Stock Markets

All major stock indexes ended in positive territory for the week as the first half of 2023 came to a close with an overall sense of optimism. The Dow Jones Industrial Average (DJIA) ended 2.02% higher while the total stock market index gained by 2.56%. The broad S&P 500 Index mirrored the total stock market index with a 2.35% gain – its best weekly gain since the end of March – and the Nasdaq Stock Market Composite climbed by 2.19%. The NYSE Composite surged by 2.63%. The CBOE Volatility Index rose by 1.12% suggesting that even while stocks ascended, investors’ risk perception of incremental increased as well.

It is undeniable that the first semester of the year was rewarding for the market in general, supported by a more favorable outlook for Fed policy and inflation and underscored by a notably resilient economy. The week also ended a solid quarter, with small-caps and value shares outperforming in a broadening market rally. The technology tracker Nasdaq Composite stands well ahead of the other benchmark indexes for the year-to-date, with a six-month gain of almost 32%, its most sterling first-semester performance since 1983. Among the tech counters, Apple overperformed with a market capitalization higher than $3 trillion when it closed trading on Friday. This marked a first for a publicly traded company. The valuation of this one tech stock has exceeded those of five of the S&P’s eleven sectors in their entirety (i.e., materials, real estate, utilities, energy, and consumer staples).

U.S. Economy

Many economic reports released this week provided a much-needed boost to investor sentiment. Inflation data that was released on Friday by the Commerce Department showed that personal consumption expenditure (PCE) price index inched up by 0.1% in May and brought the year-over-year increase down to 3.8%, the lowest level it has been since April 2021. The core PCE index (which excludes volatile components food and energy), the Federal Reserve’s preferred inflation gauge, dropped to 4.6% year-over-year. While this is still well above the Fed’s 2% target inflation rate, the slight improvement appeared to calm fears that prices will be subjected to further upward pressures such as April’s surprise increase.

Other indicators were pointing to the growing strength of the economy. According to Commerce Department reports, private sector incomes ticked upward by 0.5% in May, which significantly exceeded a 0.1% increase in consumer spending. Contrary to expectations, weekly jobless claims fell by 26.000 from a 20-month high to 239,000, which is the sharpest drop since October 2021. Also surprising on the downside were continuing claims, which fell to its lowest level in four months. The University of Michigan revised its gauge of consumer sentiment, pushing it upward to its best level in four months. The surprising upswing was attributed by the survey’s chief researcher to the resolution of the debt ceiling standoff as well as increased confidence over softening inflation.

In May, durable goods orders rose by 1.7%, defying consensus expectations for a decline of 1%. Significantly, orders excluding the volatile defense and aircraft segments (generally considered the best proxy for business investment) climbed by 0.7% after a decline in the previous month. Likewise, new home sales in May outpaced expectations for a modest decline, instead rising by 12.2%. This was the fastest pace that monthly home sales grew since February 2022, when rates for fixed 30-year mortgages were almost 300 basis points (three percentage points) lower.

Metals and Mining

A challenging economic environment continues to face the gold market due to continued support for rising bond yields exerted by hawkish monetary policies worldwide. Top officials from the European Central Bank, the Bank of England, and the Federal Reserve said in a panel discussion this week that interest rates will have to climb higher to bring inflation down to its 2% target level. The Bank of Japan governor likewise hinted at a hawkish outlook in the future, opening the door to prospects that the BoJ will one day abandon its ultra-easy policy. It is, therefore, not surprising that following the comments of the heads of four central banks, gold is testing its support at $1,900. Despite the precious metal holding at this critical psychological support level, analysts expect this support to break, at which point gold prices may be pushed down to their 200-day moving average around $1,860 per ounce.

The spot prices of precious metals moved sideways for the week. Gold ended with a slight 0.10% loss from its week-ago price of $1,921.21 to its closing price this week of $1,919.35 per troy ounce. Silver moved up by 1.52% from its previous week’s close at $22.43 to this week’s closing price of $22.77 per troy ounce. Platinum, which ended the previous week at $921.70, moved down by 1.67% to end this week at $906.30 per troy ounce. Palladium dipped by 4.49% from its previous week’s closing price of $1,288.28 to end this week at $1,230.42 per troy ounce. The three-month LME prices of industrial metals moved lower for the week. Copper closed lower by 4.62% from its closing price a week ago of $8,574.00 to this week’s closing price of $8,177.50 per metric ton. Zinc closed this week at $2,341.50 per metric ton, 4.66% lower than its price the week before of $2,456.00. Aluminum ended this week at $2,160.00 per metric ton, down by 1.86% from its previous week’s close at $2,201.00. Tin closed this week at $26,098.00 per metric ton, lower by 3.62% from its previous week’s close at $27,079.00.      

Energy and Oil

Despite growing optimism about the strengthening economic recovery, oil prices continue to trade within a narrow range. U.S. stock has declined by almost 10 million barrels, providing a fir pricing floor for oil prices this week. However, the macroeconomic news that has been released this week – in particular, a still highly resilient U.S. labor market – appears to be prompting the Federal Reserve to continue its policy of hiking interest rates. The tenuous inflation situation continues to limit the upside of oil prices despite declining oil stores. As the Argus Mars price assessment, the pivotal Americas medium sour crude benchmark is now trading at $1 per barrel above WTI, prospects look bleak for the U.S. benchmark as it is showing weakness during the prime summer driving season, a time when it historically should be strong. Next week, the OPEC members will be gathering in Vienna for a two-day deliberative forum called the OPEC Seminar. Not all are welcome, however, as the organization has banned Thomson Reuters, Bloomberg, and the Wall Street Journal from attending the event.

Natural Gas

Working natural gas exceeded the five-year average and the year-ago levels by significant margins, and forecasts for the rest of the year show that natural gas production will remain relatively flat and natural gas use will increase in the electric power sector to meet cooling demand. Nevertheless, accounting for the current surplus, working natural gas stocks are expected to remain above the five-year average for the rest of 2023.

For the report week from Wednesday, June 21, to Wednesday, June 28, 2023, the Henry Hub spot price rose by $0.47 from $2.23 per million British thermal units (MMBtu) at the start of the week to $2.70/MMBtu by the week’s end. The July 2023 NYMEX contract expired on June 28 at $2.603/MMBtu, up by $0.01 from June 21, The August 2023 NYMEX contract price decreased to $2.668/MMBtu, down by $0.01 for the week. The price of the 12-month strip averaging August 2023 through July 2024 futures contracts declined by $0.05 to $3.185/MMBtu.

International natural gas futures price movements were mixed for this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.46 to a weekly average of $11.96/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 $1.45 to a weekly average of $10.72/MMBtu. In the week last year that corresponded to this week (the week that ended on June 29, 2022), the prices were $37.10/MMBtu and $40.74/MMBtu in East Asia and at the TTF, respectively. 

World Markets

European stock markets were generally up for the week. The pan-European STOXX Europe 600 Index advanced by 1.94% in local currency terms on expectations that China would assume a greater role in boosting consumption and hopes that interest rates are near their peak due to lower-than-expected inflation data. Although the Eurozone’s inflation has slowed for the third straight month, the European Central Bank has hinted at more interest rate hikes to come. Germany’s DAX climbed by 2.01%, France’s CAC 40 Index ascended by 3.30%, and Italy’s FTSE MIB surged by 3.75%. The UK’s FTSE 100 Index gained by 0.93%.  The European bond yields maintained close to the week’s highs as inflation remained above the ECB’s 2% target. The yield on the benchmark 10-year German government bond moved closer to 2.4% while the yields on Italian sovereign bonds of the same maturity closed near their weekly highs despite data showing that manufacturers’ confidence had weakened.

Japan’s equities rose for the week as Japan’s equities proved to be among the world’s outperformers midway through 2023 in local currency terms. The yen’s weakness, however, tempered this performance to a more moderate degree in U.S. dollar terms. The Nikkei 225 closed the week higher by 1.2%, while the broader TOPIX Index ended up 1.1%. Japan’s monetary authorities assured investors that they were watching currency moves with an extremely high sense of urgency. All options are on the table to cope with the excess volatility in the foreign exchange markets following the yen’s recent descent to a near seven-month low. The yield on the 10-year Japanese government bond moved up to 0.39% from its level of 0.36% at the end of the previous week. Pressure on Japanese yields continues to be exerted by monetary policy divergence between the BoJ and the other major central banks. Both Japan and the U.S. reaffirmed their current policy stance during the week, although inflation accelerating into 2024 may lead to a shift by the BoJ away from its current ultra-loose monetary policy.

Chinese stocks ended mixed as well, as previous optimism that the government might implement additional measures to spur economic growth was offset by weak economic indicators. The Shanghai Stock Exchange Index added 0.13% in local currency terms; however, the blue-chip CSI 300 lost by 0.56%. Hong Kong’s benchmark Hang Seng Index moved up by 0.14%. Economic indicators released during the week were mixed, although officials highlighted the possibility of supportive measures. China’s official manufacturing Purchasing Managers’ Index (PMI) rose slightly to 49.0 in June, an improvement from the 48.8 reading in May and in line with expectations. However, a PMI rating below 50.0 still indicates a contraction in activity. The nonmanufacturing PMI eased down to 54.2 in June from 54.5 in May. Despite being below the consensus expectation, the numbers suggest that both the service and manufacturing industries continue to grow, although at a slower rate.

The Week Ahead

Among the important economic data scheduled to be released in the week ahead are manufacturing, services, and labor market data

Key Topics to Watch

• S&P flash U.S. manufacturing PMI
• ISM manufacturing
• Construction spending
• ADP employment
• Factory orders
• Minutes of Fed’s June FOMC meeting
• Initial jobless claims
• U.S. trade deficit
• Job openings
• S&P flash U.S. services PMI
• ISM services
• U.S. employment report
• U.S. unemployment rate
• U.S. hourly wages
• Hourly wages year over year

Markets Index Wrap Up

Stock Markets

Stocks broke their two-month winning streak as the major stock benchmarks closed lower in the past week. The markets were closed on Monday in celebration of the Juneteenth Day holiday when all markets were closed. During the four days of trading conducted, the Dow Jones Industrial Average (DJIA) slipped by 1.67% and the total stock market fell by 1.62%. The broad-based S&P 500 Index lost 1.39% of its value, its first weekly loss in six weeks, while the technology-tracking Nasdaq Stock Market Composite gave up 1.44%. The NYSE Composite corrected by 2.06%. CBOE Volatility, an indicator of investor risk perception, dipped by 0.74%.

For much of the week, anticipation that the Federal Reserve may raise rates soon weighed on investor sentiment. Fed Chair Jerome Powell testified before Congress on Wednesday and Thursday that it will be appropriate to raise interest rates somewhat further before the year ends. In the Fed’s most recent Summary of Economic Predictions, the majority of the policy committee members expect at least two more quarter-point rate hikes next year. Investors’ fears also appear to have been intensified by news last Thursday of the acceleration of rate hikes by the Bank of England and Norges Bank, Norway’s central bank. In any case, analysts believe that the Fed will likely pause its interest rate hiking cycle in the second semester of 2023.

U.S. Economy

Most of the economic data that were released over the week seemed to deepen concerns that a U.S. recession was inevitable as a result of the Fed’s tight monetary policy. S&P Global reported on Friday that its gauge of U.S. manufacturing activity had fallen back to its lowest level since December and well below consensus estimates. According to the report, presumably in response to weak demand, suppliers were cutting prices at the fastest pace since May 2020, the height of the pandemic lockdown. Although the Fed chairman maintained in his Congressional testimony that the labor market remained tight, weekly jobless claims hit 264,000, matching the revised number for the previous week and still at the highest level since October 2021. There was some strength shown by the housing sector, however, as housing starts were reported at their highest level in more than a year and well-exceeding forecasts. Sales of existing homes were also surprisingly though modestly higher than expected.

Looking forward to the next half of 2023, the labor market is expected to remain resilient as it still boasts an unemployment rate of near multi-decade lows at 3.7% and a healthy wage growth of 4.3%. This supports consumer spending as people are generally more comfortable spending when they are fully employed and feel secure in their jobs. The perceived strength of the labor market is partly attributable to a pandemic distortion as many left the labor force during this period. Certain industries still struggle to find workers, particularly those in sectors that require in-person and frontline workers. There are early signs, however, that the labor market and the economy may be starting to cool. The rising jobless claims, lower quits rates, and falling job openings are some leading indicators that point to a pending softness. Furthermore, some activity indicators such as the ISM manufacturing and services indexes, and more importantly the new order components, are all descending. The manufacturing components are already in contraction, and traditional U.S. leading economic indicators have begun to decline.  

Metals and Mining

Prices begin to hover near their lowest levels in March, making June an increasingly disappointing month for gold and silver prices. Central banks worldwide continue to raise interest rates, causing gold prices to further struggle. The Bank of England (BoE) surprised with a 50-basis point increase this past week. Norway’s central bank simultaneously raised interest rates by 50% while the Swiss National Bank also hiked by 25 basis points. Even Turkey raised interest rates to 15% to support its failing currency. Global bond yields are moving upward, thus creating headwinds for gold since the latter does not provide investors with a yield income. However, in an attempt to cool inflation, central banks are aggressively raising rates to slow the economy, causing investors and analysts to expect the likelihood of a hard recession to follow. Strategists believe that this real threat to the global economy will continue to support long-term gold prices.

Over the week, the spot prices of precious metals closed lower than the previous week. Gold lost 1.88% of its previous price of $1,957.99 to its recent close at $1,921.21 per troy ounce. Silver descended by 7.31% from its price one week ago of $24.20 to its recent price of $22.43 per troy ounce. Platinum ended the week 6.60% lower from its week-ago price of $986.84 to this week’s close at $921.70 per troy ounce. Palladium lost 9.06% of its value from its previous week’s price of $1,416.62 to this week’s closing price of $1,288.28. The three-month LME prices of base metals ended generally down. Copper inched higher by 0.19% from its previous price of $8,558.00 to this week’s closing price of $8,574.00 per metric ton. Zinc ended down by 0.99% from its price last week of $2,480.50 to its closing price this week of $2,456.00 per metric ton. Aluminum descended this week by 2.16% from last week’s close at $2,249.50 to this week’s close at $2,201.00 per metric ton. Tin came down by 0.54% from last week’s closing price of $27,225.00 to this week’s closing price of $27,079.00.

Energy and Oil

The impact exerted by central banks on the oil markets continued this week. The Bank of England surprised with a 0.50 percentage point interest rate hike, which happened on the same day that Norway and Switzerland took a similar move. This raised concerns that Europe faces an impending recession similar to that of the U.S. Macroeconomic headwinds have pushed Brent futures to $73 per barrel while WTI is down at $68 per barrel. In the meantime, at Cushing, the delivery point for U.S. crude oil futures, stockpiles have been climbing for eight consecutive weeks after falling earlier this year. Cushing’s inventories have now soared to a 2-year high at 42.1 million barrels, the highest since June 2021, as U.S. Midwest downstream runs were hampered by outages at BP’s Toledo refinery and Phillips 66’s Borger refinery.

Natural Gas

For the report week beginning Wednesday, June 14, and ending Wednesday, June 21, 2023, the Henry Hub spot price rose by $0.15 from $2.08 per million British thermal units (MMBtu) to $2.23/MMBtu. The price of the July 2023 NYMEX contract increased by $0.255, from $2.342/MMBtu at the beginning of the report week to $2.597/MMBtu at the end of the week. The price of the 12-month strip averaging July 2023 through June 2024 futures contracts climbed by $0.148 to $3.171/MMBtu. Natural gas prices rose at most locations for the week except for a few locations in the Northeast.

International natural gas futures prices increased for this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $2.21 to a weekly average of $11.50/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 $1.77 to a weekly average of $12.17/MMBtu. In the corresponding week last year (the week from June 15 to June 22, 2022), the prices were $35.76/MMBtu and $38.23/MMBtu in East Asia and at the TTF, respectively.  

World Markets

Stocks in Europe generally descended this week, mainly on concerns that interest rate increases might cause a recession in Britain and the eurozone. The pan-European STOXX Europe 600 Index fell by 2.93% in local currency terms. The major stock indexes in the region struggled. Germany’s DAX plunged by 3.23%, France’s CAC 40 Index lost by 3.05%, and Italy’s FTSE MIB slid by 2.34%. The UK’s FTSE 100 Index likewise dipped by 2.37%. China’s disappointing economic recovery as well as hawkish comments by U.S. Fed Chair Jerome Powell likewise added to the sullen investor sentiment. The growing fears of a hard recession pushed European government bond yields lower. According to purchasing manager surveys, private sector business activity has significantly slowed, weighing down on 10-year German bond yields. French and Swiss yields also declined. The UK’s 10-year government bond yield weakened as the economic outlook turned south after the Bank of England accelerated the pace of interest rate increases by half a percentage point to 5.0%, its highest level since 2008.

Japan’s stock markets corrected from their 33-year highs, as the Nikkei 225 Index fell by 2.7% and the broader TOPIX Index finished 1.6% lower for the week. Profit-taking accounted for some of the declines following the markets’ strong year-to-date performance. Japan’s hot May core consumer inflation weighed on sentiment, fueling speculation that the Bank of Japan (BoJ) would revise its inflation forecasts upward for July. Although the BoJ suggested previously that a sudden change in policy might be unavoidable, recent comments by BoJ board member Seiji Adachi seemed to rule out the change that the central bank’s yield curve control policy may be modified at its meeting next month. The yield on the 10-year Japanese government bond fell to 0.36% from 0.41% at the end of the week. The BoJ continued to signal its continuing commitment to its ultra-loose monetary policy and its continued divergence from the increasingly restrictive direction taken by other major central banks. The yen weakened to about JPY 143.1 to the U.S. dollar from about JPY 141.8 the week before.

Chinese stocks pulled back after a holiday-shortened trading week due to the waning investor confidence over a lack of stimulus measures amid a struggling post-pandemic recovery. The Shanghai Stock Exchange Index fell by 2.3% and the blue-chip CSI 300 lost 2.51%. The Hong Kong benchmark Hang Seng Index descended by 5.74%, its biggest drop in three months. The financial markets in mainland China suspended trading on Thursday and Friday for the Dragon Boat Festival holiday, while the Hong Kong Exchange was closed on Thursday and reopened for trading on Friday. No major economic news was released in China over the week, although the mounting evidence of China’s slackening recovery is renewing fears about the country’s economic outlook. The lackluster indicators over recent weeks have caused economics at several key banks to reduce their 2023 growth forecasts for China in light of its slowing export demand, a yearslong housing market slump, and weak business and consumer confidence.  As expected, Chinese banks have lowered their one- and five-year loan prime rates by 10 basis points for the first time since August 2022, after the People’s Bank of China (PBOC) cut its medium-term lending facility rate last week.

The Week Ahead

In the week ahead, among the important economic data scheduled for release are the Personal Consumption Expenditure (PCE) data, durable goods data, and home sales.

Key Topics to Watch

• Durable-goods orders
• Durable-goods minus transportation
• S&P Case-Shiller home price index (20 cities)
• New home sales
• Consumer confidence
• Advanced U.S. trade balance in goods
• Advanced retail inventories
• Advanced wholesale inventories
• Fed Chair Powell speaks (June 28)
• Fed Chair Powell speaks (June 29)
• Initial jobless claims
• Pending home sales
• Personal income (nominal)
• PCE index
• Core PCE index
• PCE (year-over-year)
• Core PCE (year-over-year)
• Chicago Business Barometer
• Consumer sentiment (final)

Markets Index Wrap Up

Stock Markets

Indexes were up over the past week. The Dow Jones Industrial Average (DJIA) gained by 1.25% while the total stock market rose by 2.49%. The broad-based S&P 500 Index ascended by 2.58% and the technology-tracking Nasdaq Stock Market Composite Index overperformed with a gain of 3.25%. The NYSE Composite climbed by 1.90% and the CBOE Volatility, the indicator of investor risk perception, descended by 2.10%. The S&P 500 recorded its longest run of daily gains since November 2021. The market’s gains narrowed slightly, though, as seen in the renewed outperformance of growth stocks and large caps.

The key factor in the stock markets’ rally was the fact that the Federal Reserve kept interest rates unchanged during its meeting this week. This is the first time in more than a year that the Fed kept interest rates steady. The policy interest rate underwent 10 straight hikes totaling 5% over 14 months. The current pause in further interest rate movements is appropriate since inflation has halted its uptrend and has begun to move down. The rate increases may not be totally over, however, since the Fed remains committed to bringing inflation down to its 2% target.

U.S. Economy

The economy is arguably signaling the expansion of continued growth simultaneous with falling inflation. The Labor Department announced on Tuesday that the consumer price index had risen by 4% year-over-year, which is still 100% higher than the Fed’s target despite coming down from the 4.9% rate recorded in the previous month. This is the slowest pace since March 2021. On Thursday, the Labor Department announced that the producer prices in May had declined by 0.3%, the fourth decline over the past six months. A fall in producer prices is a sign of ongoing contraction in the manufacturing sector together with a significant drop in food and gasoline prices. On the consumer side, investors received optimistic news. Retail sales rose overall by 0.3% for the month and 1.6% over the past 12 months, the first year-on-year increase since January. Excluding the volatile auto and gasoline segments, the increase in sales measured 0.4% in May.

The University of Michigan’s gauge of consumer sentiment meanwhile rose by more than expected to its highest level in four months. Defying consensus expectations, the weekly jobless claims remained unchanged. It was anticipated to decline from the 20-month high recorded over the previous week. The cause for a pause in the Fed rate hikes appears justified. Core inflation (excluding volatile food and energy prices) continue to moderate, first heralded by declines in core services, and more recently due to the sharp decline in producer prices. Aside from moderating inflation, the manufacturing activity has been contracting for the past six months and business investment has materially declined, indicating that two drivers of the economy are losing steam. The CPI components that remain stubbornly unmoving are home prices and rents, although recent indicators suggest that shelter prices may soon be on the way down as well. While consumer spending may be the factor that will prevent a recession, the softening labor market is sufficient cause for the Fed to remain cautious.   

Metals and Mining

Over the last two months, gold traded within a band between a high of $2,080 and a low of $1,950 per ounce. Gold appears to be set to continue trading within this narrow band, and while risks to the downside are growing such as the uncertain direction in the Fed’s policy, investors should not underestimate that there lies some underlying strength in the gold market. Even the recent pause by the central bank did not significantly impact the support that continued to solidify. Consistent with expectations, the rise in interest rates triggered some significant selling in gold, causing gold prices to soften because rising interest rates also raises the precious metal’s opportunity costs. Heading into the weekend, however, gold prices bounced back in the broader range to trade at $1,970 per ounce to end up relatively unchanged for the week.

The spot prices of precious metals were mixed for the week. Gold ended the week at $1,957.99 per troy ounce, down slightly by 0.16% from the last week’s close at $1,961.19. Silver also corrected downward by 0.37% from the previous week’s closing price of $24.29 to this week’s closing price of $24.20 per troy ounce. Platinum came from last week’s closing price of $1,011.70 to end this week down by 2.46% with a price of $986.84 per troy ounce. Palladium, which closed a week ago at $1,328.51, ended this week at $1,416.62 per troy ounce, up by 6.63%. The three-month LME prices for base metals were also mixed. Copper rose by 2.52% from its week-ago price of $8,347.50 to end this week at $8,558.00 per metric ton. Zinc gained by 2.99% from last week closing price of $2,408.50 to end this week at $2,480.50 per metric ton. Aluminum lost 0.22% of its value from last week’s close at $2,254.50 to end this week at $2,249.50 per metric ton. Tin          gained by 5.45% from its previous price of $25,817.00 to this week’s closing price of $27,225.00 per metric ton.

Energy and Oil

News emanating from China has, for the first time in many weeks, pushed oil prices up. After the Fed hinted at further interest rate increases and inventory climbed, the timing could not have been better. This week, China issued higher oil import quotas as Beijing loosened its monetary policy. Authorities in Beijing have issued the third batch of 2023 crude oil import quotas for a total volume of 62.28 million tons. The issuance took this year’s total to 194.1 million tons, up 20% year-on-year and giving a new boost to private refineries’ buying in China. These twin developments should see higher activity from Chinese refiners that ought to provide much-needed demand upside for oil.

Natural Gas

Global trade in liquefied natural gas (LNG) increased by 2.6 billion cubic feet per day (Bcf/d), equivalent to 5% compared with 2021, according to data from CEDIGAZ. The growth in global LNG trade is attributable to additional liquefaction capacity primarily in the U.S. and increased LNG demand in Europe to substitute for displaced natural gas imports from Russia. LNG exports increased the most from the U.S., as well as from Malaysia, Norway, Trinidad and Tobago, Russia, Oman, and Equatorial Guinea. The largest increases in LNG imports were in Europe including Turkiye, while imports declined in Latin America and Asia, although Japan returned as the world’s largest LNG importer in 2022. Brazil had the largest decrease in LNG imports in Latin America.

For the week ending Wednesday, June 14, 2023, the Henry Hub spot price fell by $0.03 from $2.11 per million British thermal units (MMBtu) to $2.08/MMBtu. The price of the July 2023 NYMEX contract increased by $0.013, from $2.329/MMBtu at the start of the report week to $2.342/MMBtu at the end of the week. The price of the 12-month strip averaging July 2023 through June 2024 futures contracts declined by $0.016 to $3.023/MMBtu. 

Also, this report week, international natural gas futures prices increased. The weekly average front-month futures prices for LNG cargoes in East Asia increased by $0.03 to a weekly average of $9.29/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 $2.45 to a weekly average of $10.40/MMBtu. In the corresponding week last year (i.e., the week ending June 15, 2022) the price were $23.19/MMBtu and $28.76/MMBtu in Asia and at the TTF, respectively.

World Markets

Stocks in Europe rose this week in reaction to the decision of the U.S. Federal Reserve to pause its interest rate hikes this month.  The pan-European STOXX Europe 600 Index rallied by 1.47% in local currency terms. Also lifting investor sentiments was the hope that China might implement stimulus measures. The major equity indexes also gained in trading this week. Italy’s FTSE MIB advanced by 2.58%, followed by Germany’s DAX which rose by 2.56%, and France’s CAC 40 Index which gained by 2.43%. The UK’s FTSE 100 Index tacked on and added 1.06%. The 10-year German government bond yield ascended above 2.5% subsequent to the announcement by the European Central Bank (ECB) that it would raise interest rates, thus signaling more policy tightening ahead. Also headed higher were Swiss and French yields. Short-end UK gilt yields climbed to their highest levels since 2008 in reaction to UK wages rising more than expected in April, fueling expectations of a further increase in borrowing costs.

Japan stock markets surged for the week as the Nikkei 225 Index rose by 4.5% and the broader TOPIX Index ended higher by 3.4%. The markets’ rally to their highest levels in more than thirty years was fueled by the decision by the Bank of Japan (BoJ) to maintain its ultra-loose monetary policy, as was widely expected. Also boosting market sentiment was the stronger-than-expected Japanese export and machinery order data. Investors remained wary, however, after the U.S. hinted that more rate hikes were likely despite the pause in increases for this month.  The yield on the 10-year Japanese government bond (JGB) fell to 0.41% from 0.43% at the end of the previous week. The yen softened to about JPY 141.0 from a prior JPY 139.4 against the U.S. dollar. The currency is at tis lowest level in seven months on the expectation of continued divergence in monetary policies between the BoJ and the Fed.

Chinese stocks rose after the central bank cut several interest rates. The move raised hopes for more upcoming stimulus to industries that have been slowing amid the fading post-pandemic recovery. The Shanghai Stock Exchange Index rose by 1.3% while the blue-chip CSI 300 surged by 3.3%. Hong Kong’s benchmark Hang Seng Index soared by 3.35%. On Thursday, in its first reduction since last August, the People’s Bank of China (PBOC) reduced its medium-term lending facility rate by 10 basis points to 2.65%. Market participants largely anticipated the move after the PBOC suddenly lowered the seven-day reverse repurchase rate, a short-term policy rate, by a similar amount earlier in the week. As Beijing steps up measures to bolster the recovery effort, the central bank’s pivot toward stimulus may lead to targeted support for some industries.  

The Week Ahea

Major economic reports to be released in the coming week include manufacturing and services activity data, the U.S. current account data, and leading economic indicators.

Key Topics to Watch

• Home builder confidence index
• Housing starts
• New York Fed President John Williams speaks
• Fed Chair Powell testifies to House panel
• Senate nomination hearing for Fed Govs. Jefferson and Cook and nominee Kugler
• Initial jobless claims
• U.S. current account
• Existing home sales
• Fed Chair Powell testifies to Senate panel
• U.S. leading economic indicators
• S&P flash U.S. services PMI
• S&P flash U.S. manufacturing PMI

Markets Index Wrap Up

Stock Markets

All stock indexes were modestly up during the week. According to the WSJ Markets report, the Dow Jones Industrial Average (DJIA) gained by 0.34%, and the Total Stock Market Index likewise by 0.50%. The Nasdaq Stock Market Composite took a breather with a gain of only 0.14%, while the NYSE Composite Index did slightly better with a gain of 1.01%. The broad-based S&P 500 Index climbed by 0.39%; nevertheless, this is the week the S&P 500 moved into bull market territory. The index moved up by more than 20% off its mid-October lows. Market gains also broadened this week, with small caps outperforming large caps and value shares outperforming growth shares.

Some of the market enthusiasm may have gained momentum from several prominent investment conferences and events that took place during the week. The events, which appear to have driven investor sentiment, included the Paris Air Show and the conference on energy and consumer stocks. Also making headlines was Apple’s annual developer’s conference, where the world’s most valuable public company launched a virtual reality headset, its first major new product in years. The headset was pricey at $3.500, causing some investors to react negatively, but the stock recovered some of its losses towards the week’s end.

U.S. Economy

The economic calendar was relatively light this week, at least giving some support to investors’ hopes that a recession will be avoided. The Labor Department reported on Thursday that the weekly jobless claims rose to 261,000, well above expectations and the highest level since October 2021. Continuing claims dropped unexpectedly, descending to their lowest level in almost four months. Earlier in the week, data released showed an unexpectedly large contraction in the services sector, but evidence of a continuing decline in services prices was the silver lining for investors. Services prices remained “sticky” relative to moderating prices for goods, food, and energy. The gauge of prices paid for services released by the Institute for Supply Management (ISM) moderated to its lowest level since May 2020. The ISM’s gauge of overall activity in the services sector fell to 50.3 which is indicative of stalled growth (levels over 50 indicate expansion).

The main economic highlight for the week was the surprise rate hike by the Bank of Canada (BoC). It is significant because the BoC was the first major central bank to pause its hiking cycle back in January. This week it raised its policy rate by a quarter point to its highest point since 2001, at 4.75%. The shift was due to a resilient economy, a still-tight labor market, and a rebound in the interest-rate-sensitive housing sector. All these indicators can prevent inflation from returning to the 2% target. The BoC and other central banks are keen on ensuring that monetary policy is sufficiently restrictive. Their goal is to achieve a degree of economic slowdown to stave off a return to runaway inflation.

Metals and Mining

Gold continues to hold onto its current support level within a solid, bullish trend line. This, despite everything that has been thrown at the market such as the U.S. dollar holding above 100 points and the S&P breaking into bull market territory, both of which would have normally caused gold prices to plunge. Some analysts opined that at the current market conditions, gold prices should be trading at the significantly lower $1,800 level. Instead, gold prices are less than 6% away from hitting a new all-time high. The support may be coming from central bank gold demand, a factor that has fundamentally changed the dynamics of the marketplace. Central banks are exhibiting an insatiable appetite, making them not only net buyers of gold but record buyers, a trend that is likely to persist.

Spot prices of precious metals showed some resilience and ended mixed for the week. Gold inched up by 0.68% from its week-ago close at $1,947.97 to this week’s close at $1,961.19 per troy ounce. Silver climbed by 2.88% from its previous week’s price of $23.61 to this week’s ending price of $24.29 per troy ounce. Platinum gained 0.37% this week to close at $1.011.70 per troy ounce from its closing price last week at $1,007.95. Palladium came from $1,424.29 one week ago to close this week at $1,328.51 per troy ounce, down by 6.72%. The three-month LME prices for base metals were mostly up for the week. Copper came from $8,237.00 last week to close up this week by 1.34% at $8,347.50 per metric ton. Zinc closed at $2,408.50 per metric ton this week, up by 4.42% from last week’s price of $2,306.50. Aluminum ended the week at $2,254.50 per metric ton, down by 0.40% from its price last week of $2,263.50. Tin came from a closing price last week of $25,651.00 to close this week at $25,817.00, up by 0.65%.

Energy and Oil

The oil market ended another week of contradictions. The major focus of the market moved away from production cuts by Saudi Arabia and week-on-week upticks in U.S. product inventories. Instead, attention was diverted to the Iranian nuclear deal, a narrative generally ignored so far this year. According to media reports, the U.S. and Iran are approaching a scaled-down nuclear deal, a story that was quickly debunked by both sides. A Middle East Eye report claimed that an interim nuclear deal with Iran was being discussed under which Iran would accept some limits on its program in return for partial sanctions relief. Both Washington and Tehran quickly and vehemently denied the rumor, however, calling it misleading. This led to heightened volatility in global oil benchmarks, leading Brent to finish the week at around the $76 per barrel mark.

Natural Gas

For the report week beginning on Wednesday, May 31, and ending on Wednesday, June 7, 2023, the Henry Hub spot price rose by $0.01 from $2.10 per million British thermal units (MMBtu) at the start of the week to $2.11/MMBtu by the end of the week. The Henry Hub spot price rose above $2.00 on June 7 for the first time this month, after averaging $1.91/MMBtu for the first five trading days in June. The price of the July 2023 NYMEX contract increased by $0.063, from $2.266/MMBtu on May 31 to $2.329/MMBtu on June 7. The price of the 12-month strip averaging July 2023 through June 2024 futures contracts rose by $0.08 to $3.040/MMBtu.

International natural gas futures prices decreased for this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.06 to a weekly average of $9.25/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF)in the Netherlands, the most liquid natural gas market in Europe, fell by $0.03 to a weekly average of $7.95/MMBtu. By comparison, in the corresponding week last year (from June 1 to June 8, 2022), the prices were $23.41/MMBtu and $25.68/MMBtu in East Asia and at the TTF, respectively.

World Markets

Due to caution ahead of central bank meetings in Europe and the U.S. major stock indexes ending mixed, the pan-European STOXX Europe 600 Index ended 0.46% lower for the week. Italy’s FTSE MIB gained 0.35%, Germany’s DAX dipped by 0.63%, while France’s CAC 40 Index fell by 0.79%. The UK’s FTSE 100 Index declined by 0.59%. Officials of the European Central Bank (ECB) signaled that borrowing costs will possibly rise again in June, although there was less of a consensus on implementing rate increases in subsequent months. The median consumer expectations for Eurozone inflation in the year ahead fell from 5.0% in March to 4.1% in April, according to a survey conducted by the ECB. In the meantime, revised data showed that the Eurozone economy contracted by 0.1% sequentially in both the first quarter of this year and the last quarter of 2022, meeting the technical definition of a recession.

Japan’s stock markets climbed during the week to attain a fresh 33-year high. The Nikkei gained by 2.4% and the broader TOPIX rose by 1.9%. An upward revision to Japan’s first-quarter economic growth on the back of stronger corporate investment drove the optimistic sentiment. Hopes were likewise positive that the services sector, which could benefit from rebounding foreign inbound tourism, will continue to fuel further economic expansion. The yen remained close to a six-month low versus the U.S. greenback, trading in the higher JPY 139 range. The ongoing monetary policy divergence between the dovish Bank of Japan (BoJ) and the other major central banks, which continued to pursue a tightening mode, weighed on the Japanese currency. The weak currency continued to benefit Japan’s exporters while boosting the attractiveness of local assets to foreign investors. Japan’s financial authorities continue to watch closely currency market moves, ready to respond as needed and not ruling out any options that may be necessary.

After the latest inflation data increased concerns about China’s faltering post-pandemic recovery, Chinese equities were mixed for the week. The Shanghai Stock Exchange Index gained 0.04% while the blue-chip CSI 300 lost 0.65% in local currency terms. Hong Kong’s benchmark Hang Seng Index advanced by 2.32%, extending the gains of the preceding week. Inflation figures for May pointed to rising risks of deflation weighing on China’s economy, which is dealing with weak domestic and overseas demand, a sluggish property market, and high youth unemployment. The country’s consumer price index rose by 0.2% in May from one year ago, compared with April’s 0.1% expansion, a 26-month low. Core inflation (excluding volatile food and energy prices) slowed to 0.6% from the previous month’s 0.7%. The producer price index declined by 4.6% which was worse than expected, accelerating from a 3.6% decline in April. This marked the weakest reading since May 2020.  

The Week Ahead

The CPI data, PPI data, and the FOMC meeting are among the important economic information scheduled for release this week.

Key Topics to Watch

• Federal budget
• NFIB optimism index
• Consumer price index
• Core CPI
• CPI year over year
• Core CPI year over year
• Producer price index
• Core PPI
• PPI year over year
• Core PPI year over year
• Fed decision on interest rate policy
• Fed Chair Powell press conference
• Initial jobless claims
• U.S. retail sales
• Retail sales minus autos
• Import price index
• Import price index minus fuel
• Empire State manufacturing survey
• Philadelphia Fed manufacturing survey
• Industrial production
• Capacity utilization
• Business inventories
• Fed Gov. Christopher Waller speaks
• Consumer sentiment

Markets Index Wrap Up

Stock Markets

The stock market indexes ended the week all in positive territory. The Dow Jones Industrial Average (DJIA) managed to close the week up by 2.02% while the broader S&P 500 gained by 1.83% after touching its highest intraday level since mid-August 2022. The technology stock-heavy Nasdaq Stock Market Composite rose by 2.04% for the week, its sixth straight weekly gain, after hitting its best level since mid-April 2022. The NYSE Composite ended up by 1.77%. The CBOE Volatility Index, the investors’ risk perception indicator, descended by 18.66%. Although markets were closed on Monday in observance of Memorial Day, the rally was broad-based with strong gains in both value and growth stocks, as well as small caps. This was a positive ending for the month, in contrast with the several weeks that preceded it.

The solid gains made during the week may have led observers to speculate that the markets were lifted by the news that the White House and Republican congressional leaders had reached an agreement to raise the federal debt limit to stave off a default on government’s obligations. This turned out not to be the case as the agreement to raise the debt ceiling has a limited impact on market sentiment. Enough signals had previously been sent that a deal was imminent, thus it had not come as a surprise. Investors, however, appear to have diverted their attention back to the economic data, which pointed to positive developments during the week.

U.S. Economy

On Wednesday, the news was released that job openings rebounded considerably more than expected in April to hit 10.1 million, their highest level since January. The jobs data for March was also revised higher. As a result, the probability of a mid-June Federal Reserve interest rate hike priced into futures markets surged to 71%, compared with only 23% one month earlier. The closely watched nonfarm payrolls report released on Friday also surprised on the upside. Details on Friday’s report, however, appeared to indicate that the labor market might be cooling. Some 339,000 jobs were added by employers in May, significantly above the consensus estimate of approximately 190,000. However, the unemployment rate, estimated by surveys of households, rose surprisingly to 3.7% from 3.4%. This increase suggested that workers are faced with a more difficult job market ahead. The Labor Department reported that the number of people losing jobs or completing temporary jobs rose significantly in May, reaching its highest level since February 2022. Nevertheless, the number of long-term unemployed remained relatively constant.

An encouraging development for investors was the release last Thursday of the Institute for Supply Management’s (ISM’s) Manufacturers Purchasing Managers’ index for May. This is the seventh straight month that factory activity contracted, as anticipated. Defying expectations for a modest increase in prices paid for supplies and other inputs by manufacturers, prices instead contracted at the fastest rate since December. These developments are taken as encouraging inflation signals which seemed to drive a decrease in longer-term U.S. Treasury yields. Furthermore, the finalization of a debt ceiling agreement resulted in a plunge in the yield on one-month Treasury bills, from 6.02% intraday on the previous Friday to 5.28% at the end of this week. While it is true that limited reaction greeted news of the debt ceiling agreement, it nevertheless provided a tailwind to the municipal market.

Metals and Mining

The past week saw the end of a challenging and volatile month for the gold market. It was during this month that gold soared to near-record highs above $2,080 per ounce. Since then, the short-term correction was only to be expected since the pattern has repeated over the last 12 months. New recession fears ignited by weak economic data, causing markets to front-run the Federal Reserve pricing in rate cuts. At the start of May, markets saw a nearly 17% chance of a rate cut in June. At the same time, markets saw interest rates approximately 100 basis points lower by the end of the year. Inflation pressures seem to have descended but remain too elevated for the central bank to definitively signal a change in monetary policy. A challenging environment for gold is being created by the current shift in interest rate expectations, since it is supporting the dollar which is presently at a three-month high. Nevertheless, there remains significant support for gold despite the challenging environment that could keep gold from hitting record highs in the near term.

This past week, the spot prices for precious metals were mixed. Gold, which came from its week-ago price of $1,946.46, ended Friday at $1,947.97 per troy ounce which is a minimal 0.08% up. Silver was at $23.30 the previous week and ended at $23.61 per troy ounce this week, up by 33%. Platinum ended this week at $1,007.95, lower by 1.79% from last week’s close at $1,026.37. Palladium closed the previous week at $1,426.25 and this week at $1,424.29 per troy ounce, down slightly by 0.14%.  The three-month LME prices of base metals were also mixed for the week. Copper closed at $8,237.00 per metric tonne this week, up by 1.25% from the previous week’s close at $8,135.00. Zinc closed this week at $2,306.50 per metric tonne, lower by 1.58% from its price the week before at $2,343.50. Aluminum, which was priced at $2,237.50 the previous week, ended this week at $2,263.50 per metric tonne, up by 1.16%. Tin closed this week at $25,651.00 per metric tonne, up by 3.24% from the previous week’s price of $24,846.00.     

Energy and Oil

Bullish sentiment returned to the oil market with the lifting of the U.S. debt ceiling that averted a government shutdown. Brent rose back to above $75 per barrel while WTI climbed above $71 per barrel as a result of the positive investor reaction. While some downward pressure on oil prices is being exerted by rising U.S. crude inventories and the weak Chinese manufacturing outlook, the anticipated OPEC+ meeting this weekend may provide another upward push for oil prices if the group eventually decides to cut oil production. Meanwhile, the European Commission is expected to present its 11^th package of Russian sanctions in the coming week, thereby targeting Chinese firms that shipped banned goods to Russia. The new sanctions will continue to pursue banning flows through the northern Druzhba pipeline and forbidding the transit of EU-bound goods through Russian territory.

Natural Gas

For the week from Wednesday, May 24 to Wednesday, May 31, 2023, the Henry Hub spot price fell by $0.14 from $2.24 per million British thermal units (MMBtu) at the start of the week to $2.10/MMBtu at the end of the week. Regarding Henry Hub futures prices, the June 2023 NYMEX contract expired on May 26, Friday, at $2.181/MMBtu, down $0.22 from Wednesday. The July 2023 NYMEX contract price fell to $2.266/MMBtu, down $0.30 from the start to the end of the report week. The price of the 12-month strip averaging July 2023 through June 2024 futures contracts decreased by $0.21 to $2.959/MMBtu.

International natural gas futures prices decreased this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.42 to a weekly average of $9.31/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, Europe’s most liquid natural gas market, fell by $1.29 to a weekly average of $7.98/MMBtu. In the week last year corresponding to this week, (week ending June 1, 2022), the prices were $23.30/MMBtu and $27.67/MMBtu in East Asia and at the TTF, respectively.

World Markets

European stocks were relatively unchanged over the past week in the absence of any strong incentive to buy or sell. The STOXX Europe 600 Index moved sideways in local currency terms, and the pan-European index gained back losses after the data suggested that eurozone inflation had slowed and the U.S. Senate passed a bill suspending the statutory limit on government borrowing. The major stock indexes were mixed. Italy’s FTSE MIB ascended by 1.33%, Germany’s DAX climbed by 0.42%, and France’s CAC 40 Index lost by 0.66%. The UK’s FTSE 100 Index slid by 0.26%. Eurozone’s headline inflation slackened from an annualized 7.0% in April to 6.1% in May, notably below a FactSet consensus estimate of 6.3%. The core inflation rate, excluding food and fuel prices, its volatile components, was 5.3%, also an improvement from the previous month as well as below expectations.

Japanese stocks rose over the past week amid continued strong foreign investor interest. The Nikkei 225 Index rose by 1.97% while the broader TOPIX Index increased by 1.72%. The benchmark indexes reached new 33-year highs with the gains supported by the weakness in the yen as well as strong domestic earnings. Investor sentiment was propelled by the passage of the U.S. debt ceiling agreement and the fact that default was avoided. Also, there was optimism of indications that the U.S. Federal Reserve may likely pause its interest rate hikes by June. The yield on the 10-year Japanese government bond fell to 0.41% from 0.43% at the end of the previous week. Governor Kazuo Ueda of the Bank of Japan (BoJ) mentioned that it was too early for the central bank to discuss an exit from its ultra-easy monetary policy and that there was no definite time frame for reaching its 2% inflation target. Ueda urged the importance of the central bank being more careful in the way it communicates its policies. The yen strengthened to around JPY 139 against the U.S. dollar this week from the prior week’s JPY 140.66.

Chinese equities gained over the past week after the passage of legislation to suspend the debt ceiling by the U.S. Senate. This eliminated the risk of a destabilizing U.S. default, thus encouraging greater investor confidence and risk appetite. The Shanghai Stock Exchange Index rose by 0.55% while the blue-chip CSI 300 gained 0.28% in local currency terms. In Hong Kong, the benchmark Hang Seng Index added 1.1% after it descended to a six-month low earlier in the week. The country’s official manufacturing Purchasing Managers’ Index (PMI) fell to a lower-than-forecasted level of 48.8 in May from 49.2 in April, signaling the second consecutive month of contraction and the lowest reading since December 2022. A reading above 50 represents an expansion from the previous month. This was the first time since January that production activity fell into contraction, weighed down by declines in new orders and exports. The non-manufacturing PMI also weakened, falling to a lower-than-expected 54.5 in May from 56.4 in April. Although the sector continued to grow, this was the slowest pace it did so since December when China lifted pandemic restrictions.

The Week Ahead

The important economic data being released this week include consumer credit and PMI data.

Key Topics to Watch

• S&P U.S. services PMI
• Factory orders
• ISM services
• U.S. trade deficit
• Consumer credit
• Initial jobless claims
• Wholesale inventories

Markets Index Wrap Up

Stock Markets

Stock markets were broadly flat in trading over the past week. The Dow Jones Industrial Average (DJIA) was slightly down by 1.00% although the Total Stock Market Index was up by 0.31%. The NYSE Composite was also down by 1.60%. However, the S&P 500 Index inched up by 0.32% while the Nasdaq Stock Market Composite, the technology tracking index, surged by 2.51%, and it ended the week up by 23.97% year-to-date. (By comparison, the narrowly-focused DJIA declined by 0.16% over the same period.) CBOE Volatility Index rose by 6.78% reflecting an increase in investors’ perceived market risk.

While other sectors moved sideways on listless trading, one sector – information technology – overperformed the rest with a stellar 4.0% rise for the week. The technology sector is just one of three sectors in the S&P 500 Index that remains in positive territory year-to-date, together with consumer discretionary and communication services. Technology and communications services are well into bull-market territory as they are now up over 30% for the year.  However, each of the other S&P 500 sectors remains negative so far for this year, possibly in reaction to the uncertainty regarding the stymied U.S. debt-ceiling negotiations, the future Fed action on interest rate hikes, and the potential softness in the economy.

The stellar performer during the week was chipmaker NVIDIA. On Thursday, the company’s shares jumped by 24% after it beat consensus first-quarter earnings expectations by a wide margin and raised its profit outlook. The large move in this heavily weighted stock took the company’s market capitalization to about $963 billion by the end of the week, landing it sixth among the most highly valued public company in the world. This sent shock waves among the major benchmarks, making Thursday among the most remarkable trading sessions in the last 25 years.

U.S. Economy

In a runup to the June 14 Federal Reserve meeting, Fed officials in recent weeks have indicated that their focus remains squarely on fighting inflation as it remains too elevated for comfort. Although trends have improved in headline inflation, the personal consumption expenditure price index, or PCE, inflation data released during the week oved higher, and services inflation remains steadily persistent, driven by a robust labor market and wage growth that remains stubbornly elevated. The U.S. GDP growth for the first quarter announced last week was also revised upwards, though modestly, to 1.3% annualized, compared to what was previously 1.1%. Consumption remains resilient at 3.8%. The Fed’s own GDO-Now tracker is presently indicating a solid 2.9% annualized growth rate for the second-quarter U.S. GDP.

Fed officials have been wondering if further rate hikes may be prudent to continue to dampen inflation, given the strong labor market and broadly healthy economic situation. Markets appear to be pricing in one additional rate hike by the Fed, probably during the June or July meeting. This would bring the Fed funds rate to 5.25% to 5.5%. Some of this is reflected in Treasury yields moving higher in recent days. The Fed may likely lean towards a temporary halt in rate hikes for the moment, particularly in light of the recent uncertainty in the regional banking sector and some tightening of credit conditions. Should the upcoming U.S. nonfarm jobs report and CPI inflation data for May show some cooling as expected, this could help determine the future direction of interest rates.

Metals and Mining

The release last week of upbeat economic data and persistently high inflation hammered the gold market. This is the third consecutive weekly loss of the precious metal’s price as the markets recalibrated for another 25-basis-point rate hike in June. Despite the selloff this week, the year-to-date price of gold is still up by more than 6%. The macro-data was the main factor that weighed down the precious metal by the end of the recent trading week. All broadly above expectations were personal spending, the durable goods statistics, and the PCE inflation measures, particularly since the PCE price index, the Fed’s preferred inflation indicator, ended at 4.7% in April. Inflation close to 5% did not justify a pause by the Fed in hiking interest rates in June, for which there is now a 60% probability of a rate increase. Gold prices may therefore be subdued for the second quarter and possibly the early part of the third quarter.

In the past week’s trading, spot prices for precious metals came down. Gold descended by 1.59% from the week-ago price of $1,977.81 to this week’s close at $1,946.46 per troy ounce. Silver closed 2.31% lower, from the previous week’s close at $23.85 to this week’s close at $23.30 per troy ounce. Platinum is down by 3.77% from last week’s close at $1,066.59 to this week’s close at $1,026.37 per troy ounce. Palladium, which was at $1,514.72 one week ago, ended at $1,426.25 per troy ounce this week, losing by 5.84%. The three-month LME prices for base metals were also generally down for the week. Copper lost by 1.41% from its week-ago price of $8,251.50 to this week’s price of $8,135.00 per metric tonne. Zinc closed this week at $2,343.50 per metric tonne, lower by 5.47% from last week’s price of $2,479.00. Aluminum ended this week at $2,237.50 per metric tonne, down by 2.01% from last week’s price of $2,283.50. Tin closed this week at $24,846.00 per metric tonne, lower by 2.38% from last week’s close at $25,451.00.          

Energy and Oil

Fears of a U.S. government shutdown have eased this week as the debt ceiling negotiations appear to be moving toward a resolution. The development has also eased some of the pressure on oil prices. Russia and Saudi Arabia continue to confuse the market with conflicting messages. One day after the Saudi energy minister warned market short-sellers of the possibility they would get burned should prices reverse, Russia’s deputy prime minister, Alexander Novak, doused expectations of a production cut at the June 4 meeting of OPEC+, stating that he does not anticipate new steps to be taken. Consequently, WTI and Brent have both trended sideways, at $72 and $76 per barrel, respectively. In the meantime, the U.S. government will hold a sale of oil and gas drilling rights on federal lands in New Mexico and Kansas, covering more than 10m000 acrease with two-thirds of acreage on offer in Cheyenne County, KS. This is the first block auction since the IRA was passed last year.

Natural Gas

For the report week beginning Wednesday, May 17, and ending Wednesday, May 24, 2023, the Henry Hub spot price fell by $0.01 from $2.25 per million British thermal units (MMBtu) on May 17 to $2.24/MMBtu on May 24. The price of the June 2023 NYMEX contract increased by $0.033, from $2.365/MMBtu at the beginning of the report week to $2.398 by the end of the week. The price of the 12-month strip averaging June 2023 through May 2024 futures contracts rose by $0.039 to $3.099/MMBtu. Natural gas spot prices fell at most locations for the report week. Price changes at major pricing hubs ranged from a decline of $0.95/MMBtu at PG&E Citygate to an advance of $0.42/MMBtu at the Waha Hub.

International natural gas futures prices decreased for this report week, The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.90 to a weekly average of $9.73/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid gas market in Europe, fell by $1.18 to a weekly average of $9.27/MMBtu. Last year, for the week corresponding to this report week (the week ending on May 25, 2022), the prices were $22.10/MMBtu and $27.16/MMBtu in East Asia and at the TTF, respectively.

World Markets

European equities plunged on investors’ sentiment that the economic outlook will likely worsen and uncertainty will continue over the U.S. debt ceiling talks. The pan-European STOXX Europe 600 Index lost by 1.59%, and so, too, did major indexes in the region weaken. Germany’s DAX fell by 1.79%, France’s CAC 40 Index declined by 2.31%, and Italy’s FTSE MIB dropped by 2.93%. The UK’s FTSE 100 Index slid by 1.67%. Due to concerns that central bank policymakers would extend their policy tightening to address inflationary pressures, European government bond yields broadly climbed. The yield on the benchmark 10-year German government bond came to rest above 2.5%, while Spain’s and Italy’s sovereign bond yields rose likewise. Robust core inflation data drove a broad sell-off in the UK bond markets, with the yield on the benchmark 10-year UK government bond approaching 4.3%.  According to official figures, the German economy lapsed into recession in the first quarter. Meanwhile, UK inflation in April slowed less than forecasted to an annual rate of 8.7%, from 10.1% in March.

In Japan, the Nikkei 225 benchmark touched a 33-year high early in the week before ending just below the 31,000 level. This was the Nikkei 225’s highest close since July 1990, propelled by upbeat economic data and optimism regarding the U.S. debt ceiling negotiations. The broader TOPIX index closed the week slightly lower. Japanese manufacturing activity grew for the first time in seven months in May. Also reporting strong growth was the services sector. The return of domestic and international tourism spearheaded a record rise in business activity. Data also showed that Japan’s core machinery orders fell for a second straight month in March, although the optimistic market sentiment shrugged off any negative indicators for the week. Benchmark yields spiked noticeably on Friday, rising above 0.45% on positive news about the U.S. debt ceiling. The 10-year government bond yields settled around 0.41% by Friday’s close.

The Chinese stock market fell upon the release of several disappointing economic indicators in recent weeks pointing toward a slowing recovery. The benchmark CSI 300 Index dipped by 2.4%, its biggest weekly decline since the five days ended March 10, and erasing all its gains this year. Hong Kong’s benchmark Hang Seng Index plunged below the psychological key support at 19,000 to its lowest close since December in a holiday-shortened trading week. While there were no major indicators or policy measures announced during the week, mounting evidence that China’s post-pandemic recovery is losing momentum raised concerns about its economic outlook. In more recent announcements, retail sales, industrial output, and fixed asset investment all grew at rates that were weaker than expected in April. Credit growth indicators likewise pointed to sluggish domestic demand. The yield on China’s 10-year government bond descended to a six-month low of 2.70% last week.

The Week Ahead

In the coming week, the labor market, consumer confidence, and job openings data are among the important economic data scheduled to be released. All markets shall be closed on Monday in commemoration of Memorial Day.

Key Topics to Watch

• S&P Case-Shiller home price index (20 cities)
• Consumer confidence
• Richmond Fed President Barkin speaks
• ADP employment
• Chicago Business Barometer
• Job openings
• Philadelphia Fed President Patrick Harker speaks (Wed.)
• Federal Reserve Beige Book
• Initial jobless claims
• U.S. productivity
• IS&P U.S. manufacturing PMI
• ISM manufacturing
• Construction spending
• Philadelphia Fed President Patrick Harker speaks (Thur)
• U.S. employment report
• U.S. employment rate
• U.S. hourly wages
• Hourly wages year-over-year

Markets Index Wrap Up

Stock Markets

Major stock indexes chalked solid gains for the week, with the S&P 500 Index rising above the 4,200 level in intraday trading for the first time since late August before retracing back to close at 4,191.98. It gained by 1.65% for the week, while the Dow Jones Industrial Average (DJIA) rose by 0.38% and the Total Stock Market Index mirrored the S&P 500 with a rise of 1.68%.  The Nasdaq Stock Market Composite climbed by 3.04%, while the NYSE Composite inched up by 0.51%. The risk perception tracker CBOE Volatility Index slid down by 1.29%, based on the weekend tally by Wall Street Journal Markets.

The stock indexes have remained range-bound for the past few months, trading within a relatively narrow margin, with the S&P 500 Index ending the week up by only 0.93% for the year to date. The strong performance was attributed to some mega-cap technology-related stocks. Google parent Alphabet registered particularly strong gains as well as Facebook parent Meta Platforms. Other outperformers were Advanced Micro Devices (AMD), NVIDIA, and other chipmakers. Some regional bank shares rallied to recover some of their recent losses, resulting in a regional bank exchange-traded fund (ETF) registering its best daily gain since early 2021 on Wednesday.

The boost in performance within the week may be attributed to the increasingly optimistic tone regarding debt ceiling negotiations. After a meeting on Wednesday to discuss the stymied negotiations, President Biden commented that he was confident there would be no default, while Republican House Speaker Kevin McCarthy said that the deal was “doable.” The stock market seemed to lose steam on Friday, however, after Republican negotiators mentioned that they would pause the negotiations.

U.S. Economy

In recent economic news, consumption growth was recorded at 3.7% in the first quarter, the best pace in two years. The particularly strong consumer spending growth may, however, signal the start of waning consumer vigor and the onset of fatigue. Gasoline sales slowed while sporting goods and home furnishing weakened. Major retailers still reported stronger-than-expected performance, raising April retail sales overall following two straight months of declines. Nevertheless, some softness has more recently emerged in smaller tickets and less demand for discretionary items such as clothing, electronics, and home goods.

While wage growth remains healthy, unemployment is at a half-century low. Signs of softening employment conditions are beginning to surface, although the labor market will continue to remain a source of energy for consumers. A sign of the post-pandemic economy has been the tight labor market, which supports elevated consumer demand while preventing inflation from coming down more quickly. Continuing jobless claims are significantly up from the same time last year, indicating that jobs are increasingly becoming harder to find, possibly signaling a broader return to the workforce. The year-over-year increase in pay for job switchers has declined considerably from its peak, another sign that wage growth will further moderate.

There is a possibility that the economy is headed toward a recession, although this has already been earlier discounted by the markets, and may, therefore, cause a milder drop than previous recessions. Due to the strength in the labor market and relative resilience in consumption, the coming recession may be softer than that in 2001.

Metals and Mining

The dramatic run-up in gold prices since November may just have scratched the surface of the potential for the precious metal. The combination of real interest rates, quantitative easing, debt, and deficits is poised to propel the investment market share of gold to what should be the four-decade mean at a minimum. Experts say that people’s concern about maintaining their purchasing power is the driving force behind the price of gold. Gold’s upward trajectory may be sustained in the medium term, although its pace will be slower if the government continues to raise nominal interest rates.

In the week just ended, the spot price of gold ended at $1,977.81 per troy ounce, a drop of 1.64% from its week-ago close at $2,010.77. Silver came from $23.97 to land this week at $23.85 per troy ounce, a slight downward correction of 0.50%. Platinum, which closed the previous week at $1,053.04, closed this week at $1,066.59 per troy ounce for a gain of 1.29%. Palladium ended the prior week at $1,512.77 and this week at $1,514.72 per troy ounce, a gain of 0.13%. The three-month LME prices of base metals were mixed for the week. Copper closed the week at $8,251.50, down by 0.02% from the previous week’s close at $8,253.00. Zinc ended this week at $2,479.00 per metric tonne, down by 2.75% from the previous week’s close at $2,549.00. Aluminum closed at $2,283.50 this week, locking in a gain of 3.28% from the previous week’s close at $2,211.00. Tin came from a close the prior week at $25,308.00 and ended this week at $25,451.00 for a gain of 0.57%.

Energy and Oil

Oil prices appear to have finally broken out of the downside pressures and increasingly bearish sentiment that characterized the past month, and may be set for their first weekly gain in a month. A great amount of that optimism was provided by the U.S. as debt ceiling negotiations may be likely to head towards a resolution after last Wednesday’s meeting between President Biden and Speaker McCarthy. Gasoline demand is also showing some strength after another week-on-week drop in the inventory. In the international scene, a group of Western countries led by the U.S. and the U.K. has called for increased surveillance over the growing practice of ship-to-ship crude transfers, carrying either Russian or Iranian oil, as these transfers increase the risk of maritime oil spills. Also, India is intent on replenishing one-quarter of its strategic petroleum reserves, which are substantially lower than the U.S. or Chinese SPRs at a mere 39 million barrels. Nevertheless, reports suggest that they may buy about 9.2 million barrels in the coming months.

Natural Gas

For the report week beginning Wednesday, May 10, and ending Wednesday, May 17, 2023, the Henry Hub spot price rose $0.13 from $2.12 per million British thermal units (MMBtu) at the start of the week to $2.25/MMBtu at the end of the week. The price of the June 2023 NYMEX contract increased by $0.174, from $2.191/MMBtu on May 10 to $2.365/MMBtu on May 17.  The price of the 12-month strip averaging June 2023 through May 2024 futures contracts climbed $0.143 to $3.060/MMBtu. At most locations this report week, prices rose with few exceptions. At major pricing hubs, price changes ranged from an increase of $1.12/MMBtu at the Waha hub in West Texas to a decrease of $0.03/MMBtu at PG&E Citygate in Northern California.

International natural gas futures prices decreased this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia dropped by $0.65 to a weekly average of $10.62/MMBtu. Natural gas futures for delivery at the Title Transfer Facility in the Netherlands, the most liquid natural gas market in Europe, declined by $1.17 to a weekly average of $10.44/MMBtu. In the corresponding week last year (the week ending May 18, 2022), the prices were $21.65/MMBtu and $29.72/MMBtu in East Asia and at the TTF, respectively.

World Markets

European shares advanced this week, driven by optimism that interest rates may be close to peaking and that the U.S. is likely to avoid a debt default. The pan-European STOXX Europe 600 Index closed the week ahead by 0.72% from last week. The major markets reflected this trend, with Germany’s DAX surging by 2.27% and France’s CAC 40 Index rising by 1.04%. European government bond yields rose higher on the back of growing confidence in the European economy coupled with the imminent breakthrough in debt ceiling negotiations in the U.S. The yield on the 10-year German bond climbed to 2.5%, its highest level in more than three weeks. In the U.K., the benchmark 100-year gilt yield rose above 4% due to hints by policymakers that if inflationary pressures do not moderate, more monetary tightening could be forthcoming. Official economic data suggests that Europe might be headed toward an industrial recession. Eurozone industrial production plummeted by 4.1% sequentially in March, after rising by 1.5% in February. Industrial output sank by 1.4% on a year-over-year basis, after increasing 2.0% in the preceding month. Irish production led the drop, although German, French, and Italian output also weakened.

Japanese stocks recorded their sixth consecutive weekly gain. The Nikkei 225 Index advanced by 4.8% while the broader TOPIX Index jumped by 3.1%. Both indexes approached their 33-year highs during the week driven by solid domestic earnings, yen weakness, and strong overseas purchases of Japanese stocks. The sentiment was also boosted by data indicating that Japan’s economy grew at a higher-than-expected pace for the first quarter of this year, partly due to a post-Covid increase in consumption. Further adding to investors’ optimism was the perception that the U.S. government would soon reach a deal on raising the debt ceiling. The yield on the 10-year Japanese government bond rose to 0.39% from 0.37% at the end of the previous week. During the week, it dipped to its lowest since March as the Bank of Japan (BoJ) continued to maintain its commitment to ultra-loose monetary policy. The yen weakened significantly to around JPY 138.17 against the U.S. dollar, from its level the previous week at JPY 135.75. Some of the yen’s depreciation was stemmed by strong inflation data toward the end of the week.

Amid concerns that China’s post-Covid recovery may be losing steam, Chinese stock markets moved sideways as equities ended the week mixed. The Shanghai Stock Exchange Index marginally rose by 0.34% while the blue-chip CSI 300 inched up 0.17% in local currency terms. In Hong Kong, the benchmark Hang Seng Index lost by 0.90%. According to official data, industrial output, retail sales, and fixed asset investment grew at a weaker-than-expected pace in April year-on-year. Unemployment dipped to 5.2% in April compared to 5.3% in March, although youth unemployment jumped to a record 20.4%. This raised concerns that the post-pandemic recovery is not robust enough to attract new talent. Investors were disappointed at the latest figures, although the data appeared to be an improvement over that of the previous year when China was still under lockdown. On Friday, China’s yuan currency depreciated at the fastest pace in nearly three months after the PBOC cut its central parity rate below RMB 7 per dollar for the first time since December. The local currency was weighed down by signs of slowing growth in China and a surge in the U.S. dollar prompted by the likelihood that the U.S. government would raise its debt ceiling in time to avoid a default.

The Week Ahead

The PMI data, FOMC Minutes, and Preliminary Q1 GDP data are scheduled for release in the coming week.

Key Topics to Watch

• St. Louis Fed President James Bullard speaks
• San Francisco Fed President Mary Daly speaks
• Atlanta Fed President Raphael Bostic, Richmond Fed President Tom Barkin speak
• Dallas Fed President Lorie Logan speaks
• S&P flash U.S. services PMI
• S&P flash U.S. manufacturing PMI
• New home sales
• Fed Gov. Christopher Waller speaks
• Minutes of Fed May FOMC meeting
• GDP (second reading)
• Initial jobless claims
• Richmond Fed President Tom Barkin speaks
• Pending home sales
• Durable-goods orders
• Durable-goods minus transportation
• Personal income (nominal)
• Personal spending (nominal)
• PCE Index
• Core PCE Index
• PCE (year-over-year)
• Core PCE (year-over-year)
• Advanced U.S. trade balance in goods
• Advanced retail inventories
• Advanced wholesale inventories
• Consumer sentiment (final)

Markets Index Wrap Up

Stock Markets

This trading week, major stock indexes are down except for the Nasdaq Stock Market Composite which managed to rise by 0.40%. Data from the Wall Street Journal (WSJ) Markets report show the Dow Jones Industrial Average (DJIA) falling by 11.1% while the total stock market lost by 0.11%.  The broad-based S&P 500 receded by 0.29% and the NYSE Composite Index slid by 0.87%. The CBOE Volatility Index, which serves as the indicator of investors’ risk perception of the market, dipped by 0.93%. Investors’ risk perception may be abating due to some encouraging news on inflation released during the week.

There was some trading incentive during the week as the flow of first-quarter earnings reports neared its end. The outperformance of the technology-heavy Nasdaq Composite was helped by a buying surge in Alphabet, Google’s parent company, in reaction to the unveiling of its new artificial intelligence (AI)-based platform. The lag in the narrowly-focused DJIA could be attributed to the reported decline in subscribers to Disney’s streaming platform, Disney+. Furthermore, the financial sector underperformed, being weighed down by concerns over the challenges facing regional banks in general. Trading volumes remained thin and neared their lowest level of the year. While the week’s economic calendar provided little trading motivation, it did include the highly anticipated inflation data released on Wednesday. After the Labor Department reported that headline consumer prices rose 4.9% over the year ended in April, the S&P 500 Index jumped by 1% in premarket trading. The inflation reading was slightly below consensus expectations and amounted to the slowest pace n two years. 

U.S. Economy

The April consumer price index (CPI) announced on Wednesday was slightly cooler than the 5.0% consensus expectation and below last month’s 5.0% reading. It was the smallest increase since April 2021 and continued the disinflation trend, being the 10^th consecutive month of improvement since June of last year when inflation peaked at 9.1%. While gasoline prices rose month-on-month, this was offset by a fall in food prices. Food inflation is still high at an annual 7.1%, however, it is down from 13.5% in August.

Core inflation, which excludes food and energy, inched down to 5.5% from 5.6%. Although core inflation met expectations, the price increase was partially driven by a sudden increase in used car prices which is seen as a temporary development and is not likely to persist. As with previous months, the single largest contributor to inflation was housing. However, we may start to see shelter inflation come down in the summer months based on the historical lag between when inflation of newly signed rental contracts falls and when it shows up in the official data.

The most encouraging news on the reports is possibly that core services inflation excluding shelter (a function of the labor market) improved significantly. This is the measure that the Fed has been highlighting as the basis for its restrictive monetary policy in recent months. Core services inflation was reported to have risen at the slowest pace in nine months. It appears that the labor market tightness is starting to ease, suggested by the fact that jobless claims over the past month rose to a one-year high, which should help cool wage growth. Thus, consumer inflation remains on its downward trajectory. The pace and duration of declines in inflation once it has peaked have been historically symmetrical to its way up. If this holds, inflation may fall toward 3% by the end of 2023, which would be a significant development, considering the height of the peak. The Federal Reserve may have room to pause its rate hikes, which is good news for the markets.

Metals and Mining

Since prices remain well below last week’s test of its all-time high above $2,080 per ounce, it appears that the gold market may be losing some of its bullish momentum, Nevertheless, the yellow precious metal continues to attract much investor attention. Several experts continue to speculate that there may be a hard landing ahead for the U.S. economy, which is historically not favorable for gold and silver. However, geopolitical uncertainty and the growing de-dollarization trend are seen to continue to support precious metals. In any case, there is one thing that continues to drive interest in gold, and that is central bank demand which is seen to continuously persist. Last week, the World Gold Council revealed that in the first quarter, central banks bought 228 tonnes of gold, which is a record start for the year.

During the trading week just ended, there has been some correction in the spot prices of precious metals. Gold, which closed a week ago at $2,016.79, ended this week at $2,010.77 per troy ounce, for a slight reduction of 0.30%. Silver ended this week at $23.97 per troy ounce, representing a 6.62% drop from its previous week’s close at $25.67. Platinum closed this week at $1,053.04 per troy ounce, 0.89% lower than the previous week’s close at $1,062.52. Palladium bucked the trend and closed this week at $1,512.77 per troy ounce, an increase of 1.17%    over its previous week’s close at $1,495.31.  The three-month LME prices of basic metals were generally lower this week compared to the previous week. Copper ended at $8,253.00 per metric tonne this week, down by 3.83%     over the previous week’s close at $8,581.50. Zinc ended this week at $2,549.00 per metric tonne, down by 5.12% over the prior week’s close at $2,686.50. Aluminum closed at $2,211.00 per metric tonne this week, down by 4.64% from its price last week at $2,318.50.  Tin ended this week at $25,308.00 per metric tonne, down by 2.90% from its week-ago close at $26,064.00.     

Energy and Oil

The slide in oil prices continues this week as fears of a recession were aggravated by a reversal in crude inventory draws. The Department of Energy (DOE), in a carefully-worded announcement, declared that they may start refilling SPRs. This week, U.S. Energy Secretary Jennifer Granholm informed Congress that the DOE could start repurchasing crude for the Strategic Petroleum Reserve as soon as the currently ongoing congressionally mandated sales are concluded. The announcement, however, failed to spark a sustainable price recovery. OPEC sought to intervene with its monthly report, increasing Chinese demand growth this year to 800,000 barrels per day (b/d). Nevertheless, these attempts at altering the broader narrative are failing to incentivize higher prices in the market.

Natural Gas

For the report week from Wednesday, May 3, to Wednesday, May 10, 2023, the Henry Hub spot price rose by $0.09 from $2.03 per million British thermal units (MMBtu) at the start of the week to $2.12/MMBtu by the week’s end. The price of the June 2023 NYMEX contract increased by $0.021, from $2.170/MMBtu on May 3 to $2.191/MMBtu on May 10. The price of the 12-month strip averaging June 2023 through May 2024 futures contracts fell by $0.025 to $2.917/MMBtu. International natural gas futures prices decreased for this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.26 to a weekly average of $11.28/MMBtu.  Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, fell by $0.71 to a weekly average of $11.61/MMBtu. In the corresponding week last year, the week ending May 11, 2022, the prices were $23.54/MMBtu and $30.59/MMBtu in East Asia and at the TTF, respectively.

World Markets

European stocks moved sideways for the week due to a lack of major news that would move the markets. The pan-European STOXX Europe 600 Index ended the week virtually unchanged in local currency terms, despite strong gains early in the week that dissipated as the market discounted the likelihood of further rate increases from the European Central Bank (ECB). Major stock indexes posted mixed results. Germany’s DAX slipped by 0.30%, while France’s CAC 40 Index dipped by 0.24%. The UK’s FTSE 100 Index ended marginally lower by 0.31%.  ECB President Christine Lagarde stated in an interview that the central bank has so far moved deliberately and decisively to fight inflation, but that there remains more ground to cover. “There are factors that can induce significant upside risks to the inflation outlook” and that uncertainty regarding inflation remains high, demanding that the ECB pay close attention to the potential risks.

Japan’s stock markets charted gains over the week on the back of signs of strength in corporate earnings. The Nikkei 225 Index rose by 0.8% and the broader TOPIX Index climbed by 1.0% higher. Investor sentiment was tempered somewhat by concerns about China’s economic growth as well as the U.S. debt ceiling and potential default. Nevertheless, data released during the week showed that wage growth remained sluggish in March, which supported the Bank of Japan’s (BoJ) dovish stance. On the back of these developments, the yield on the 10-year Japanese government bond fell from 0.42% at the end of the previous week to 0.39% at the end of this week. The yen rose modestly to around JPY 134.75 against the dollar, from JPY 134. 85 the previous week.

Chinese stocks retreated during the first full week of trading after the five-day Labor Day holiday, due to investors’ concerns about the strength of the country’s recovery. The Shanghai Stock Exchange Index declined by 1.86% while the blue-chip CSI 300 dipped even lower, by 1.97% in local currency terms. Hong Kong’s benchmark Hang Seng Index descended by 2.11%. China’s consumer price index (CPI) inched up 0.1% in April from last year, down significantly from an increase of 0.7% in March. The most recent CPI is the lowest rate since February 2021 and missed economists’ forecasts. Core inflation (which excludes volatile food and energy prices) remained unchanged from the previous month, indicating little demand-driven inflation in the economy. The recent data suggests that China’s central bank may ease policy in the near term to support an economic recovery that is showing signs of losing momentum after the post-pandemic rebound. The yield on China’s 10-year government bond fell to the lowest level since November as traders priced in the possibility of further monetary easing.

The Week Ahead

In the coming week, important economic data scheduled for release include housing data, retail sales growth, industrial production, and capacity utilization.

Key Topics to Watch

• Empire State manufacturing survey
• Chicago Fed President Goolsbee on TV
• Minneapolis Fed President Kashkari speaks
• Cleveland Fed President Mester speaks
• U.S. retail sales
• Retail sales minus autos
• Industrial production
• Capacity utilization
• Business inventories
• Home builder confidence index
• Fed Vice Chair Barr testifies
• Richmond Fed President Barkin speaks
• New York Fed President Williams speaks
• Chicago Fed President Goolsbee on TV
• Atlanta Fed President Bostic and Chicago Fed President Goolsbee on panel
• Housing starts
• Building permits
• Philadelphia Fed factory survey
• Initial jobless claims
• Fed Gov. Philip Jefferson speaks
• Fed Vice Chair for Supervision Barr testifies
• Existing home sales
• U.S. leading economic indicators
• New York Fed President Williams speaks
• Fed Chairman Powell and former Fed Chairman Bernanke on panel

Markets Index Wrap Up

Stock Markets

The major indexes were generally down due to the triple negative data reports released for the week. The Dow Jones Industrial Average (DJIA) fell by 1.24% and while its transportation and utilities averages rose, the total stock market slid by 0.77%. The broad S&P 500 Index lost by 0.80%, and the NYSE Composite declined by 1.06%. Bucking the trend was the Nasdaq Stock Market Composite, which managed to gain by 0.07%. The CBOE Volatility index, which tracks investor risk perception, advanced by 8.94% in reaction to the higher volatility in the market.

The negative developments during the week were the Federal Reserve interest rate hike of 0.25%, the ongoing turmoil in the banking system, and a key jobs report for April. The Fed may finally be considering a pause in its rate-hiking policy after raising interest rates by more than 5.0% in slightly over a year, however, the past year’s rate hikes may only now be starting to impact the real economy. Market volatility may increase following a market really, though it may be characterized by thin equity leadership. A bull market in stocks and bonds is still possible by year-end as the ongoing bear market loses its steam.

Despite Friday’s brief rally, the drop in the broad S&P 500 Index is seen as due to comments by Federal Reserve Chair Jerome Powell that suggested that anticipated interest rate cuts may not take place as quickly as investors had hoped. Sentiments may have also been weighed down by uneasiness surrounding the need to raise the U.S. debt ceiling. U.S. Treasury Secretary Janel Yellen notified congressional leaders that the agency may not be able to meet its debt obligations as early as June 1, raising prospects of a government default. The information technology sector fared the best and ended higher, as seen in the Nasdaq close. Yields on 10-year U.S. Treasuries slumped early in the week on the back of concerns surrounding regional banks and the debt ceiling, although the drop moderated during Friday’s trading session.

U.S. Economy

Over the weekend, California-based First Republic Bank was taken over by regulators due to its struggle with large deposit outflows similar to those earlier encountered by Silicon Valley Bank and Signature Bank. Most of First Republic Bank’s assets were acquired by JP Morgan Chase; deposits not covered by federal insurance did not suffer losses. Significant volatility in stock trading in this sector of the S&P 500 reflected heightened concerns regarding the potential for additional bank failures and the credit pressures that could materialize if the economy slows down and unemployment accelerates.

The uncertainty in the regional banking system and incremental tightening in lending standards, to a weakening in manufacturing and the housing sector, may be symptoms of the lagging effects of the accelerated interest rate hikes by the Fed. A mild recession is therefore likely, although the economy is still buffered by a relatively resilient labor market. Data from the U.S. Department of Labor indicated that the number of job openings shrank for the third straight month in March, dropping to 9.59 million from 9.97 million. Small businesses that have up to 49 employees carried the brunt of the decline. With 1.6 job openings for every unemployed person, the labor market remains tight. Layoffs were recorded at 1.8 million in the same report; this chalks an increase of 248,000, the highest level since December. Likewise, a nonfarm payrolls report that was issued on May 5 showed some strength in the labor market as the economy added 253,000 new jobs in April. This is higher than the consensus estimate of 179,000 and the 165,000 job gains recorded in March. Average hourly earnings rose by 0.5% month-over-month, compared with the reported uptick of 0.3% in March.

Metals and Mining

Gold prices this week tested record highs above $2,080 an ounce, once more showing investors the potential of the gold market to rally higher. While there is much long-term bullish sentiment in the market, the conditions for a sustained rally do not yet appear to be in place. Gold’s push to $2,085 per ounce came after the Fed raised interest rates by 25 basis points and shifted to a more neutral monetary policy. While the central bank appears to pause in raising interest rates further, Fed Chair Jerome Powell’s statements definitively indicate that they are in no position to be cutting rates anytime soon. According to Powell in Wednesday’s press conference, it is the Fed’s view that “inflation is going to come down not so quickly. It will take some time, and in that world, if that forecast is broadly right, it would not be appropriate to cut rates and we won’t cut rates.”

This past week, gold spot price closed at $2,016.79 per troy ounce, 1.35% higher than its close last week at $1,990.00. Silver, which previously closed at $25.05, rose by 2.48% to end this week at $25.67 per troy ounce. Platinum dipped 1.46% from last week’s close at $1,078.31 to end this week at $1,062.52 per troy ounce. Palladium came from the previous week’s close at $1,506.87 to this week’s close at $1,495.31 per troy ounce, for a loss of 0.77%. The three-month LME prices of base metals were mixed for the week. Copper, which was previously $8,595.50, ended this week at $8,581.50 per metric tonne for a slight drop of 0.16%.  Zinc ended this week at $2,686.50 per metric tonne, a gain of 1.47% from the previous week’s end at $2,647.50. Aluminum came from last week’s price of $2,356.00 to this week’s ending price of $2,318.50 per metric tonne for a slight drop of 1.59%. Tin also lost by 0.09% from the previous week’s close at $26,088.00 to this week’s close at $26,064.00 per metric tonne.

Energy and Oil

The past week was one of the worst weeks for oil prices in recent memory. The doom and gloom surrounding the global economy failed to be shaken by any bullish news, and while a slight rebound in oil prices materialized on Friday morning that reduced the weekly loss, the sentiment remained decidedly bearish for the oil industry. Both the ICE Brent and WTI plunged by 10% week-on-week before Friday’s slight rebound. Bearish sentiment was driven by renewed concerns about a U.S. banking crisis contagion and lukewarm industrial figures from China. News that should have perked up oil prices, such as hijacked tankers on the Strait of Hormuz, falling U.S. inventories, and the lack of a deal to unlock Kurdish oil exports, all failed to offset the negative sentiment surrounding the macroeconomic scenario. In reaction to the precipitous plunge in oil prices this week, OPEC+ has confirmed that it will hold its policy meeting on June 4 in person in Vienna, which possibly hints at further tightening of production targets as the previous pledges ran out of steam.

Natural Gas

For the report week beginning Wednesday, April 26, and ending Wednesday, May 3, 2023, the Henry Hub spot price fell by $0.16 from $2.19 per million British thermal units (MMBtu) at the week’s start to $2.03/MMBtu by the week’s end. The May 2023 NYMEX contract expired on April 26 at $2.117/MMBtu. The June 2023 NYMEX contract price decreased to $2.170/MMBtu, down by $0.14 from the beginning of the week to the end of the report week. The price of the 12-month strip averaging June 2023 through May 2024 futures contracts declined by $0.10 to $2.942/MMBtu.

International natural gas futures prices decreased this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.36 to a weekly average of $11.54/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, fell by $0.52 to a weekly average of $12.32/MMBtu. In the corresponding week last year (the week from April 27 to May 4, 2022), the prices were $24.08/MMBtu and $30.90/MMBtu in East Asia and at the TTF, respectively.

World Markets

European stocks ended the week marginally lower on the back of continued concerns about rising inflation rates and its likely impact on continued monetary policy tightening. There were also fears of a recession and the possibility of a banking contagion. The pan-European STOXX Europe 600 Index closed 0.28% lower over the past week’s trading. The major stock indexes were mixed, with Germany’s DAX up by 0.24% and France’s CAC 40 Index down by 0.78%. The UK’s FTSE 100 Index lost by 1.17%. European government bonds declined following the raising of interest rates by the European Central Bank (ECB) by 0.25%, scaling back from the previous 0.50% rate hike. The yield on the benchmark 10-year German government debt slowed to almost one-month lows. Yields in the UK were broadly unchanged, remaining close to one-month peaks at about 3.8% while investors anticipated more policy tightening from the Bank of England. Meanwhile, inflation in the eurozone advanced to 7.0% year-over-year in April, from the March figure of 6.9%. Core inflation (excluding food, energy, alcohol, and tobacco) nevertheless ticked down from a record level to 5.6%. The labor market tightened with the jobless rate falling to 6.5%. Germany’s jobless rate was the lowest among the bloc members at 2.8%.

Japan’s stock markets advanced for the first two days of the week and remained closed for the next days to the weekend due to the Golden Week national holidays. The Nikkei 225 Index returned 1.0% and the broader TOPIX Index climbed by 0.9%. The markets rallied on Monday due largely to a sell-off in the yen that boosted the outlook for Japan’s exporters. This followed the Bank of Japan’s (BoJ’s) decision to maintain its ultra-easy monetary policy stance during its April 27-28 meeting. Over the full week, however, the yen strengthened to around JPY 134.1 to the US dollar, from about JPY 136.3 to the greenback. A safe-haven demand supported the Japanese currency amid U.S. recession concerns and continued fears about the health of certain U.S. regional banks. Speculation was also fueled by the Fed’s signaling a pause in its interest rate hiking cycle. The yield on the 10-year Japanese government bond remained broadly unchanged at 0.42%.

Chinese equities closed the week mixed after a holiday-shortened week as sentiments were tempered by the release of surprisingly weak manufacturing data. The Shanghai Stock Exchange Index gained by 0.34% while the blue-chip CSI 300 fell 0.3% in local currency terms. Financial markets in mainland China were closed from Monday through Wednesday for the Labor Day holiday. China’s official manufacturing purchasing managers’ index (PMI) weakened from 51.9 in March to 49.2 in April, with 50 marking the border between contraction and growth. This marks a return to contraction for the first time since December when Beijing abandoned its zero-COVID policy. The nonmanufacturing PMI likewise softened in April albeit remaining in the expansionary territory above 50. Domestic tourism during the five-day holiday rebounded to pre-pandemic levels, increasing by 71% from a year earlier. Spending activity surged by 129% year-over-year, fueling optimism that a sustained recovery in the services sector may help offset the manufacturing sector’s weakness and a fragile property market recovery.

The Week Ahead

Next week, the important economic data scheduled for release include hourly earnings growth and the CPI and PPI indexes.

Key Topics to Watch

• Wholesale inventories
• Chicago Fed President Goolsbee television interview
• Fed Senior Loan Survey
• Fed Gov. Philip Jefferson speaks
• New York Fed President Williams speaks
• Consumer price index
• Core CPI
• CPI year over year
• Core CPI year over year
• Producer price index
• Core PPI
• PPI year over year
• Core PPI year over year
• Initial jobless claims
• Continuing jobless claims
• Fed Gov. Christopher Waller speaks
• Import price index
• Import price index minus fuel
• Consumer sentiment (preliminary)
• St. Louis Fed President Bullard and Fed Gov. Jefferson on panel on outlook for economy and monetary policy

Markets Index Wrap Up

Stock Markets

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

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

U.S. Economy

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

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

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

Metals and Mining

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

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

Energy and Oil

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

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

Natural Gas

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

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

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

World Markets

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

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

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

The Week Ahead

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

Key Topics to Watch

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

Markets Index Wrap Up