fed may soon halt rate increases.

Chinese stocks rallied after Beijing signaled that it will be adopting measures to support the country’s struggling economy. The Shanghai Stock Exchange Index climbed by 1.29% and the blue-chip CSI 300 gained by 1.92%. Hong Kong’s benchmark Hang Seng Index shot up by 5.71%. Government officials announced that it would extend two of the 16-point stimulus guidelines that were rolled out in November 2022 to support the flailing property sector. The extended policies involved deferring property development loans and encourage financial institutions to ensure the delivery of projects. The extended guidelines will be in effect until the end of 2024. On the economy, China’s CPI is unchanged in June from a year earlier. This is the weakest reading of the indicator since February 2021. Core inflation (excluding volatile food and energy prices) dipped to 0.4% from 0.6% the previous month. The PPI descended to 5.4% which was lower than expected, the ninth consecutive month that the indicator declined. The data suggests that China’s economy may succumb to increasing deflation risks, providing more evidence of the Country’s weakening post-lockdown recovery.

The Week Ahead

Some of the important economic data scheduled to be released this week include housing market data, June retail sales, and leading economic indicators.

Key Topics to Watch

• Empire State manufacturing survey
• U.S. retail sales
• Retail sales minus autos
• Industrial production
• Capacity utilization
• Business inventories
• Home builder confidence index
• Housing starts
• Initial jobless claims
• Philadelphia Fed manufacturing survey
• Existing home sales
• U.S. leading economic indicators

Markets Index Wrap Up

Stock Markets

The markets were mostly down last week in an apparent retracement after a strong and optimistic first-semester rally. The Dow Jones Industrial Average (DJIA) was down by 1.96% and the total stock market by 1.12% for the week with only the transportation sector remaining in positive territory. The broad S&P 500 Index slid by 1.16% and the technology-tracking Nasdaq Stock Market Composite dipped by 0.92%. The NYSE Composite Index shaved off 1.29% of its value. Predictably, the CBOE Volatility Index, the indicator of stock market risk perception, was up substantially by 9.12%. Overall, small-cap stocks underperformed large-cap stocks in a week of quiet trading. The markets were closed on Tuesday for the Fourth of July celebration.

The lackluster trading was likely the result of a shortened trading week and investors anticipating the release of companies’ second-quarter earnings results. Growth stocks modestly outperformed value stocks. Tesla provided some buying interest after it reported better-than-expected sales. The stock weighs heavily in the Nasdaq Composite and growth indexes, thus providing a boost to these indicators. A smaller tech stock, electric vehicle manufacturer Rivian, also contributed to the buying activity in this sector. On the other hand, Astra Zeneca’s new lung cancer drug suffered disappointing trial results and caused the stock to weigh down the healthcare sector.

U.S. Economy

On Wednesday, the minutes of the Federal Reserve’s last policy meeting were released. They revealed that some members of the Fed would have preferred another round of rate increases, although for the time being June’s rates were maintained at their levels by the unanimous decision, On Thursday, expectations that rate would remain “higher for longer” were solidified on Thursday after Dallas Fed President Lorie Logan said she anticipated two more rate increases before the end of 2023. The yield on the benchmark 10-year U.S. Treasury note fluctuated after the payroll report released on Friday, but ended higher for the week and well above 4% for the first time in eight months since bond prices and yields move in opposite directions.

In the meantime, the Labor Department reported that 209,000 nonfarm jobs were added to the jobs market in June. This was slightly below expectations and also the lowest number since December 2020. The previous two months’ additional jobs were also adjusted downward by a total of 110,000 jobs. The unemployment rate dipped from 3.7% in May to 3.6% in June while the number of people employed part-time for economic reasons rose by about 11% in June. This is likely indicative of the growing number of people whose hours were trimmed as a result of slack work or business conditions. While there are early signs of a cooling labor market, it currently remains relatively healthy and broadly supportive of consumption and economic growth.

Factory and services workers appeared to be facing very different job markets, however. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) report for manufacturing that was released on Monday seemingly confirmed a continued slowdown in job growth resulting from a contraction in hiring trends in the sector for the first time since March. While manufacturing remains in contraction, the ISM’s corresponding gauge for employment in the service sector indicates the opposite, surging to its highest level since February (53.1, with numbers above 50 signifying expansion). The ISM’s overall Services PMI also ascended to its highest level since February, charting 53.9 which is well above the estimated figure. Overall, the silver lining in this week’s economic data points to the gradual cooling of inflation’s leading indicators.

Metals and Mining

Despite the recent price performance of gold, which currently trades within a narrow range, it is heartening to note that the precious metal is consistently showing much resiliency in this uncertain market. To be certain, there does not appear to be any indication that gold prices will see any bullish momentum soon. What is apparent is the seemingly strong support for the yellow metal even at these elevated prices. This week, the price of gold maintained its support above $1,900 per ounce even as investors anticipate the Fed to continue tightening its monetary policy, and the yield on 10-year government bonds has been pushed back to 4%. Historically, higher yields would have sent the price of gold lower, but, at the moment, the precious metal appears to be shrugging off these headwinds on the eventuality that central banks will reverse course on their tightening monetary policy.

The past week saw the spot prices of precious metals recover from last week’s sell-down. Gold, which ended a week ago at $1,919.35, recovered by 0.30% to close this week at $1,925.05 per troy ounce. Silver rose by 1.41% from the previous week’s closing price of $22.77 to end this week at $23.09 per troy ounce. The price of platinum ascended by 0.84%, from its previous week’s close at $ 906.30 to its close this week at $913.87 per troy ounce. Palladium added on 1.60% from last week’s closing price of $1,230.42 to this week’s close at $1,250.11 per troy ounce. The three-month LME prices of base metals were mixed. Copper ended this week at $8,261.50 per metric ton, up by 1.03% from last week’s close at $8,177.50. Zinc closed this week at $2,363.50 per metric ton, up by 0.94% from last week’s ending price of $2,341.50.  Aluminum bucked the trend for industrial metals, closing this week at $2,129.00 per metric ton which is lower by 1.44% from last week’s close at $2,160.00. Tin closed this week at $28,530.00 per metric ton, up by 9.32% from last week’s close at $26,098.00.      

Energy and Oil

Oil prices ended the week with a slight gain after the market eventually discounted Saudi Arabia’s production cut extension into August, together with another steeper-than-expected drop in U.S. crude inventory that has pushed ICE Brent nearer to $77 per barrel. There remains a narrow upside, however, due to the likelihood of another U.S. interest rate hike. The prospect of an imminent increase in interest rates has become part of mainstream expectations, particularly since the recently released minutes of the Fed meeting confirmed that two more rate increases are on the agenda before the end of the year. As for the oil producers, Saud Arabian energy minister Prince Abdulaziz bin Salman confirmed at the OPEC seminar held in Vienna that OPEC+ still has measures they can adopt to flexibly manage supply.

Natural Gas

For the first half of 2023, the average monthly spot natural gas price at the U.S. benchmark Henry Hub dropped by 34% or $1.12 per million British thermal units (MMBtu). This averaged $2.18/MMBtu in June. This was the lowest average monthly Henry Hub price since June 2020, when prices averaged $1.93/MMBtu when adjusted for inflation. Prices for the first half of the year are down 62% compared to the first half of 2022. This is attributable to lower natural gas demand for space heating combined with high production, resulting in less natural gas withdrawn from storage during the winter and more natural gas injected into storage in the spring. Storage inventories remain well above the five-year average so far this summer injection period.

For the week beginning Wednesday, June 28, and ending Wednesday, July 5, 2023, the Henry Hub spot price fell by $0.06 from $2.70/MMBtu to $2.64/MMBtu. The July 2023 NYMEX contract price decreased to $2.603/MMBtu. The August 2023 NYMEX contract price decreased to %2.657/MMBtu, down by $0.01 for the week. The price of the 12-month strip averaging August 2023 through July 2024 futures contracts increased by $0.02 to $3.209/MMBtu.

International natural gas futures prices increased this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.18 to a weekly average of $12.14/MMBtu. Natural gas futures for delivery at the Title Transfer Facility in the Netherlands, the most liquid natural gas market in Europe, increased by $0.50 to a weekly average of $11.22/MMBtu. During the corresponding week last year (the week from June 29 to July 6, 2022), the prices were $39.01/MMBtu and $47.58/MMBtu in East Ais and at the TTF, respectively.

World Markets

European stocks fell on worries that despite signs of slowing inflation, hawkish pronouncements by European Central Bank officials may prompt central banks in the region to continue tightening monetary policies. The pan-European STOXX Europe 600 Index lost 3.09% of its value in local currency terms. Major stock indexes also declined in tandem with the regional index. France’s CAC 40 Index plummeted by 3.89%, Germany’s DAX gave up 3.37%, and Italy’s FTSE MIB slid by 1.60%. The UK’s FTSE 100 Index fell by 3.65%. Aside from rate hike fears, investors were likewise disappointed by a lack of specific measures by the Chinese government to bolster its economy, notwithstanding pronouncements and pledges of support by government officials. Correspondingly, European government bond yields moved up. In the UK, yields ascended to their highest levels since mid-2008. The yield on the benchmark German 10-year bond closed above 2.6%, and the French and Italian bond yields likewise ended higher.

Japan’s stock markets declined over the week, as the Nikkei 225 Index lost by 2.4% and the broader TOPIX Index dropped by 1.5%. The declines appear to be corrections as both indexes are retreating from their 33-year highs and investors sold to lock in their profits, particularly those realized in strongly performing technology stocks. The sentiment was somewhat weighed down by indications that the U.S. Federal Reserve would likely raise interest rates in the second semester of 2023. Losses were cushioned by continuance by the Bank of Japan (BoJ) in its ultra-accommodative monetary policy and the historic weakness in the yen that boosts Japan’s export-oriented industries. The yield on the 10-year Japanese government bond (JGB) rose to 0.44% from 39% during the previous week. According to pronouncements by BoJ Deputy Governor Shinichi Uchida, the central bank will maintain its yield curve policy despite speculation that the BoJ may adjust its policy of yield curve control at its July meeting. The government must continue to support the economy, according to Uchida, although the policy may have side effects such as the impact on market functions.

China equities pulled back in light of the latest economic data released during the week. The economic reports raised concerns about the sustainability of the country’s post-pandemic recovery. The Shanghai Stock Exchange Index corrected downward by 0.17% and the blue-chip CSI 300 gave up 0.44% of its value. Hong Kong’s benchmark Hang Seng Index plunged by 2.91%. As the expansion of manufacturing output and new orders softened, the private Caixin/S&P Global survey of manufacturing activity descended to 50.5 in June from 50.9 in May, thus moving closer to 50. Below this level, contraction is indicated. The Caixin survey of services activity also dropped to a lower-than-expected 53.9 in June from 57.1 in May. This is its sixth successive monthly expansion, but it is also its lowest reading since January. The weak Caixin data were consistent with the official Manufacturing Purchasing Managers’ Index which contracted in June for the third straight month.

The Week Ahead

Expected for release this week are important economic data including the Consumer Price Index (CPI) and Producer Price Index (PPI) for June.

Key Topics to Watch

• Wholesale inventories
• Fed Vice Chair Barr speaks
• San Francisco Fed President Daly speaks
• Cleveland Fed President Mester speaks
• Consumer credit
• NFIB optimism index
• Consumer price index
• Core CPI
• CPI year-over-year
• Core CPI year-over-year
• Richmond Fed President Barkin speaks
• Atlanta Fed President Bostic speaks
• Fed Beige Book
• Initial jobless claims
• Producer price index
• Core PPI
• PPI year-over-year
• Core PPI year-over-year
• Federal budget
• Fed Governor Waller speaks
• Import price index
• Import price index minus fuel
• Consumer sentiment

Markets Index Wrap Up