Stock Markets

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

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

U.S. Economy

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

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

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

Metals and Mining

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

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

Energy and Oil

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

Natural Gas

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

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

World Markets

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

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

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

The Week Ahead

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

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

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

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

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

U.S. Economy

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

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

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

Metals and Mining

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

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

Energy and Oil

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

Natural Gas

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

World Markets

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

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

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

The Week Ahead

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

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

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

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

U.S. Economy

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

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

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

Metals and Mining

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

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

Energy and Oil

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

Natural Gas

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

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

World Markets

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

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

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

The Week Ahead

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

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

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

U.S. Economy

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

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

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

Metals and Mining

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

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

Energy and Oil

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

Natural Gas

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

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

World Markets

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

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

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

The Week Ahead

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

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

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

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

U.S. Economy

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

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

Metals and Mining

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

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

Energy and Oil

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

Natural Gas

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

World Markets

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

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

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

The Week Ahead

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

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

The major stock indexes closed the week mixed with investors trying to balance healthy growth and profit signals with concerns that inflation may once more spiral out of control. The Dow Jones Industrial Average (DJIA) dipped by 0.13% although its sectors were generally up and the total stock market index remained unchanged. The S&P 500 Index also slightly fell by 0.28% and the technology tracker Nasdaq Stock Market Composite inched upward by 0.59% led by the Biotech sector which nudged up by 0.64%. The NYSE Composite index slid by 0.44%. Investors’ risk perception was mitigated as shown by a 2.48% drop in the CBOE Volatility index.

Investors feared that the Federal Reserve may be forced to again raise short-term interest rates by more than earlier anticipated. This caused U.S. Treasury yields to increase and cause a strengthening of the U.S. dollar, while a particularly large toll was taken on oil prices and energy stocks since oil is priced in U.S. dollars on international markets and oil demand increases when the dollar appreciates. Trading volumes were quiet early in the week after the Super Bowl celebrations last Sunday and markets were scheduled to remain closed the next Monday, February 20, in observance of the Presidents’ Day holiday.

U.S. Economy

The monthly inflation report came in higher than expected although the longer-term trends remain intact. A mixed picture was painted by the week’s highly anticipated inflation data. The Labor Department reported on Tuesday that, consistent with expectations, consumer prices rose by 0.5% in January compared to a 0.1% increase in December. Nearly half of the gain was accounted for by a “sticky” increase in shelter prices, which compensated for another sharp drop in used car prices. The inflation rate came in at 6.4% year-over-year, which is higher than consensus estimates, but still the slowest pace since October 2021. The annual core inflation figure, which excluded food and energy costs, was 5.6%, also modestly above expectations, but its slowest pace since December 2021.

Producer prices surprised on the upside on Thursday, causing stocks to react with a sell-down. In January, the producer price index climbed by 0.7%, its biggest gain since June. Meanwhile, core producer prices rose by 0.5%, the most since May. Overall, however, producer prices continued their steep and steady decline that began in June on a year-over-year basis – falling almost in half, from 11.2% to 6.0% during that interval.

Another key report released last week was the U.S. retail sales figures, which were the highest in almost two years. January sales surged by 3% from the previous month, well above the 2% increase expectation, and more than offsetting the decline in December. The advance was accounted for by an increase in auto sales, as well as strong spending at restaurants and furniture outlets. Gains were nevertheless broad across different categories, which hints that consumers were playing catch-up and were willing to spend this quarter after pulling back during last year’s fourth quarter.

Metals and Mining

In the gold market, headwinds continued to strengthen in tandem with the increase in bond yields. Investors appear to anticipate that the Federal Reserve will continue to pursue its aggressive monetary policy. This creates a challenging environment for gold at present even as prices have some leeway to move lower. Many analysts have observed, however, that there have been no developments to shift the long-term bullish potential of the yellow metal. The movements in the bond market, as short-term bonds offer investors positive returns, making them more attractive safe-haven assets once more. But there is where the trouble lies. Some economists have stated that it is not a matter of whether a recession will hit, but when.

In the past week, the spot prices of precious metals have retracted. Gold, which has a week-ago price of $1,865.57, ended this week at $1,842.36 per troy ounce for a loss of 1.24%. Silver slid from its closing price last week at $22.00 to this week’s close at $21.73 per troy ounce, a drop of 1.23%. Platinum lost 2.98% from its previous close at $949.55 to this week’s price of $921.21 per troy ounce. Palladium closed this week at $1,502.59 per troy ounce, lower by 2.79% from the earlier week’s close of $1,545.67. The three-month LME prices of base metals were mixed for the week. Copper came from $8,857.50 the previous week to close this week at $8,987.50 per metric tonne for a gain of 1.47%. Zinc closed one week ago at $3,042.50 and this past week at $3,058.00 per metric tonne for a gain of 0.51%. Aluminum closed the prior week at $2,440.50 and this past week at $2,387.50 per metric tonne, dropping by 2.17%. Tin closed at $27,349.00 one week ago and this week at $25,856.00 per metric tonne for a loss of 5.46%.

Energy and Oil

The gap between WTI and other global crude benchmarks appears to be widening as climbing crude inventories and another SPR release push the U.S. benchmark lower. Furthermore, the release of strong economic data in the U.S. this past week and evidence that the labor market is tightening further have exerted some macro pressure on oil prices. The result is heightened fears that the Federal Reserve’s rate hikes may be further extended. These bearish indicators moved the WTI back below $76 per barrel on Friday morning. On the other hand, analysts estimate that China’s crude imports will rise by 0.5 to 1.0 million barrels per day (b/d) this year to as high as 11.8 million b/d, a new all-time high. This may reverse the year-on-year decline in 2022 and fire up domestic refining that has languished through the years China pursued the zero-Covid policy.

Natural Gas

In January 2023 compared to December 2022, the natural gas price at the U.S. benchmark Henry Hub declined by 41%, or $2.26 per million British thermal units (MMBtu). The decline in price was attributable to warmer-than-average temperatures across the United States in January, driving down the consumption of natural gas for space heating and increased natural gas production.

For this report week covering Wednesday, February 8, to Wednesday, February 15, 2023, the Henry Hub spot price rose by $0.02 from $2.42/MMBtu at the start of the week to $2.44/MMBtu at the end of the week. The price of the March 2023 NYMEX contract increased by $0.075 from $2.396/MMBtu on February 8 to $2.471/MMBtu on February 15. The price of the 12-month strip-averaging March 2023 through February 2024 futures contracts climbed $0.033 to $3.228/MMBtu. International gas futures prices decreased this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased $0.039 to a weekly average of $17.91/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 $1.15 to a weekly average of $16.68/MMBtu. In the corresponding week last year (the week ending February 16, 2022), the price in East Asia was $24.43/MMBtu, and the price at TTF was $24.87/MMBtu.

World Markets

Better-than-expected corporate results raised optimism among investors, allaying fears about additional interest rate hikes and causing European shares to rebound. The pan-European STOXX Europe 600 Index closed the week 1.40% higher. France’s CAC 40, which reached a record level earlier in the week, surged by 3.06%. Italy’s FTSE MIB Index likewise advanced significantly, by 1.77%, while Germany’s DAX Index also jumped by 1.14%. The UK FTSE 100 hit an all-time high when it rose by 1.55% this week. Helping to support the UK index was a weaker British pound as against the U.S. dollar, as many listed companies in the UK bourse are multinationals with overseas revenues. The European government bond yields are about to reach multiyear highs partly due to hawkish comments by European Central Bank (ECB) policymakers. Yields on benchmark 10-year German government debt rose, as well as bond yields in Switzerland and France when ECB President Christine Lagarde reiterated that to control inflation, interest rates need to be increased further.

For the week, returns were mixed in Japanese equity markets. The Nikkei 225 Index descended 0.57% while the broader TOPIX Index registered a 0.25% increase. The positive U.S. economic data elicited hawkish comments from U.S. Federal Reserve (Fed) officials, weighing on risk assets. Investor sentiment was somewhat dampened by the fact that the Japanese economy rebounded less than anticipated over the fourth quarter of last year. Further speculation about the future trajectory of the central bank’s monetary policy was further prompted by the nomination during the week of Kazuo0 Ueda as the next Bank of Japan (BoJ) governor. The yield on the 10-year Japanese government bond (JGB) hovered about the 0.50% level at which the BoJ intends to cap JGB yields. The yen weakened somewhat to around JPY 134.2 versus the greenback, from about JPY 131.3 at the end of the previous week. The movement was mainly due to expectations that there would be no change to BoJ’s monetary policy in the short term.

Chinese equities plunged for the third straight week in light of concerns over escalating geopolitical tensions with the U.S. which are creating barriers to prospects of faster economic growth. The Shanghai Stock Exchange Index retreated 1.12$ and the blue-chip CSI 300 eased by 1.75%. In Hong Kong, the benchmark Hang Seng Index slid by 2.22%. The prices for new homes in China were relatively steady in January, halting a 16-month decline, as demand was boosted when the government lifted its zero-Covid regime. During the past few months, the government has rolled out several measures in support of the beleaguered sector as part of the effort to restore Chinese economic growth. According to economists, the government will be announcing additional policies during or after the much anticipated annual Parliament meeting, which starts in early March. On the other hand, Chinese foreign ministry spokesman Wang Wenbin announced that Beijing will be enacting countermeasures against the U.S. after it shot down a suspected Chinese spy balloon in U.S. territory the previous week, raising fears of intensifying geopolitical risks. The warning was issued after the U.S. included Chinese firms on an export blacklist amid alleged links to a military-backed global balloon espionage program.

The Week Ahead

Among the important economic data scheduled to come out this week are the Markit PMI index, the personal consumption index, and the gross domestic product.

Key Topics to Watch

• S&P flash U.S. services PMI
• S&P flash U.S. manufacturing PMI
• Existing home sales
• FOMC minutes of Feb1 meeting
• Initial jobless claims
• Gross Domestic Product
• Atlanta Fed President Bostic speaks
• Consumer spending (nominal)
• Personal income (nominal)
• PCE index
• Core PCE index
• Core PCE (year-over-year)
• New home sales
• Consumer sentiment (final)

Markets Index Wrap Up

Stock Markets

Major stock markets indexes ended slightly lower this week, most possibly due to the release of relatively little economic data to give investors reason to take strong positions in the market. The Dow Jones Industrial Average dipped lower by 0.17% while to total stock market pulled back slightly by 1.43%. The S&P 500 Index also retreated by 1.11%. The tech-heavy Nasdaq Stock Market Composite showed the largest movement, declining by 2.41%, while the NYSE Composite took a nudge down by 0.55%. CBOE Volatility, the indicator of risk perception among investors, advanced by 12.00%.

Most of the sectors within the S&P 500 performed similarly, with energy stocks noticeably outperforming the others while communications services underperforming the rest. There is a recent pattern of short covering, where certain stocks were being bought back by hedge funds and other participants to cover bets that the shares would fall. The stock-specific event that proved most significant in moving the market was the rapid sell-down of the shares of Google’s parent, Alphabet. The counter lost roughly $100 billion in market capitalization on Wednesday as it lost 10% of its value during the week. In its first public demonstration on Monday, Google’s new artificial intelligence (AI)-based chatbot, Bard, make a mistake in identifying the first satellite to take a picture of an exoplanet. The debuts of ChatGPT and Perplexity, Bard’s rival chatbots, have raised concerns among investors regarding the ability of Google to maintain its dominance in AI and internet search. Microsoft invested heavily in ChatGPT creator OpenAI and unveil on Monday a prototype of the two companies’ combined search engine.

U.S. Economy

Statements from Federal Reserve officials have sent stocks in a roller coaster ride on Tuesday and Wednesday this week. Tuesday saw stocks rally after Fed Chair Jerome Powell repeat an earlier reference to the disinflation process having started. Investors were concerned that the unanticipated upward figures in the January payrolls report that was released on Friday may cause Powell to reverse his stance and consider hiking interest rates aggressively again. The following day, however, other Fed officials released a series of apparently hawkish comments that appeared to send stocks back lower.

After the big payrolls report, the few reports released during the week were mostly consistent with expectations. The weekly jobless claims came in at 196,000, which is slightly higher than consensus estimates although it is still close to recent nine-month lows. The University of Michigan’s preliminary assessment of February consumer sentiment, which was released on Friday, moderately exceeded expectations and approached its highest level (664) since January 2022.

Regarding inflation, the consumer price index, the key indicator for inflation in the U.S., has receded for six straight months and has remained mostly in line with forecasts, or, alternatively, surprised to the downside, for the last three months. Market forecasts now expect headline inflation to fall under 4.0% by the end of 2023, and closer to 2.5% by 2024. The current trend has alleviated pressure from the Federal Reserve and global central banks that have been aggressively raising interest rates in an attempt to bring inflation under control.

Metals and Mining

According to updated research from the World Gold Council, the past year was a record year for central bank gold demand. This data indicates the presence of significant bullish factors that are currently supporting the gold market. While a record for central bank gold buying is not expected to break any records, it does indicate that they are likely to continue to be net buyers. There is consistent demand from the People’s Bank of China, which bought 15 tonnes of gold last month according to released data. This is the third straight month that China increased its gold reserves, and the trend is likely to continue in the near term.

In this past week, gold prices closed at $1,865.57 per troy ounce, up by 0.03% from the previous week’s close at $1,864.97. Silver, which closed a week ago at $22.35, ended this week at $22.00 per troy ounce, down by 1.57%. Platinum came from its price last week at $976.78 and closed this week at $949.55 per troy ounce, down by 2.79%. Palladium previously closed at $1,631.77 but closed this week at $1,545.67 per troy ounce, lower by 5.28%. The three-month futures LME prices for base metals were mostly down. Copper ended one week ago at $8,980.50 and this week at $8,857.50 per metric tonne to chart a decline of 1.37%. Zinc, the price of which was $3,241.50 one week ago, ended this week at $3,042.50 per metric tonne, a slide of about 6.14%.  Aluminum dropped 5.02%, from its week-ago price of $2,569.50 to this week’s price of $2,440.50 per metric tonne. Tin fell 3.63% week-on-week, from $28,379.00 to $27,349.00 per metric tonne.

Energy and Oil

The introduction of the oil products price cap has brought the spirit of the stock market to life after months of macro-driven price swings and has at last brought fundamentals back into the spotlight. As a reaction to sanctions, Russia announced that it would curb output, which is arguably the first major supply disruption of 2023. According to Russia’s deputy prime minister Alexander Novak, Russia will cut oil production by 500,000 barrels per day (b/d) in March 2023 in reaction to the recently introduced product price cap and EU import ban, pledging not to sell its exports to members of the price cap coalition. This happened as Colombia failed to trigger any notable market reaction.

Natural Gas

For the week beginning Wednesday, February 1, and ending Wednesday, February 8, 2023, the Henry Hub spot price fell by $0.24 from $2.66 per million British thermal units (MMBtu) at the start of the week to $2.42/MMBtu at the end of the week. Regarding Henry Hub futures prices, the price of the March 2023 NYMEX contract decreased by $0.072, from $2.468/MMBtu at the beginning of the week to $2.396/MMBtu at the end of the week. The price of the 12-month strip averaging March 2023 through February 2024 futures contracts declined by $0.072 to $3.196/MMBtu.

International natural gas futures prices decreased during this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $1.13 to a weekly average of $18.30/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $0.21 to a weekly average of $17.83/MMBtu. In the corresponding week last year (the week from February 2 to February 9, 2022), the price in East Asia was $24.96/MMBtu, and the price at TTF was $26.44/MMBtu.

World Markets

European shares grew weaker on worries that overly aggressive central bank policy might prolong an economic downturn. In local currency. The pan-European STOXX Europe 600 Index closed the week 0.62% lower. The major stock indexes in the region ended mixed. Germany’s DAX Index lost by 1.09%, Italy’s FTSE MIB Index rose by 1.18%, and France’s CAC 40 Index slid by 1.44%. The UK’s FTSE 100 Index dipped by 0.24%. Several European Central Bank (ECB) policymakers announced their commitment to a hawkish stance in light of the most recent rate-setting meeting where they reiterated that the ECB must not be complacent in reining in runaway inflation. Executive Board Member Isabel Schnabel’s comments caught the attention of the market at the start of last week. She said that the recent weakening of inflation was not due to ECB policy, and stressed that the underlying inflation was still exceptionally high. Other central bank officials from Germany, Latvia, and the Netherlands all suggested that rates needed to ascend further after the next anticipated half-point increase in March.

Japan’s equities markets gained some strength over the week. The Nikkei 225 Index gained 0.59% and the broader TOPIX Index was up 0.85%. There was robust speculation about the potential nominees to be the next governor and deputy governor of the Bank of Japan (BoJ). The Nikkei news agency reported after the markets closed on Friday that the government is planning to appoint economist Kazuo Ueda, who is also a former member of the BoJ Board, as the next governor of the central bank. Ueda had not been mentioned as a shortlisted candidate. Throughout the week, the expected nominee of the government for the position was Deputy Governor Masayoshi Amamiya, thus the news concerning Ueda came as a surprise to many. For the week, the yen strengthened to approximately JPY 130.5 against the U.S. dollar, from around JPY 131.2 per greenback the week before. The yen surged on Friday due to reports of Ueda’s potential appointment, as well as investor expectations that the central bank may adjust its monetary policy. The yield on the 10-year Japanese government bond (JGB) was mostly unchanged during the week, remaining at the 0.50% level at which the BoJ strives to cap JGB yields.

China’s stock markets retracted due to the spy balloon controversy. The issue sparked tensions between China and the U.S. and somewhat slowed the expected faster economic growth that China was expecting after it exited from the Covid-19 restrictions. The Shanghai Stock Exchange Index and the CSI 300 Index both registered modest declines for the second consecutive week as investors were reminded about the geopolitical risks of investing in China. The spy balloon incident reignited the likelihood of sanctions on China from the U.S.,  Last October, the Biden administration announced a sweeping ban on U.S. companies selling advanced semiconductors and certain chip manufacturing equipment to China, and the spy balloon event resurfaced the fragility of the Chinese economic recovery. Possible measures that the U.S. could take in the next two years include outbound investment screening for investments in China and other export controls.

The Week Ahead

In the coming week, important economic data that are scheduled to be released include CPI inflation data, retail sales growth, and leading economic indicators.

Key Topics to Watch

• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• NFIB small-business index
• Consumer price index
• Core CPI
• CPI (year-over-year)
• Core CPI (year-over-year)
• Retail sales
• Retail sales excluding motor vehicles
• Empire state manufacturing index
• Industrial production index
• Capacity utilization rate
• NAHB home builders’ index
• Business inventories
• Initial jobless claims
• Continuing jobless claims
• Producer price index final demand
• Building permits
• Housing starts
• Philadelphia Fed manufacturing survey
• Household debt (SAAR)
• Impact price index
• Index of leading economic indicators

Markets Index Wrap Up

Stock Markets

In the week just ended, the new year’s stock rally continued, driven in part by a deceleration in the rate of Federal Reserve rate hikes. Stocks rallied after the Fed announced a 25-basis point (0.25%) rate increase, marking a downshift in the pace of rate hikes, as the previous six rate increases were 0.5% or higher. The S&P 500 is now almost 8% up this year, while interest rates fell through the week due to expectations that the Fed policy will become less restrictive. A strong jobs report released on Friday, however, rekindled expectations that rate hikes will again be increased to stave off a strengthening economy.

During the past week, the Dow Jones Industrial Average dipped by 0.15% while the total stock market index went in the opposite direction and rose by 1.89%. The S&P 500 Index also gained by 1.62%, while the technology-heavy Nasdaq Stock Market Composite surged ahead by 3.31%. Meanwhile, the NYSE Composite rose by 0.23%. The CBOE Volatility, which tracks risk investor risk perception in the stock market, ticked down by 0.97%. Most of the major indexes appear to extend their winning streaks, particularly after the release of encouraging economic data that defied expectation towards the week’s end. The rally was also helped by stellar earnings reports, with Facebook’s parent company, Meta Platforms, beating revenue expectations for the fourth quarter. Meta’s positive news was behind the Nasdaq’s outperformance, even after disappointing results and outlooks from Apple, Google’s parent company Alphabet, and Amazon.com.

U.S. Economy

On Friday, the January employment report was released, showing that an impressive 517,000 jobs were added to the economy. This is more than double the consensus forecast. Other parts of the economy are showing signs of slowing, but the healthy labor market is likely to provide support for economic spending and thus soften a potential downturn. The slowdown in rate hikes is an implicit admission on the part of the Fed that disinflationary forces are taking effect and the Fed’s efforts are bearing fruit, even if it is still “at an early stage,” according to Fed Chair Jerome Powell.

Despite positive news in some aspects of the economy, inflation is still a major force, impacting the pocketbooks of consumers. A broader look at the economy may point to the fact that the inflation rate has fallen noticeably from its peak, and is expected to continue in its decline toward a more manageable point. Key factors that drove the inflation rate up last year have now changed course and appear to justify continued consumer price moderation. As inflation gradually falls further, real wages (adjusted for inflation) are expected to rise and offer support to consumer spending as well as help ease prospects of an economic slowdown.

As for the labor market’s strength, it may be tested in the future as large layoffs by big companies are just getting started. Spiking unemployment will likely bring a recession, albeit a mild one light of this week’s unemployment and jobs reports. Unemployment fell to 3.4%, a level last touched in the late 1960s. Payroll gains for January were significant with a strong performance in the leisure and hospitality, retail, manufacturing, health care, and construction sectors.

Metals and Mining

For the past weeks, analysts believed that the gold market was likely to undergo a pullback, and this week it occurred. In January, Gold saw the best start in a year going back ten years, but the momentum reversed as February began. Gold prices ended the week’s trading at a loss after a six-week winning streak. The selloff began on Thursday, but prices plunged sharply on Friday after pronouncements by the Bureau of Labor Statistics that the U.S. economy added on 517,000 jobs in January, beating expectations by a significant margin, as economists were predicting a job gain of only 193.000 for the month. Gold price’s reaction suggests that it is still tied to the Federal Reserve and the U.S. dollar. If the labor market remains strong, economists expect that the U.S. central bank will be compelled to maintain its aggressive monetary policy stance longer than expected. In the meantime, the World Gold Council underscored the growing depth of the gold market as physical demand for gold grew 18% in 2022, led by solid bullion purchases from retail investors. Central banks also hiked the demand for gold in the second semester of last year.

The spot prices for precious metals were soft for the week. Gold came from $1,928.04 the previous week and ended at $1,864.97 per troy ounce this week, closing lower by 3.27%. Silver’s week-ago price was $23.60 and this week it was at $22.35 per troy ounce, losing 5.30%. Platinum ended last week at $1,015.74 and this week at $976.78 per troy ounce for a loss of 3.84%.  Palladium did better, ending this week at $1,631.77 per troy ounce, 0.50% higher than the previous week’s close at $1,623.59.  The three-month London Metal Exchange (LME) futures prices for base metals also experiences a price correction. Copper, which ended trading last week at $9,263.50, closed this week at $8,980.50 per metric tonne, down by 3.06%. Zinc came from $3,413.50 last week to close at $3,241.50 per metric tonne this week, for a price drop of 5.04%. Aluminum price, which was at $2,627.00 one week ago, is now $2,569.50 per metric tonne, a decline of 2.19%. Tin was at $30,838.00 last week, but traded this week at $28,379.00 per metric tonne, for a weekly loss of 7.97%.

Energy and Oil

Oil prices took a sudden direction change this week, even though trading might not have been as volatile as it was for most of 2022. Several events during the week exerted further downward pressure on oil markets. Amidst crude stock refinery woes, the repeated crude stock continues to build, while industrial activity slows down, and the U.S. dollar appreciates, all combining to impact WTI and bringing it back below $76 per barrel. The G7 product price cap may exert some upward correction, but presently no clear indication exists as to whether the Price Cap coalition had effectively managed to settle their differences on Friday, the last working day before the February 5 deadline. On Wednesday, the Joint Ministerial Monitoring Committee of OPEC+ met for less than 30 minutes. During that time, they endorsed the current production policy of the oil group and left output targets unchanged, overshadowed by the specter of demand increases from the recovering Chinese economy.

Natural Gas

In the United States, natural gas prices decline in warm weather. The Henry Hub futures prices have plunged to their lowest level since April 2021, impacted by a much smaller than usual inventory draw (151 billion cubic feet) and forecasts of warm weather throughout the U.S. until mid-February. It is now at its lowest level since April 2021, selling at $2.45 per million British thermal units (MMBtu) on Thursday. In 2024-25, fewer global LNG export capacity additions are expected than in previous years. U.S. LNG export capacity is expected to grow as three projects are currently under construction and will soon be completed.

In the market highlights during the report week from Wednesday, January 24, to Wednesday, February 1, 2023, Henry Hub spot prices fell by $0.42 from $3.09/MMBtu at the start of the week to $2.66/MMBtu by the week’s end. The February 2023 NYMEX contract expired on Friday at $3.109/MMBtu[, up by $0.04 from Wednesday. The March 2023 NYMEX contract price decreased to $2.458/MMBtu, down by $0.45 from the start to the end of the week. The price of the 12-month strip averaging March 2023 through February 2024 futures contracts declined by $0.25 to $3.268/MMBtu.

International natural gas futures prices declined for this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $2.99 to a weekly average of $19.43/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 $1.64/MMBtu to a weekly average of $18.04/MMBtu. In the corresponding week last year, (i.e., for the week ending on February 2, 2022), the price in East Asia was $24,94/MMBtu, while that at the TTF was $27.80/MMBtu.

World Markets

European shares were elevated this week on expectations that central banks may be approaching the end of the most restrictive stage of the monetary tightening cycle. The pan-European STOXX Europe 600 Index closed the week higher by 1.23%. The major stock markets of the region also ended on the plus side. Germany’s DAX Index climbed by 2.15%, Italy’s FTSE MIB Index gained 1.95% and France’s CAC 40 Index added 1.93%. The UK’s FTSE 100 Index gained by  1.76%, driven partly by the depreciation of the pound against the U.S. dollar after the Bank of England (BoE) suggested that interest rates might peak at a lower level than expected by the market. European government bond yields declined broadly, which can be attributed to investors perceiving that the major central banks could shift their monetary policy later this year. Despite the European Central Bank (ECB) raising interest rates by 0.05% and signaling that it will do the same in March, Germany’s 10-year sovereign bond yield fell toward 2%. Similarly, and for the same reason, French and Swiss government bond yields declined. In the UK, despite the BoE hiking rates, the yields on the benchmark 10-year debt tracked their global counterparts and approached 3%.

Japanese stock markets’ performance this week ended mixed. The Nikkei 225 Index rose 0.46% while the broader TOPIX Index declined 0.63%. Expectations that the U.S. Federal Reserve’s monetary policy tightening cycle may be nearing its peak have boosted investor sentiment. The Bank of Japan (BoJ), in the meantime, has reiterated its ultra-loose monetary policy. The yield on the 10-year Japanese government bond (JGB) climbed to 0.49%, from 0.47% at the end of the week before. According to figures released by the BoJ, the central bank’s JGB purchases reached a record high in January as it sought to defend its wider 0.50% yield cap  The yen strengthened to around JPY 128.58 against the U.S. dollar, from the prior week’s JPY 129.89, supported by the Fed’s moderation of its rate hikes and some anticipation of potential change in the BoJ’s easing stance.

After the week-long Lunar New Year holiday, China’s stock markets fell in the first full week of trading due to some profit-taking from the recent rally by investors, who turned cautious about the strength of the country’s recovery. The broader capitalization-weighted Shanghai Composite Index eased by 0.04%, while the blue-chip CSI 300 Index dipped by 0.95%. In Hong Kong, the benchmark Hang Seng Index retreated 4.5%, its biggest decline since the end of October. In economic developments. China’s official manufacturing Purchasing Managers’ Index (PMI) advanced to 50.1 in January from December’s 47.0. This signaled a return to growth for the first time since September, indicating that domestic activity improved after Beijing exited its coronavirus restrictions at the end of the year. The nonmanufacturing PMI climbed to a better-than-expected 54.4 from 41.6, its highest level since June. Meanwhile, the IMF raised its annual growth forecast for China as the economy rebounds after the removal of the pandemic protocols. The IMF projected that the economy of China would grow 5.2% this year, up from its October forecast of 4.4%, and maintained its 2024 estimate at 4.5%.

The Week Ahead.

Among the important economic data scheduled for release this week are the wholesale inventories report, consumer credit, and the Federal budget balance.

Key Topics to Watch

• International trade deficit
• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• Consumer credit
• Wholesale inventories (revision)
• Initial jobless claims
• Continuing jobless claims
• UMich consumer sentiment index (early)
• UMich 1-year inflation expectations (early)
• UMich 5-year inflation expectations (early)
• Federal budget balance

Markets Index Wrap Up

Stock Markets

The new year 2023 registered a strong showing in its first month, a welcome development after a challenging 2022. In its last full week of trading for the month, the stock markets recorded a solid week of gains. This is the third weekly gain of the last four, buoyed by a series of corporate earnings announcements and encouraging economic reports. So far this year, stocks have gained by approximately 6%. This is encouraging since strong returns in January are typically accompanied by positive full-year returns. A mild economic downturn is still possible, though even in such a case, the markets will not likely breach last October’s low levels. Markets may experience bouts of volatility as the markets discount the coming earnings and economic data.

Despite continued recession worries, investors nevertheless appear hopeful that the economy might avoid a recession altogether in 2023. Consumer discretionary stocks were particularly strong, partly due to a rally in Tesla shares over the week after CEO Elon Musk released a favorable outlook. Stocks that underperformed included the usually defensive consumer staples, health care, and utility segments. Overall, value stocks lagged behind growth shares. The weekly WSJ recap shows that the Dow Jones Industrial Average inched upward by 1.81% while the total stock market rose by 2.58%. The S&P 500 Index gained by 2.47% while the technology-heavy Nasdaq Stock Market Composite added 4.32%. The NYSE Composite also rose by 1.17%. The risk perception tracker CBOE Volatility Index declined by 6.75%.

U.S. Economy

Contrary to speculation, the country is not yet out of the woods regarding its economic recovery, despite fairly solid GDP growth by the close of 2022. Last week, the fourth-quarter GDP and household spending reports were released. The GDP grew by 2.9% in the first quarter; however, the headline GDP figure was supported by gains in the inventory and trade categories, the smaller and less sustainable drivers of the U.S. economy. The underlying trends still suggest that consumer spending may be showing signs of fatigue and losing momentum, possibly signaling a soft economic recession. The lagged effects of restrictive U.S. Federal Reserve policy may well produce a mild economic downturn this year.

Nevertheless, the economy should find support from the strong starting point for the labor market that is further underscored by another job in initial jobless claims. The Fed may also implement more rate hikes that should be smaller than the 0.75% adjustments of the past year. After a few such hikes, the Fed will move to the sidelines. Monetary policy will not quickly resume its stimulus stance, however, diversified portfolios should benefit in the year after the greater part of the Fed’s rate-hiking cycle.

Metals and Mining

The gold’s bull run appears to be slowing down after the last two months of solid gains. Gold prices appear to be hitting resistance on its rise to $2,000 per troy ounce, but this may be a welcome consolidation before it could again challenge this resistance level. The recent run-up has shown some welcome developments for the yellow metal. As the price tested resistance around $1,940, it rose 20% above its lows in November and as a result, entered into a technical bull market. The market has risen by approximately $100 this month, its best start to the year since 2012. Gold notched its sixth consecutive weekly gain despite the muted market response; nevertheless, this marks its longest winning streak since the summer of 2020.

The spot prices for precious metals continued to consolidate this past week. Gold rose above last week’s close of $1,926.08 by 0.10% to close this week at $1,928.04 per troy ounce. Silver, whose previous close was at $23.93, slid by 1.38% to close this week at $23.60 per troy ounce. Platinum, formerly ending at $1,045.88, lost 2.88% to end this week at $1,015.74 per troy ounce. Palladium, which ended the previous week at $1,735.81, slumped by 6.46% to close this week at $1,623.59. The three-month LME prices for base metals generally moved sideways. Copper came from last week’s price of $9,324.00 to close at this week’s price of $9,263.50 per metric tonne, slightly lower by 0.65%. Zinc ended this week at $3,413.50 per metric tonne, lower by 0.20% from last week’s closing price of $3,420.50. Aluminum ended this week at $2,627.00 per metric tonne, slightly increasing by 0.63% from the previous week’s price of $2,610.50. Tin came from its week-ago level of $29,536.00 to close this week at $30,838.00 per metric tonne, a gain of 4.41%.

Energy and Oil

Despite being weighed down by high inflation, rising interest rates, and other economic shocks, the stronger-than-expected GDP data released this week sparked hopes of market bulls that the fears of a long-term sluggish economy may have been exaggerated. Macroeconomic events are still correlated with the oil markets. Going almost unnoticed is how U.S. refining is still below 15 million barrels per day (bpd) and is on its way toward a massive round of maintenance. On the European front, EU officials are hinting that they would seek to set the price cap of high-value Russian products at $100 per barrel and of low-value ones at $45 per barrel. The EU governments should now decide whether or not to approve the measure before the February 5 deadline.

Natural Gas

For this report week starting Wednesday, January 18, and ending Wednesday, January 25, 2023, the Henry Hub spot price fell by $0.03 from $3.11 per million British thermal units (MMBtu) at the start of the week to $3.08/MMBtu at the week’s end. The price of the February 2023 NYMEX contract decreased by $0.244, from $3.311/MMBtu to $3.067/MMBtu week-on-week. The price of the 12-month strip averaging February 2023 through January 2024 futures contracts declined by $0.142 to $3.411/MMBtu. International gas futures prices decreased for this week. the weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $2.43 to a weekly average of $22.42/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid gas market in Europe, decreased by $0.42 to a weekly average of $19.67/MMBtu. In the corresponding week last year (the week ending January 25, 2022), the price in East Asia was $22.99/MMBtu, and at the TTF was $27.67/MMBtu.

World Markets

European shares gained ground as positive economic reports overcame concerns about the current stance of central banks toward monetary policy tightening. The pan-European STOXX Europe 600 Index closed the week higher by 0.67%. Major stock indices across Europe also moved higher. Germany’s DAX Index advanced by 0.77%, France’s CAC Index rose by 1.45%, and Italy’s FTSE MIB Index surged by 2.56%. The UK’s FTSE 100 Index registered a modest loss. In the UK, benchmark 10-year yields closed near their recent highs ahead of a Bank of England policy meeting. Meanwhile, European Central Bank (ECB) Governing Council member Klaas Knot called for half-point interest rate increases at the next two policy meetings, causing French and Swiss bond yields to rebound from midweek lows. ECB President Christine Lagarde, fellow Governing Council member Olli Rehn, and Knot reiterated calls for significant rate increases in February and March, but Executive Board member Fabio Panetta announced to the press that there was a great deal of economic uncertainty to pre-commit to a specific policy stance beyond February.

The Japanese stock markets advanced this week, with the Nikkei 225 Index recording a 3.12% gain and the broader TOPIX Index rising by 2.90%. Investor sentiment was optimistic after the report of a solid, albeit slower, growth rate by the U.S. economy, ahead of expectations over the final quarter of 2022. A 2.9% expansion is anticipated, raising hopes of a soft recession. Tokyo’s core consumer price inflation, a leading indicator of nationwide trends, also attracted investors’ attention. The inflation indicator rose 4.3% year-on-year in January, exceeding the Bank of Japan’s (BoJ) inflation target for the eighth straight month. This increased the pressure on the BoJ to tighten its ultra-loose monetary policy. The yield on the 10-year Japanese government bond (JGB) climbed to 0.47% from 0.40% by the end of the previous week. The yen softened slightly to approximately JPY 129.91 against the U.S. dollar, compared to JPY 129.56 versus the greenback the week before.

The mainland Chinese financial markets were closed for the week in celebration of the Lunar New Year holiday, from January 21. They will reopen on Monday, January 30. The Hong Kong stock exchange resumed trading on Thursday; the benchmark Hang Seng Index climbed 2.96% during the holiday-shortened week. During the weeklong holiday, China’s domestic activity accelerated significantly on the back of pandemic restrictions being lifted, driving optimism that the economy will recover faster than anticipated. Mobility returned, with 95.9 million trips estimated to be taken via road, rail, air, and waterways in the first four days of the holiday. Total box office sales reached RMB 3.62 billion, outbound air tickets more than quadrupled for the full year, and hotel bookings doubled. Spending by Chinese consumers, however, is expected to remain restrained in the short term while the country continues to recover from three years of pandemic restrictions.

The Week Ahead

Included among the important economic data to be released this week are consumer confidence, unit labor costs, and job openings reports.

Key Topics to Watch

• Employment cost index
• S&P Case-Shiller home price index (SAAR)
• FHFA home price index (SAAR)
• Chicago business barometer
• Consumer confidence index
• Rental vacancy rate
• ADP employment report
• S&P manufacturing PMI (final)
• ISM manufacturing index
• Job openings
• Quits
• Construction spending
• Federal funds rate
• Federal funds projection
• Fed Chair Jerome Powell news conference
• Motor vehicle sales (SAAR)
• Initial jobless claims
• Continuing jobless claims
• Productivity, first estimate (SAAR)
• Unit labor costs, first estimate (SAAR)
• Factory orders
• Core capital goods orders (revision)
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor-force participation rate, 25 to 54-year-olds
• S&P U.S. services PMI (final)
• ISM service index

Markets Index Wrap Up

Stock Markets

Since the beginning of the year, the markets have rallied partly due to the better inflation outlook in the United States and around the world. The past week, however, equities appeared to hesitate and move sideways as investor sentiment seemed mixed. Economic data released midweek caused some negativity among investors when they pointed to a weaker U.S. consumer and manufacturing sector. Also weighing on the markets was the uncertainty over the ongoing U.S. debt ceiling debate and the mixed earnings results from listed stocks.

The Dow Jones Industrial Average (DJIA) lost 2.70% for the week while the DJ total stock market slid 0.62%. The broad S&P 500 Index came down 0.66% and the NYSE Composite Index gave up 0.88%. Bucking the trend is the Nasdaq Stock Market Composite, which tracks the technology sector closely, inched up 0.55%. CBOE Volatility gained 8.17% pointing to an increase in perceived risk by investors. The easing inflation fears enabled growth stocks such as those in the technology sector to outperform. The likelihood of lower interest rates hiked the implicit value of future earnings, giving growth stocks a push. Netflix’s earnings report on Friday that showed the company added more subscribers than was widely expected in the fourth quarter boosted sentiment. Google’s announcement that it will lay off about 6% of its workforce also hiked its parent Alphabet’s share prices, further pushing the broad indexes higher. The week was shortened by the observance of the Martin Luther King, Jr. holiday on Monday when the markets were closed.

U.S. Economy

The economy may potentially enter a downturn prompting the Federal Reserve to stall in its interest-rate hiking policy. There were several additional signals that the economy was significantly slowing in response to the Fed’s 2022 aggressive rate increases. On Wednesday, retail sales were reported to contract by 1.1% in December, amounting to roughly triple consensus estimates. Part of it was a drop in sales at gas stations, but there were also notable pullbacks in sales of furniture, electronics, and other discretionary purchases. The sales data for November was also adjusted downward. The encouraging development about the slowing economy was that the inflationary pressures were alleviating. According to the Labor Department, producer prices fell 0.5% in December, a welcome development since it is the biggest drop since early in the pandemic. Prices companies paid for goods, food, and especially energy all recorded declines.

Data released during the week also indicated that manufacturing output dropped by 1.3%, driving industrial production down by 0.7% in December, the most since September 2021. The industrial sector of the economy slowed at an annualized rate of 1.7% for the fourth quarter. Capacity utilization ended at 78.8% in December, its lowest level of 2022. It is also well below consensus expectations as well as its long-term average (79.6%). In this environment, the job market remained unusually light, with weekly jobless claims falling to their lowest level since April 2022. Also falling slightly below expectations were the housing starts and existing home sales.

Metals and Mining

This far into the new year, precious metals have registered a solid performance, particularly the gold market as prices for the yellow metal ended the week close to a nine-month high. Gold has rallied for the fourth consecutive week as it moved up more than 5% in the first month of 2023. There appears to be a strong bullish sentiment among investors, although they have not yet fully jumped into the market, causing some concern among analysts. There is also some concern that silver has not yet seen the same strong rally as gold, considering that silver outperformed gold through November and December. The lack of momentum in silver contrasts with the performance of the markets in other industrial metals such as copper, which currently trades at a seven-month high of about $4.26 a pound. These market divergences will eventually work themselves out, providing greater incentives for investors to see value in holding precious metals.

Gold moved up 0.30% from its close one week ago at $1,920.23 to this week’s close at $1,926.08 per troy ounce. Silver moved down 1.36% from last week’s closing price of $24.26 to this week’s closing price of $23.93 per troy ounce. Platinum slumped 2.18% from its earlier price of $1,069.21 to the recent price of $1,045.88 per ounce. Palladium came from $1,792.81 one week ago to $1,735.81 this week for a loss of 3.18%. The three-month LME prices of base metals were mostly up. Copper closed last week at $9,185.50 and this week at $9,324.00 per metric tonne, up by 1.51%. Zinc went up by 2.90% from its week-ago price of $3,324.00 to this week’s $3,420.50 per metric tonne. Aluminum rose 0.60%       from $2,595.00 last week to $2,610.50 per metric tonne this week. Tin came from $28,756.00 one week ago to $29,536.00 per metric tonne this week, gaining 2.71%.

Energy and Oil

Discounting the massive inventory build-up in the United States, the market is beginning to factor in the imminent demand rebound brought about by China’s opening economy. The OPEC and International Energy Agency (IEA) both increased their 2023 global demand forecasts, confident that rapid growth in Asian buying would dominate the second semester of the year.  In its monthly oil report, the IEA took note of the easing of coronavirus restrictions in China and saw this as the catalyst that would propel global oil demand possibly to its highest level on record, surging from its current 100 million barrels per day (b/d) to nearly 104 million b/d as  2023 nears its end. The oil bulls have thus appeared to have gained the upper hand, undeterred by some concerning economic data and refinery problems in the U.S.

Natural Gas

The estimated total natural gas consumption in the U.S. lower 48 states attained a daily record high of 141.0 billion cubic feet (Bcf) on December 22, 2022, exceeding the previous daily record high of 137.4 Bcf set on January 1, 2018. Natural gas consumed in the residential, industrial, and power generation sectors comprises total consumption. There was increased demand for residential and commercial heating, as well as for electric power generation, due to below-normal temperatures in mid to late December. These developments contributed to a steep weather-related decline in natural gas production.

For the week beginning Wednesday, January 11, and ending Wednesday, January 18, 2022, the Henry Hub spot price fell $0.24 from $3.35 per million British thermal units (MMBtu) at the start of the week to $3.11/MMBtu by the end of the week. The price of the February 2023 NYMEX contract decreased by $0.36, from $3.671/MMBtu at the start of the week to $3.311/MMBtu at the week’s end. The price of the 12-month strip averaging February 2023 through January 2024 futures contracts declined $19.4 to $3.553/MMBtu. International gas futures prices decreased for this report week. Weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia dropped by $2.82 to a weekly average of $24.85/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, slid by $1.92 to a weekly average of $20.10/MMBtu. During the corresponding week last year (week ending January 19, 2022), the prices in East Asia and at TTF were $27.38/MMBtu and $27.24/MMBtu, respectively.

World Markets

European equities softened after the European Central Bank (ECB) policymakers indicated that they would continue to hike interest rates aggressively despite contrary moves in the U.S. This sparked renewed fears of a prolonged economic slowdown in the region. The pan-European STOXX Europe 600 Index ended the week slightly lower in local currency terms. The major stock indexes generally weakened. France’s CAC 40 Index fell by 0.39%, Germany’s DAX Index eased by 0.35%, and Italy’s FTSE MIB Index moved sideways. The UK’s FTSE 100 lost 0.94%. Market speculation regarding the slowdown of monetary policy tightening was dismissed by ECP President Christine Lagarde this week in a speech at the World Economic Forum in Davos, Switzerland. She said, “Inflation, by all accounts, is way too high. Our determination at the ECB is to bring it back to 2% in a timely manner, and we are taking all the measures that we have to take in order to do that.” The minutes of the ECB’s December meeting also suggested that future rate hikes might be higher than the recent half-percentage point increases. Many of the members favored 0.75 percentage point increases moving forward.

Japan’s stock markets ascended for the week, with the Nikkei Index climbing by 1.66% and the broader TOPIX Index rising by 1.25%. The optimism was attributed to the prospects of China’s economic reopening boosting the global economy. Positive sentiment was also due to hopes that the major central banks were likely to slow the pace of their rate hikes as inflationary pressures eased. The focus of attention was on the Bank of Japan (BoJ), whose monetary policy remained unchanged at its January meeting after it surprised markets in December by tweaking its yield curve control (YCC) framework. Absent any further YCC modifications, the yield on the 10-year Japanese government bond (JGB) fell to 0.40% from 0.51% at the end of the week before. The yen softened to around JPY 129,81 versus the U.S. dollar, from about JPY 127.88 against the greenback the week before, on the BoJ’s commitment to its ultra-loose monetary stance.

China’s bourses rallied for the fourth straight week ahead of a weeklong Lunar New Year break, following reports of better-than-expected economic growth. The Shanghai Composite Index ascended by 2.18% and the blue-chip CSI 300 rose by 2.63%. The Hong Kong benchmark Hang Seng Index surged by 1.41%. China’s financial markets will be closed from January 21 and will reopen on Monday, January 30, in observance of the Lunar New Year holidays. The country’s gross domestic product (GDP) gained 2.9% in the fourth quarter of 2022 and expanded by 3.0% for the full year. The pace of growth missed the official annual target of approximately 5.5% set last March. It marked the second-worst year for economic growth, of which 2020 was the worst due to the pandemic, since 1976, the end of China’s Cultural Revolution that lasted a decade. Both growth rates still surpassed economists’ forecast following Beijing’s lifting of stringent COVID pandemic restrictions and beginning implementation of a series of pro-growth policies towards the end of 2022. Indicators of output and retail sales for December were better than expected, and fixed-asset investment rose broadly consistent with estimates.

The Week Ahead

The important economic data scheduled for release this week include the leading economic indicators index at the beginning of the week and personal income just before the weekend.

Key Topics to Watch

• Leading economic indicators
• S&P U.S. manufacturing PMI (flash)
• S&P U.S. services PMI (flash)
• Initial jobless claims
• Continuing jobless claims
• Real gross domestic product, first estimate (SAAR)
• Real final sales to domestic purchasers, first estimate (SAAR)
• Trade in goods (advance)
• Durable goods orders
• Core capital goods orders
• Chicago Fed national activity index
• New home sales (SAAR)
• Real disposable income (SAAR)
• Real consumer spending (SAAR)
• PCE price index
• Core PCE price index
• PCE price index, year-over-year
• Core PCE price index, year-over-year
• UMich consumer sentiment index (late)
• UMich 1-year inflation expectations (late)
• UMich 5-year inflation expectations (late)
• Pending home sales

Markets Index Wrap Up