Stock Markets

The stock market chalked up its second straight week of gains, with investors welcoming the good news that inflation data matched consensus estimates and that the quarterly earnings reporting season officially began on Friday. As reported by the Wall Street Journal, the technology tracker Nasdaq Stock Market Composite outperformed with a gain of 4.82%. The Dow Jones Industrial Average climbed 2.00% while the total stock market index ascended by 3.06%. The broad S&P 500 Index rose by 2.67%, and the NYSE Composite added 2.44%. CBOE Volatility descended by 13.16%, signaling investors’ perception of falling risks.

The rally by the Nasdaq Composite and growth-oriented sectors were supported by rebounds in certain mega-cap technology stocks such as Amazon.com, Tesla, and Microsoft. Sectors that lagged included consumer staples. Financial stocks JPMorgan Chase, Wells Fargo, and Bank of America released earnings Friday morning that beat consensus expectations, although cautious outlooks from the large banking corporations triggered a fall in their share prices in early trading.

U.S. Economy

The Labor Department’s report on consumer price index (CPI) inflation on Thursday morning was largely anticipated by investors during the early part of the week. The reports were viewed by Wall Street as benign. In December, headline prices dipped 0.1%, slightly lower than expected. It is also the first decline since May 2020, bringing the year-over-year increase to 6.5%, its lowest level since October 2021. Core consumer inflation, which excludes food and energy, dipped according to expectations, to 5.7%. This is also the slowest pace in more than a year. Largely accounting for the remaining inflation pressures are the ongoing increases in the calculation of shelter costs, which lag actual declines in home prices and rents.

Goods inflation likewise fell for the third straight month, largely driven by the sixth monthly decline in used car prices. This is also the first decline in new car prices in two years. Goods prices are likely to further descend as supply shortages get resolved, the cost of shipping falls, and consumer demand eases. Noticeable is the increase in services inflation, largely due to the increase in shelter, the biggest component of inflation as it accounts for about one-third of the overall index. This component increased the most in three months, although the strength of the movement may be expected to temper. Tending to lead the shelter inflation index by several quarters are new leases and home prices, and it is worthwhile to note that both have been descending in response to the sudden increase in borrowing costs. Housing inflation may be expected to start moderating later in the year, as the data appear to point out.

Metals and Mining

Gold and silver are starting the year on an upward trend, suggesting that bullish sentiment is prevailing in the marketplace. This week gold broke above the $1,900 level and ended the week at $1,920 per ounce, the highest level in nine months, bringing it to 5% higher since the year began, and $300 higher since the precious metal’s two-year low in November. Even now, some analysts and investors are setting their sights on the $2,000 target. At the same time, silver is solidly back above $24 an ounce. Some heavyweight analysts are anticipating that investors will flock to gold as several major threats are likely to descend on the global economy. Furthermore, both bond yields and the U.S. dollar have peaked, trends that supported the gold rally.

According to Bloomberg, gold spot price ended the week at $1,920.23 per troy ounce, an increase of 2.92% from the previous week’s close at $1,865.69. Silver, which closed one week ago at $23.83, ended this week at $24.26 per troy ounce to register an increase of 1.80%. Platinum lost 2.30% from the earlier week’s price of $1,094.33 to this past week’s price of $1,069.21 per troy ounce. Palladium also lost by 1.06%, from the week-ago close at $1,811.93 to this week’s close at $1,792.81 per troy ounce. The three-month LME prices of base metals generally rose for the week. Copper increased from the previous close at $8,589.50 to this week’s close at $9,185.50 per metric tonne, a weekly gain of 6.94%. Zinc ascended from last week’s closing price of $3,023.50 to this week’s closing price of $3,324.00 per metric tonne, a rise of 9.94%. Aluminum prices went up by 13.05% for the week, from $2,295.50 one week ago to $2,595.00 per metric tonne this week. Tin, which ended last week at $25,270.00, closed this week at $28,756.00 per metric tonne, for a gain of 13.80%.

Energy and Oil

Much uncertainty presently pervades the oil markets, especially concerning the timing of the demand recovery of China as it gradually moves away from its zero-Covid policy. Even in the face of this uncertainty, oil prices have risen on the back of the easing of U.S. inflation data and consumer prices descending for the first time in the last two and a half years. WTI is once more moving toward the $80 per barrel price threshold, and Brent is approaching $85 per barrel. In local news, the U.S. passed a broadly bipartisan bill that would limit direct sales of oil from the Strategic Petroleum Reserve to China, similar to what had taken place in the 180-million-barrel emergency release last year. Also developing are the plans by the U.S. National Highway Traffic Safety Administration to propose this April new fuel economy standards for 2027 and beyond.

Natural Gas

The U.S. natural gas production surged to its highest level on record in 2022. This is attributable to three causes: the continued decline in drilled but uncompleted wells; higher rig counts surpassing March 2020 levels; and, increased takeaway capacity to supply Gulf Coast liquefied natural gas (LNG) terminals. In the weekly report covering Wednesday, January 4, to Wednesday, June 11, 2023, the Henry Hub spot price fell by $0.46 from $3.81 per million British thermal units (MMBtu) at the start of the week to $3.35/MMBtu at the end of the week. The price of the 12-month strip averaging February 2023 through January 2024 futures contracts descended by $0.348 to $3.748/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 came down by $1.63 to a weekly average of $27.67/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 $1.17 to a weekly average of $22.02/MMBtu. In the same week last year (the week ending January 12, 2022), the prices in East Asia and at TTF were $33.44/MMBtu and $28.18/MMBtu, respectively.

World Markets

European shares rallied for the second straight week due to the better-than-expected economic data that raised hopes of a brief and shallow recession. Market optimism was tempered, however, by sentiments of some central bankers that interest rates would need to be hiked further. The pan-European STOXX Europe 600 Index closed the week higher by 1.88% in local currency terms. Major stock indexes in the region surged. Germany’s DAX Index climbed by 3.26%, France’s CAC 40 Index ascended by 2.37%, and Italy’s FTSE MIB Index added 2.40%. The UK’s FTSE 100 Index advanced by 1.88%. The Eurozone unemployment rate remained steady at 6.5% in November, which is consistent with economists’ expectations. Investor morale, meanwhile, strengthened for a third straight month in January. The economic sentiment index compiled by Sentix rose to its highest level since June of 2022, although it remains in negative territory. Eurozone data published earlier this month showed economic sentiment improved in December for the first time since Russia first invaded Ukraine.

Japan’s equities climbed during the week, as investors’ risk appetite rose with the weakening momentum in the U.S. consumer price inflation. The Nikkei Index ascended by 0.56% and the broader TOPIX Index rose by 1.46%. The slowdown in the U.S. CPI announced during the week raised hopes that the U.S. Federal Reserve would slow the pace of its interest rate hikes. On the other hand, core consumer price inflation in Tokyo jumped by 4.0% year-on-year in December. This was the fastest rate increase experienced in the past 40 years, fueling speculation that the Bank of Japan (BoJ) may revise its inflation forecasts upward and evaluate the feasibility of further monetary policy adjustments when it next meets on January 17-18. Contrary to expectation, the BoJ adjusted its yield curve control (YCC) framework last month. As a result, the BoJ was again compelled to conduct unscheduled bond-buying operations to maintain the 10-year Japanese government bond (JGB) yield at around its new 0.50% cap, approximately at the level at which it ended this week. The yen firmed up to about JPY 128 versus the U.S. dollar, from around JPY 132 to the greenback the week before.

Chinese stocks gained ground upon the announcement of a lower-than-expected U.S. inflation rate even as optimism was boosted by the post-pandemic reopening outlook. The Shanghai Composite Index advanced 1.19% and the blue-chip CSI 300 gained 2.35%, the highest it has seen in four months. After Beijing abandoned its zero-covid policy in December and officials accelerated measures to support the troubled property sector, hopes increased that the domestic demand will recover in the coming months. China issued a large quota for crude oil imports earlier in the week to prepare for what they expect will be an increase in energy demand resulting from the economic recovery that follows the waning infection rate. Economists project that China’s economy will experience a swift rebound once infections peak, and foresee a 4.9% growth for 2023 as against an estimated growth rate of about 3% in 2022. China’s exports dropped 9.9% in December compared to one year earlier, due to softening global demand and rising infections disrupted activity. Inflation gained momentum, rising 1.8% in December. Core inflation, which excludes food and energy prices, rose slightly after it remained unchanged for three straight months.

The Week Ahead

The PPI Index, Retail Sales growth, and initial and continuing jobless claims are among the important economic data scheduled for release in the coming week.

Key Topics to Watch

• Empire State manufacturing index
• Retail sales
• Retail sales ex motor vehicles
• Producer price index, final demand
• Industrial production
• Capacity utilization
• NAHB home builders’ index
• Business inventories (revision)
• Beige book
• Initial jobless claims
• Continuing jobless claims
• Building permits (SAAR)
• Housing starts (SAAR)
• Philadelphia Fed manufacturing index
• Fed Vice Chair Lael Brainard speaks
• Existing home sales (SAAR)
• Fed Gov. Christopher Waller speaks at Council on Foreign Relations

Markets Index Wrap Up

Stock Markets

Over the past week, welcome economic news propped up the stock markets despite rising inflation and interest rate hikes. The stock markets rallied in reaction to an encouraging jobs report, sparking gains in the major indexes. According to the Wall Street Journal, the Dow Jones Industrial Average (DJIA) gained 1.46% while the total stock market index rose by 1.42%. The broad S&P 500 Index climbed by 1.45% and the technology-heavy Nasdaq Stock Market Composite increased by 0.98%. The NYSE Composite ascended by 2.34%. CBOE Volatility descended by 2.49%.

Outperforming the broad market are communication services stocks, helped by rallies in Netflix, Charter Communications, and Meta Platforms, the parent of Facebook. Trading volumes were noticeably low for this first trading week of the new year compared to the 2022 average volumes. The S&P 500 continued to traverse a relatively narrow band between 3,764 and 3,906 since December 16. The narrow trading may also be due to the shortened trading week, as the markets were closed on Monday in observance of the New Year holiday.

U.S. Economy

There were several closely watched reports during the week. Investors appear, through their reactions in the market, their preference for slowing growth and inflation rather than a robust economy. The Federal Reserve have signified its acceptance of such a trade-off. Reports released indicated a surprise increase in construction spending in December, which may partially explain the poor start of trading among the broad indexes on Tuesday. Tesla’s decline also played a role to weigh down the markets. The S&P 500 and Nasdaq 100 indexes also tumbled by 1% on Thursday morning due to payroll processing firm ADP’s tally of jobs in the private sector showing an increase of 235,000 in December. This number well exceeds expectations for approximately 150,000 and August’s recent low of 132,000. The weekly initial jobless claims likewise unexpectedly fell to 204,000, the lowest level this indicator has seen since September.

The official payrolls report released by the Labor Department on Friday seemed to reverse the negative sentiment in a positive direction. It raised the hopes that the economy may well be on its way to a so-called soft landing, or cooling inflation that avoids a significant recession. In December, non-farm payrolls increased by 223,000, the smallest increment in two years, but still above expectations. The separate household survey showed that the unemployment level returned to its post-pandemic low of 3.5% which was last recorded in September. The healthy job growth rate coincided with cooling growth in average hourly earnings, which rose by 0.3% in December, which is slightly below expectations. The November figure was revised lower; this brought the year-over-year increase down to 4.6%, its lowest level since September 2021. The labor participation rate climbed back to its recent high of 62.3%, indicating that the wage competition for workers might be easing. The level is still roughly a full percentage point below its pre-pandemic level of 67.3%, a peak reached in early 2000.

Metals and Mining

Gold prices returned to their six-month highs, thanks to the latest macro data out of the U.S., indicating that the economy is showing signs of cooling. At one point, the gold market was just $25 shy of its key $1,900 per ounce level on Friday, with the February Comex gold last at $1,873.40, for a weekly gain of 2.40%. The macroeconomic indicator that most impacted precious metals was the December U.S. job growth rate modestly slowing. Wage pressures coming down was the principal indicator that the economy was cooling and the significant driver for the strength in gold prices. The indicator was below the  market’s expectation of 5% and dovetailed November’s downwardly revised 4.8% gain.

Week-on-week, precious metals spot prices were generally up. Gold came from the previous week’s price of $1,824.02 and ended this week at $1,865.69 per troy ounce for a gain of 28%. Silver suffered a slight loss of 0.50% as it made its way from the previous week’s close at $23.95 to this week’s close at $23.83 per troy ounce. Platinum gained 1.87% from its start at $1,074.29 to this week’s closing price of $1,094.33 per troy ounce. Palladium made its way from its week-ago price of $1,792.68 to this week’s closing price of $1,811.93 per troy ounce, gaining 1.07%. The three-month LME prices of base metals were also mostly up. Copper came from $8,418.00 to end this week at $8,589.50 per metric tonne, gaining 2.04%. Zinc gained 1.31% from its week-ago close at $2,984.50 to this week’s close at $3,023.50 per metric tonne. Aluminum lost 4.55% from the previous week’s price of $2,405.00 to this week’s price of $2,295.50 per metric tonne. Tin, which closed one week ago at $24,915.00, ended this week at $25,270.00 per metric tonne for a gain of 1.42%.

Energy and Oil

Oil prices are losing ground, and are projected for a 7% week-on-week decline on the back of fears of a recession in the U.S. and a problematic economic reopening in China due to rising coronavirus cases. Some of the downward pressure appears to have been offset by lower gasoline and distillate stocks in the U.S. brought about most likely by the recent bomb cyclone. These latest developments have not, however, been strong enough to push Brent prices back to levels above $80 per barrel. In the meantime, OPEC production has swelled as Nigerian oil production rebounded to lift OPEC’s collective oil output in December. The group added 120,000 barrels per day from levels in November, chalking up 29 million barrels per day which is still 800,000 barrels per day below its production quota.

Natural Gas

Tokyo Gas, Japan’s largest gas company, is reportedly at the end of negotiations for the $4.6 billion purchase of Rockcliff Energy, a U.S. natural gas producer. The deal includes debt, boosting its portfolio with 1 billion standard cubic feet (Bcf) of gas per day of production in the Haynesville shale play. In another part of the world, pipeline gas exports of Gazprom, Russia’s gas major, to the European continent decreased by more than 50% last year. Russia’s gas export to Europe totaled just 86.9 billion cubic meters (bcm). Future deliveries are expected to remain subdued in light of the Nord Stream explosions.

World Markets

European shares rallied on reports that the pace of inflation has slowed. The cost of natural gas has also receded to levels last seen before the Russian invasion of Ukraine. The pan-European STOXX Europe 600 Index closed the week higher by 4.6% week-on-week. Major stock indexes in the region also acquired significant gains. Italy’s FTSE MIB Index soared by 6.22%, France’s CAC 40 Index advanced by 5.98%, and Germany’s DAX Index climbed by 4.93%. The UK’s FTSE 100 gained 3.32%. Eurozone inflation descended below 10% for the first time in two months on the back of a decline in energy price increases. In December, consumer prices rose 9.2% year-over-year, which is below a FactSet consensus estimate of 9.7%. Nevertheless, core inflation (excluding volatile food, energy, alcohol, and tobacco prices) increased to 5.2% from only 5.0% in November.

Japanese stock returns turned southward for the week as the Nikkei Index slid by 0.46% and the broader TOPIX Index descended by 0.84%. Investors are worried about the global monetary policy tightening cycle and how this could lead to a recession. Sentiments were weighed down by the future trajectory of the Bank of Japan’s (BoJ’s) monetary policy, considering the surprise modification to its yield curve control announced in late December. Japanese authorities, meanwhile, continued to emphasize the importance of wage growth coming through, as Prime Minister Fumio Kishida urged companies to increase employees’ pay above the rate of inflation. Nominal wage growth in November was well below consensus expectations, drawing attention to the risks associated with inflation outpacing wage growth. This included the erosion of households’ purchasing power in an environment of low economic growth. Pay raises comprise a key pillar of the government’s “New Capitalism” agenda aimed at better distributing the fruits of economic growth.

Chinese stocks rallied amid reports that Hong Kong’s borders will reopen to the mainland and that Beijing was contemplating relaxing curbs on borrowing for the troubled property sector. The Shanghai Composite Index gained 2.21% while the blue-chip CSI 300 advanced by 2.82%, the highest index gains in weeks. Further support for property developers pushed investor sentiment after news emerged that Beijing may ease its stringent “three red lines” policy. Allegedly, the rule featured prominently in the government’s crackdown on the real estate sector in 2020. The policy included a series of debt thresholds that aimed at curbing leverage among developers intent on increasing borrowing. To boost demand, China is also considering a nationwide cap between 2.0% and 2.5% on real estate commissions. In a separate move, the People’s Bank of China announced that, if new home prices fall for three consecutive months, first-time homebuyers will be offered lower mortgage rates. To underscore its focus on prioritizing economic growth, the government has stepped up calls to expand fiscal spending while softening its policy stance for various industries, including internet platforms and coal imports.

The Week Ahead

Among the important economic data expected to be released this week are the CPI, hourly earnings growth, and initial and continuing jobless claims.

Key Topics to Watch

• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• Atlanta Fed President Raphael Bostic speaks
• Consumer credit
• NFIB small-business index
• Fed Chair Jerome Powell speaks to Sweden
• Wholesale inventories (revision)
• Philadelphia Fed President Patrick Harker speaks
• St Louis Fed President James Bullard speaks
• Consumer price index
• Core CPI
• CPI (year-over-year)
• Core CPI (year-over-year)
• CPI excluding shelter (3-month SAAR)
• Initial jobless claims
• Continuing jobless claims
• Federal budget
• Import price index
• UMich consumer sentiment index (early)
• UMich 1-year consumer inflation expectations
• UMich 5-year consumer inflation expectations

Markets Index Wrap Up

Stock Markets

Stocks closed the year down on thin trading volumes ahead of the long New Year’s holiday weekend. The Dow Jones Industrial Average (DJIA) is down for the week by 0.17%, while the total stock market index lost 0.09%. The S&P 500 Index slid by 0.14% while the Nasdaq Stock Market Composite fell by 0.30%. The NYSE Composite Index lost 0.03% of its value. CBOE Volatility rose by 3.83%, indicating that investors perceive greater risk during the week’s trading. The S&P 500 Index remained above its intraday low seen the week before. Underperforming the most were consumer staples and materials shares. Thanks in large part to the strength of Target and several other retailers, consumer discretionary shares were resilient. Shares of Southwest Airlines plummeted when trading opened on Tuesday due to a highly publicized wave of flight cancellations. However, the airline recovered some ground for the remainder of the week. Bond trading closed early on Friday ahead of the holidays, and both equity and bond markets are scheduled to be closed on Monday in observance of New Year’s Day.

U.S. Economy

There were few economic reports released during the week to provide much impetus for strong market movement. As expected, many investors remained sidelined as a prudent move before the start of 2023. Investors and analysts are keeping a close watch on the global impact of China’s relaxation of COVID containment rules even as the data shows that concerns of rising infection rates might usher back loosened pandemic restrictions.

Despite the relatively little data that came out during the week, these were suggestive of improving economic conditions. The Richmond Fed’s index of manufacturing activity in the Mid-Atlantic region recorded its first positive reading in eight months, which indeed ushered in the good news. Wages continued to increase at a solid pace in December. Supply chains also eased, suggesting lower prices paid and received, suggesting that inflation expectations for the coming year may be much lower than current price trends. Weekly jobless claims increased from 215,000 to 225,000, which is still in line with expectations and below their mid-November peak of 241,000.

Metals and Mining

Gold and silver prices remain largely unchanged in quiet early U.S. trading this week. A possible explanation for the light volumes and thin conditions is that many traders are already on holiday during the week. For the year, the gold market had a solid end to 2022 and its momentum in the fourth quarter should continue into 2023. Analysts see gold prices pushing above $1,900 per ounce next year, with the positive outlook encouraging some firms which had been building a bullish position starting November this year. The Federal Reserve’s monetary policy is expected to peak while persistently high inflation and global economic uncertainty may incentivize support for safe-haven assets such as gold through the new year. There may likewise be increased physical demand driven by central bank purchases.

This past week, spot prices for precious metals climbed to end the week marginally up. Gold rose by 1.44%, from the week-ago close at $1,798.20 to this week’s price at $1,824.02 per troy ounce. Silver came from its previous price of $23.73 to this week’s price of $23.95 per troy ounce for an increase of 0.93%.  Platinum ended this week at $1,074.29 per troy ounce, which is 4.60% above the previous week’s price of $1,027.01. Palladium closed one week ago at $1,754.28 and this week at $1,792.68 for a price increment of 2.19%. The three-month LME prices of base metals were also slightly up for the week. Copper ended the week at $8,418.00 per metric tonne,             0.82% higher than its closing price the previous week at $8,349.50. Zinc went from last week’s price of $2,965.00 to this week’s close at $2,984.50 per metric tonne, up by 0.66%. Aluminum ended this week at $2,405.00 per metric tonne, up by 0.65% from the previous week’s price of $2,389.50. Tin, which closed the week before at $23,934.00, ended this past week at $24,915.00 per metric tonne for a gain of 4.10%.

Energy and Oil

A large number of gas-producing basins have reduced production by as much as 30% due to periods of extremely cold weather. Top among them was the Appalachian Basin, which will likely take several weeks to rebound to pre-freeze levels. Given that U.S. production seasonally dips in the new year, the worst-case scenario is that it may take months before production recovery returns to normal levels. On a more positive note, refiners on the U.S. Gulf Coast may resume operation at a dozen facilities where production was halted due to the recent freeze. This involves a total operable capacity of 3.6 million barrels per day, with Deer Park and Port Arthur taking at least one to two weeks before they fully return.

Natural Gas

U.S. LNG developer NextDecade announced that it will increase the volume of liquefied natural gas provided under a term agreement with China’s ENN Natural Gas, from 0.5 million tons per annum (mtpa) to 2 mtpa, to be sourced from the upcoming RGLNG Project. In other news, the U.S. LNG company Excelerate Energy has delivered Finland’s first-ever floating storage and regasification unit (FSRU) Exemplar, rated at 5 billion cubic meters (bcm) per year capacity. It was delivered to the port of, Inkoo, one of the 19 new FSRU projects to be commissioned over the next few years in Europe.

World Markets

Equities pulled back in European stock markets, not surprisingly during a week of thin trading ahead of the New Year’s holiday weekend. The pan-European STOXX Europe 600 Index slid by 0.60% over the five trading days ending on December 30. France’s CAC 40 Index lost by 0.48% while Italy’s FTSE MIB Index dipped by 0.71%. Germany’s DAX Index came down modestly. The UK’s FTSE 100 Index declined by 0.28%. Members of the European Central Bank’s (ECB) Governing Council expressed sentiments that there may be additional monetary policy tightening in the next five policy meetings. There was a possibility of continued half-percentage point increases in response to further inflation rate increases. Any recession was expected to be short and shallow, as the recent economic data of some eurozone countries like Germany were already showing signs that the worst was already behind them.

Japanese equities were positive at the start of the final trading week for the year, recording early gains despite thin trading volumes. By Thursday, the Nikkei 225 fell to three-month lows only to claw back some of its lost ground on Friday. The index ended down by 0.54% for the week and also down by 9.37% for the year. This is the Nikkei’s first annual loss in four years. In currencies, the yen rebounded in late-week trading after the Bank of Japan (BoJ) announced a series of unscheduled bond purchases. The markets found some encouragement in signs that the U.S. inflation rate may be coming down, as well as from comments from BoJ Governor Haruhiko Kuroda that the central bank does not intend to change its customary easy monetary policy stance. Additional optimism came from China’s announcement that it would drop quarantine requirements for international arrivals starting January 8, which is seen as a first step towards reopening its borders.

China’s stock market rose in response to Beijing’s continued easing of coronavirus pandemic restrictions, despite a surge in cases. The Shanghai Composite Index climbed by 1.42% and the blue-chip CSI 300 gained 1.13%, seen as a reversal of several weeks of losses. In Hong Kong, the benchmark Hang Seng Index ascended by 1.61%. Regarding the country’s coronavirus status, the National Health Commission (NHC), the country’s health regulator, downgraded the management of the pandemic response from the highest to the second-highest level starting January 8, 2023. The focus will remain on vaccinating the elderly, ensuring medical supply availability, and tiered medical treatment. Almost all standard restrictions, however, will be lifted, according to a statement b the NHC over state-run media. In other news, economic activity picked up across several cities in China where COVID-19 virus cases have shown signs of peaking. Reports showed that traffic congestion, movie sales, and air travel have increased in some areas.

The Week Ahead

Among the important economic news expected to be released in the coming week are job openings, jobless claims, trade deficit, and construction spending.

Key Topics to Watch

• S&P U.S. manufacturing PMI (final)
• Construction spending
• ISM manufacturing index
• Job openings
• Quits
• FOMC minutes
• Motor vehicle sales (SAAR)
• ADP employment report
• Initial jobless claims
• Continuing jobless claims
• Trade deficit
• S&P U.S. services PMI (final)
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor force participation rate, ages 25-54
• ISM services index
• Factory orders
• Core equipment orders

Markets Index Wrap Up

Stock Markets

Trading during the week was light ahead of the Christmas weekend and typically light holiday season market activity before the New Year. The major indexes were mixed, with the Dow Jones Industrial Average chalking up a 0.86% gain and the total stock market down by 0.26%. The Nasdaq Stock Market Composite dipped 1.94%, despite recording its best daily gain since November on Wednesday. The S&P 500 Index slid by 0.20% and the NYSE Composite rose by 1.13%. CBOE Volatility came down by 7.74%. Over the past week, hawkish comments from the Federal Reserve and other global central banks appear to weigh heavily on the markets. Jitters of an impending recession ran through the equities market after former New York Fed President William Dudley commented on Monday that optimistic markets could end in more aggressive central bank tightening.

As U.S. oil inventories came in well below consensus expectations, energy stocks outperformed other sectors. Underperforming all sectors were consumer discretionary shares, plummeting as a result of a steep decline in Tesla following that company’s announcement of increased price discounts. On Thursday, chipmaker Micron Technology reported falling global demand, triggering a sell-down of semiconductor stocks. Bond trading ended early on Friday. Next week’s trading week will be shortened as both the equity and bond markets will be closed on Monday in observance of the Christmas holiday.

U.S. Economy

Positive economic growth signals during the week may have set off new fears of future interest rate hikes. On Thursday, the Commerce Department raised its third-quarter economic growth estimate from 2.9% to 3.2% due to increased revenues in healthcare spending and investment in equipment and intellectual property. Simultaneously, weekly jobless claims modestly fell while continuing claims recorded their first weekly drop since October. Personal incomes rose by 0.4% since October which is slightly above expectations. Spending, however, increased by only 0.1%, which is relatively flat when adjusted for inflation, indicating that Americans cut back on purchases of autos and other goods. The personal consumption expenditure (PCE) price index also inched up by 0.1% in November, for a year-over-year increase of 5.5%, the lowest since October 2021. This probably contributed to a Friday mid-morning rally in the markets. The 12-month rise in the core PCE index (excluding food and energy) fell to a four-month low of 4.7%. The core PCE index is considered the Fed’s preferred inflation gauge.

Housing data was mixed as existing home sales fell slightly less than expected in November, although new home sales rose 5.8% in contrast to consensus expectations of a roughly 4.7% drop. Forward-looking data were less encouraging, as building permits slumped to 10.6% and hit their lowest levels since June 2020. Durable goods orders came down by 2.1% in November, their biggest decline since April 2020. The reduction was, however, caused by an unexpected plunge in highly volatile aircraft orders. The Conference Board’s index of consumer confidence reversed two months of declines and registered 108.3, indicative of consumer resilience. The reading was much higher than expected and its best level since April. It was noted, however, that the expectations index remained around 80 which is typical of recession levels.

Metals and Mining

One week before the start of the new year, gold is down by just 1% year-to-date after a highly volatile year that saw gold prices rise higher than $2.000 per ounce in the spring and touch lows slightly above $1,630 per ounce in the fall. February Comex gold futures closed Friday at approximately $1,809 per ounce, an increase of 0.5% on the week. Gold may have established a robust price bottom in 2022 at the $1,800 level, and looks primed to be a top performer in 2023 when it could move to challenge or exceed $2,000.

This week, gold closed at $1,798.20 per troy ounce, 0.29% higher than the week-ago price of $1,793.08. Silver, which was $23.22 one week ago, ended at $23.73 per troy ounce this week, for an increase of 2.20%. Platinum rose by 3.27% from its price last week of $994.53 to this week’s price of $1,027.01 per troy ounce. Palladium came from $1,720.75 to end this week at $1,754.28 per troy ounce for a gain of 1.95%. The three-month LME prices of the base metals ended sideways. Copper rose by 1.00% from the previous week’s price of $8,266.50 to this week’s price of $8,349.50 per metric tonne. Zinc began at $3,018.00 and closed at $2,965.00 per metric tonne for a loss of 1.76%.  Aluminum, which was priced at $2,375.00 one week ago, ended this week at $2,389.50 per metric tonne for a slight increase of 0.61%. Tin rose 1.70% from its week-ago price of $23,535.00 to this week’s close at $23,934.00 per metric tonne.

Energy and Oil

Oil prices pushed higher this week due to a supportive weekly report from the Energy Information Administration (EIA) and worries about the big freeze likely to force production shut-ins. News of better-than-expected third-quarter economic performance in the U.S. has, however, raised prospects of further monetary policy tightening through interest rate hikes. Concerns about a possible economic slowdown weighed on oil prices, both the WTI and Brent rallied on Friday morning with the return of more bullish sentiment before the Christmas holidays.

Natural Gas

For the report week starting Wednesday, December 14, and ending Wednesday, December 21, 2022, the Henry Hub spot price fell by $0.46 from $6.60 per million British thermal units (MMBtu) at the start of the week to $6.14/MMBtu at the end of the week. The price of the January 2023 New York Mercantile Exchange (NYMEX) contract decreased by $1.098, from $6.430/MMBtu at the beginning of the week to $5.332/MMBtu at the week’s end. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts declined $0.618 to $4.872/MMBtu. International natural gas futures price movements were mixed for the report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.96 to a weekly average of $34.42/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 $7.47 to a weekly average of $34.99/MMBtu.

World Markets

European share prices rose amid signs of slowing inflation and more positive consumer confidence. The pan-European STOXX Europe 600 Index closed higher by 0.64%, together with major European indexes. France’s CAC 40 Index rose by 0.81%, Italy’s FTSE MIB Index gained 0.80%, and Germany’s DAX Index ticked up by 0.34%. The UK’s FTSE 100 Index ascended by 1.92%, partly supported by the depreciation of the British pound against the U.S. dollar. Weakness in the pound provides some strength to equities since many of the listed companies are multinationals that generate significant revenues overseas. Business and consumer confidence in Germany and Italy improved in December, In the U.K., the economy contracted more than initially estimated in the third quarter, for which September growth figures were revised lower.

In Japan, stock markets fell over the week. The Nikkei 225 Index came down by 4.69% while the broader TOPIX Index descended by 2.68%. The Bank of Japan (BoJ) announced that it would revise its policy of yield curve control (YCC), allowing 10-year Japanese government bond yields to rise as high as 0.50% which is double its previous implicit cap of 0.25%. The timing of this announcement was a surprise, as most market participants had not expected a shift in the BoJ’s YCC until next year. In light of this move, the JGB yield ended the week at approximately 0.40%, sharply up from 0.25% one week earlier. The policy adjustment by the BoJ impacted currencies, with the yen strengthening to JPY 132.55 against the U.S. dollar, from the previous week’s exchange rate of JPY 136.71 to the greenback.

In China, the coronavirus once again reared its head as new cases weighed on the country’s growth forecasts. The Shanghai Composite Index plummeted by 3.85% while the blue-chip CSI 300 sank by 3.19%. In Hong Kong, the benchmark Hang Seng Index inched up by 0.7%. The resurgence of COVID-19 and China’s ongoing property market slump prompted the World Bank to cut its China economic growth forecast for this year and the next, The Bank projected China’s economy to grow by 2.7% this year and 4.3% next year, compared to its previous forecast of 2.8% and 4.5% for 2022 and 2023 respectively. The World Bank released its report China: Domestic and External Conditions are Leading to a Weakened Economic Outlook dated December 20, 2022. In it, the Bank noted that China’s economy remains “subject to significant risks, stemming from the uncertain trajectory of the pandemic, of how policies evolve in response to the COVID-19 situation and the behavioral responses of households and businesses.”

The Week Ahead

Economic reports scheduled in the coming week include the home price index and jobless claims.

Key Topics to Watch

• Trade in goods, advance report
• S&P Case-Shiller U.S. home price index (SAAR)
• FHFA U.S. home price index (SAAR)
• Pending home sales index
• Initial jobless claims
• Continuing jobless claims
• Chicago PMI

Markets Index Wrap Up

Stock Markets

In the week just concluded, equities fell by more than 2.0% as market sentiment went southward in reaction to a more hawkish Federal Reserve meeting and weakening retail-sales data, despite higher than consensus November CPI inflation data. The Dow Jones Industrial Average (DJIA) dipped by 1.66% as the total stock market index fell by 2.04%. The broader S&P 500 declined by 2.08% while the Nasdaq Stock Market underperformed even more with a 2.72% loss and the NYSE Composite slid by 1.78%. CBOE Volatility came down slightly by 0.92%. As inflation comes under control, the economy is likely to soften in the months ahead and may require less restrictive policy. This tends to create a more volatile market in the near term on its way to greater stability in the long term.

In the meantime, fears intensified over the unexpectedly higher interest rates imposed by the Fed. This pushed the S&P 500 lower for the second straight week, returning it to the levels it had last visited about six weeks ago. Almost all sectors in this index registered sharp dives, except for energy shares which were sustained by a partial increase in oil prices. Additional volatility was sparked by the expiration of approximately $4 trillion in options contracts on Friday. Trading in exchange-traded funds (EFTs) approached record levels by midweek, suggesting that investors were moving in and out of stocks in general in reaction to broader economic signals.

U.S. Economy

The release of data regarding the Consumer Price Index on Tuesday indicated that headline inflation increased only by 0.1% from October to November, resulting in a year-on-year gain of 7,1%. This remains well above the long-term Fed inflation target of 2%, but optimistically, it is the lowest level since December 2021. Core inflation, which excludes food and energy, rose 0.2%, slightly below consensus expectations. This was largely driven by housing costs which are already showing signs of cooling. In 2023, policymakers expect the federal funds rate to expand to about 5%.

The 50-basis-point increase announced by the Fed this week fell in line with expectations, which should be a positive development given that the four previous meetings set 75-basis-point increases. Fed Chair Jerome Powell rattled the markets with his announcement that further aggressive rate hikes are expected. Thursday’s data on retail sales dropped 0.6% in November, contrary to the small increase expected by analysts in the post-Thanksgiving Black Friday and Cyber Monday sales season. Sales in the preceding two months were also revised downward.

Also, this past week, the Bank of England (BoE) and the European Central Bank (ECB) raised their policy rates by 0.50%. This brought the BoE’s and ECB’S target rates to 3.5% and 2.0% respectively. These central banks, like the Fed, announced that further rate hikes are likely into the New Year since inflation rates remain well above their targets. Some analysts see the global economy falling into a downturn in the first semester of 2023, with Europe likely to enter into a deeper recession that the U.S. due to its exposure to oil and energy markets and continuing decline in consumer confidence. Against this scenario, the global central banks may likely halt their rate-hiking policies, possibly by the end of the first quarter. The pause in rate increases may be taken to alleviate the pressure on the economy and determine whether inflation will continue to further slow down.

Metals and Mining

The precious metals prices continue to remain steady with gold holding on to the $1,800 per ounce support level. It appears that the gold market is taking the Fed’s hawkish stand in stride even as equities corrected sharply on the central bank’s signal that the key interest rate will peak at above 5% in 2023. There are a few reasons why gold is showing relative resiliency in light of the Fed’s announcement. One possibility is that investors are growing less worried about inflation and shifting their concern to a possible recession. A slowing U.S. economy is suggested by the disappointing holiday retail sales data announced this week. Another likelihood is that although the Fed continues in its restrictive policy, much of this information is already discounted in the current gold prices. The U.S. dollar also appears to have peaked as the Fed begins to slow the pace of its rate hikes.

Gold moved slightly downward by 0.24%, from the previous week’s price at $1,797.32 to this past week’s close at $1,793.08 per troy ounce. Silver followed suit with a correction by 1.07%, sliding from the week-ago price of $23.47 to this week’s close at $23.22 per troy ounce. Platinum began at $1,027.58 at the end of the week earlier and decreased to $994.53 per troy ounce this week for a loss of 3.22%. Palladium, which closed at $1,956.76 a week ago, ended at $1,720.75 per troy ounce this week, descending by 12.06%. The three-month LME prices for base metals also lost some ground. Copper closed at $8,266.50 per metric tonne this week, down by 3.24% from the previous week’s price of $8,266.50. Zinc, which formerly was priced at $3,240.50, lost 6.87% of its value week-on-week to end at $3,018.00 per metric tonne. Aluminum ended this week at $2,375.00 per metric tonne, down by 4.25% from the week-ago price of $2,480.50. Tin began at $24,290.00 and ended this week at $23,535.00 per metric tonne, down by 3.11%.

Energy and Oil

The price of oil has experienced its much-awaited rebound from its crash the week before, however, the downside pressures remain very much active. The BoE and the ECB hiked interest rates on Thursday, halting the upward momentum of oil prices that had been accumulating. Some hope to bulls may be provided by the ongoing halt in Keystone deliveries as it has created a tightness in the oil supply to the continent that has had a relatively secure year up to now. The traditional 2022 volatility may be expected in light of the uncertainty remaining to hover over China’s post-Covid reopening for the rest of the year. In the meantime, the International Energy Agency forecasts that next year will see further growth in oil demand by 1.7 million barrels per day. The push will be driven by China as it rebounds from this year’s contraction, adding 1 million barrels per day and reaching a new all-time high of 101.6 million barrels per day.

Natural Gas

For the report week spanning Wednesday, December 7, to Wednesday, December 14, 2022, the Henry Hub spot price rose by $2.07 from $4.53 per million British thermal units (MMBtu) to $6.60/MMBtu. The price of the January 2023 NYMEX contract rose by $0.707, from $5.723/MMBtu last Wednesday to $6.430/MMBtu week-on-week. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts, rising $0.458 to $5.490/MMBtu. International natural gas futures price movements were mixed. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.48 to a weekly average of $33.46/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 $0.50 to a weekly average of $42.46/MMBtu.

World Markets

European shares plunged after central banks in the region signaled that interest rates would need to be further raised and for longer periods than the markets previously expected. The pan-European STOXX Europe 600 Index closed the week 3.28% lower than the week previously in local currency terms. Major stock indexes mirrored this trend, with Germany’s DAX Index sliding 3.32%, France’s CAC 40 Index dropping 3.37%, and Italy’s FTSE MIB Index slipping 2.43% for the week. The UK’s FTSE 100 Index lost 1.93%. The ECB raised its key interest rate by 50 basis points to 2.0%. The increase was better than the 75-basis point hike in two previous rate increases. Nevertheless, ECB President Christine Lagarde said that the rate “will still rise significantly at a steady pace to reach levels that are sufficiently restrictive” for inflation to be reined in to reach the central bank’s target of 2%. Furthermore, the ECB indicated that it planned to shrink, by an average of EUR 15 billion per month, the portfolio accumulated as part of its Asset Purchase Programme. This will begin next March and run through the end of the second quarter of 2023.

Japan’s equities market lost ground over the week. The Nikkei 225 Index declined by 1.34% while the broader TOPIX Index declined by 0.58%. Investors lost their appetite for risk as a result of the Fed adopting a more hawkish stance on their monetary policy than was expected. There were concerns that continued monetary tightening by the major central banks could nudge the economy into a recession. The government finalized its tax revision package; meanwhile, the latest PMI data highlighted the divergence between a shrinking manufacturing sector and an expanding services sector. The yield on the 10-year Japanese government bond (JGB) generally remained unchanged week-on-week at 0.25%. It remains at the level at which the Bank of Japan (BoJ) implicitly caps JBG yields, in response to ongoing speculation that the BoJ may abandon its policy of yield curve control by early 2023. At its December 19-20 meeting, the central bank is widely expected to leave its monetary policy setting unchanged. The yen weakened to approximately JPY 137.1 against the greenback, from around JPY 136.5 per U.S. dollar the week before. The currency has come under pressure from the Fed’s restrictive policies.

As with their European and Japanese counterparts, Chinese stocks succumbed to selling pressure as weaker-than-expected economic data weighed on investor sentiment. The Shanghai Composite Index descended by 1.22% and the blue-chip CSI 300 Index dipped by 1.1%, reversing several weeks of gains. Investors got their cue from remarks made by Vice President Liu He indicating that Beijing is considering new measures to support the real estate industry, thus lifting property stocks. However, a trio of key economic indicators came in weaker than expected for November, weighed down by pandemic-related disruptions. Industrial production rose by 2.2% year-on-year in November, the softest growth since May. Retail sales declined by 5.0%, and fixed asset investment for the year through November likewise came short of forecasts. While China had recently begun to lift its more burdensome coronavirus restrictions, the country’s economic reopening is expected to be volatile. Recent reports described China’s economic activity as being depressed since the possibility of coronavirus cases spreading has discouraged the resumption of normal economic activity. Rising infections have left many businesses impacted by labor shortages.

The Week Ahead

Scheduled for release in the coming week are the leading economic indicators and the core PCE deflator.

Key Topics to Watch

• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Current account deficit
• Consumer confidence index
• Existing home sales (SAAR)
• Initial jobless claims
• Continuing jobless claims
• Real gross domestic product revision (SAAR)
• Real gross domestic income revision (SAAR)
• Real final sales to domestic purchasers (SAAR)
• Chicago Fed national activity index
• Index of leading economic indicators
• PCE price index
• Core PCE price index
• PCE price index (year-on-year)
• Core PCE price index (year-on-year)
• Real disposable income (SAAR)
• Real consumer spending (SAAR)
• Durable goods orders
• Core capital equipment orders
• UMich consumer sentiment index (late)
• UMich 5-year inflation expectations (late)
• New home sales (SAAR)

Markets Index Wrap Up

Stock Markets

In the week just ended, stocks fell for all major indexes, halting the rally that began in mid-October. Ironically, the current pessimism hinges on the perception of coming economic weakness driven by evidence of ongoing economic strength in the economy itself. These data consist of elevated wage gains, robust job growth, and resilient consumer spending trends, all leading to the likelihood that the Federal Reserve’s attempts to control inflation are not likely to slow down. The economy will likely decline as collateral damage from continuing aggressive rate hikes. The Dow Jones Industrial Average (DJIA) lost 2.77% and the Dow Jones Total Stock Market Index fell by 3,60%. The S&P 500 Index descended 3.37%, while the Nasdaq Stock Market Composite declined 3.99%, and the NYSE Composite fell by 3.02%. The CBOE Volatility Index ascended by 19.78%, suggesting that investors see greater risk in the stock market.

Not everything is bleak in the future of equities. The markets have rallied impressively in the past weeks as stocks rose approximately 11% since October. Bonds have likewise rebounded as interest rates fell significantly from their peak two months ago. The negative prognosis about the economy notwithstanding, the gains in both stocks and bonds are most welcome and provide opportunities for gains even in a pessimistic market. While the declines may be the function of technical factors, it is some concern that the S&P 500 Index recorded its worst return in five weeks even as the small-cap Russell 2000 Index suffered its worst week since late September. The decline in the S&P 500 is a breakdown of its 200-day moving average following the rally. Within this market, the sectors that performed best were health care, consumer staples, and utilities which comprise the defensive stocks. Energy shares sharply fell due to international oil prices descending to their lowest levels since January. Communication services stocks also underperformed due to weakness in Google’s parent Alphabet. Financial shares dropped as a result of negative outlooks offered by several bank executives.

U.S. Economy

The Institute for Supply Management’s (ISM’s) index of services sector activity, which was expected to slightly decrease, defied expectations and rose to 56.5, close to its highs over the past several months. This is a positive indication because readings over 50 suggest expansion in the activity of the services sector. The ISM observed that there is a particular rise in business activity, particularly in real estate and food services and accommodation.

On Friday, the producer price inflation (PPI) data were released, providing a modest surprise on the positive side. The PPI figures rose 7.4% year-over-year, an improvement over consensus expectations of approximately 7.2%, causing stock futures to plunge sharply. The details of the report appear to broadly confirm a continued deceleration in trend inflation, particularly for consumer goods. On the same day as the release of the PPI report, the University of Michigan published its preliminary survey of consumer sentiment for December. The survey results added to the implications from hard data that there is general stability in the near-term outlook for the U.S. consumer. Long-term inflation expectations are unchanged at 3%, which is at the higher end of the historical range for this data, however, short-term inflation expectations had descended further.

The yield on the benchmark 10-year U.S. Treasury note reached close to the three-month intraday low on Wednesday. It closed higher at the end of the week, driven by the PPI data and news that China is easing its strict pandemic restrictions. The strong surge in yields was tempered by the weaker-than-expected unit labor cost data and comments by Russian President Vladimir Putin regarding the mounting risks of nuclear engagement.

Metals and Mining

Some follow-through buying in the gold market is materializing after November’s massive rally. Gold prices end the week close to their four-month high above $1,800 per ounce. While it is not entirely clear of risks, many investors and analysts are considering gold to now be a “buy the dip” asset. It is a marked change from the summer sentiment of gold being a “sell the rally” asset. The short squeeze in November was followed by gains in December, suggesting that gold prices are now in neutral territory for the year with a slight 1% loss. This compares favorably against the S&P 500 which is charting a year-to-date loss of 17%. Most gold investors still consider 2022 a disappointing year, because even in light of the significant rise in inflation, the performance of gold was lackluster. Although gold is an inflation hedge, the headwinds of a strong U.S. dollar overcame the inflation effect as the Federal Reserve was compelled to raise interest rates at the fastest pace in more than four decades. This fact notwithstanding, gold has performed its role as a portfolio diversifier.

Gold moved sideways for the week, beginning at $1,797.63 and ending hardly changed at $1,797.32 per troy ounce (a slide of 0.02%). The same is true with silver which moved up by 1.43% from $23.14 to $23.47 per troy ounce. Platinum, which ended the previous week at $1,019.11, closed trading this week at $1,027.58 per troy ounce, a modest rise of 0.83%. Palladium ended the week before at $1,901.40 and this past week at $1,956.76 per troy ounce, up by 2.91%. The three-month LME prices of base metals ended mostly up. Copper, which was $8,336.00 the week before, closed at $8,543.00 per metric tonne this week for a slight increase of 2.48%. Zinc rose by 5.23% from the week-before close at $3,079.50 to this week’s ending price of $3,240.50 per troy ounce. Aluminum began at $2,485.00 and ended this week at $2,480.50 per metric tonne, sliding 0.18% for the week. Tin, which closed at $23,331.00 one week before but ended this week at $24,290.00 per metric tonne, inched up by 4.11% for the week.

Energy and Oil

The news for the week provided reasons to expect an uptick in oil prices, but due to thin liquidity, the surge did not materialize. The easing of coronavirus restrictions in China should have hinted at a strong economic recovery that will increase demand, and a U.S. oil spill halting pipeline deliveries from Canada would have added to concerns of constricting supply. Additionally, there is a massive queue of tankers that is unable to pass the Turkish Straits, halting deliveries in some areas.  A protracted disagreement between Turkish authorities and maritime insurance providers had cast a shadow over the launch of the Russian oil price cap this week, and almost two dozen tankers were stalled on their southbound voyage out of the Black Sea for not having the required P&I insurance documents. Oil prices will likely be unable to close the year on a renewed growth trajectory. It is unlikely that investors who realized profits over the year will risk taking a position in this uncertain environment. Brent may be stalled at $75 to $78 per barrel for longer than expected.

Natural Gas

For the report week beginning Wednesday, November 30, and ending Wednesday, December 7, 2022, the Henry Hub spot price dropped by $2.27, from $6.80 per million British thermal units (MMBtu) at the start of the week to $4.53/MMBtu by the week’s end. The price of the January 2023 NYMEX contract descended by $1.207, from $6.930/MMBtu to $5.723/MMBtu week-on-week. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts slid by $0.677 to $5.032/MMBtu. Also, this report week, international natural gas futures prices increased. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia climbed by $1.97 to a weekly average of $32.98/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $2.94 to a weekly average of $42.95/MMBtu.

World Markets

Renewed fears of a recession sent European shares southward as central banks further tightened monetary policy to bring inflation under control. The pan-European STOXX Europe 600 Index closed the week 0.94% down in local currency terms. The trend was replicated by major indexes in the region. Italy’s FTSE MIB Index dropped by 1.40%, Germany’s DAX Index descended by 1.09%, and France’s CAC 40 Index dipped by 0.96%. UK’s FTSE 100 Index slid by 1.05% for the week. Economic data revised growth in the eurozone economy to 0.3% from 0.2% sequentially in the third quarter, boosted by increases in household spending and business investment.

In Japan, modest positive returns over the week were realized by the country’s stock markets. The Nikkei 225 Index rose 0.44% and the broader TOPIX Index increased by 0.39%. To some extent, investor sentiment was impacted by economic data showing that the Japanese economy contracted less than first estimated in the third quarter of 2022. Market gains were capped, however, by uncertainty about the trajectory of U.S. monetary policy. the yield on the 10-year Japanese government bond (JGB) closed the week unchanged at 0.25%, although it touched 0.26% briefly due to speculation that the Bank of Japan (BoJ) may abolish its JBG yield cap as soon as next year. The yen slid from JPY 134.3 to about JPY 136.2 against the U.S. dollar week-on-week, due to the continued divergence in the monetary policies of the U.S. Federal Reserve and the BoJ. The Fed is widely expected to continue increasing interest rates while the BoJ has consistently affirmed that it will continue with its ultra-loose policy position.

Chinese equities climbed on the back of Beijing’s rapid easing of coronavirus pandemic restrictions, in turn bolstering investor sentiment despite expectations that infections will rise in the coming months. The Shanghai Composite gained 1.6% and the blue-chip CSI 300 Index ascended 3.3% in its biggest weekly gain since early November. Chinese officials released a 10-point guideline for their new COVID prevention and control measures. These included a vaccination program for the elderly, home quarantine for people with mild symptoms, and reducing mass testing requirements in many cities. In high-risk areas, if no new cases appeared for five consecutive days, lockdowns will be lifted. Analysts and investors remain cautious, however, that China’s quick shift from zero-COVID policies might increase business uncertainty and hamper the economy further if infections and deaths begin to increase.

The Week Ahead

The CPI index, retail sales growth, and jobless claims are among the important economic data scheduled for release this week.

Key Topics to Watch

• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• Federal budget (compared with Nov. 2021)
• NFIB small-business index
• Consumer price index
• Core CPI
• CPI (year-on-year)
• Core CPI (year-on-year)
• CPI excluding shelter (3-month rolling annualized rate)
• Import price index
• Federal funds rate announcement
• SEP median federal funds rate for end of 2023
• Fed Chair Jerome Powell news conference
• Initial jobless claims
• Continuing jobless claims
• Retail sales
• Retail sales excluding motor vehicles
• Empire state manufacturing index
• Philadelphia Fed manufacturing index
• Industrial production index
• Capacity utilization rate
• Business inventories
• S&P U.S. manufacturing PMI (flash)
• S&P U.S. services PMI (flash)

Markets Index Wrap Up

Stock Markets

Global stock markets have recorded their first back-to-back monthly gains in more than a year. Major U.S. equities ended higher, driven by investor optimism that the Federal Reserve may soon slow the pace of interest rate hikes. The Dow Jones Industrial Average (DJIA) gained 0.24% and its total stock market index climbed 1.20%. The S&P 500 Index added 1.13% while the Nasdaq Stock Market Composite increased by 2.09%. The NYSE Composite rose by 1.03%, and the CBOE Volatility Index fell by 7.02%. In the S&P 500 Index, growth stocks outperformed their value counterparts while the technology sector posted solid gains. The DJIA, despite rising only incrementally, closed more than 20% above the low it hit in September 2022 thereby entering bull market territory on the last day of November. The strong rally by equities markets on the final day of November was in reaction to the speech delivered by Federal Reserve Chairman Jerome Powell that signaled the likelihood of smaller interest rate hikes going forward. He admitted that the central bank was aware that it may take time for the effects of monetary policy to filter through to the economy. With this realization, the Fed may slow the pace of rate increases as early as the Federal Open Market Committee’s (FMOC’s) meeting that will take place by mid-December 2022.

U.S. Economy

In his speech before members of the Brookings Institution, Powell focused on the jobs market. He stated that the labor demand would likely need to soften for the Fed to bring inflation under control. Based on data released by the Bureau of Labor Statistics, the number of job openings fell by about 353,000 to 10.3 million, slightly below the consensus estimate of 10.4 million available job positions. The U.S. economy added 263,000 jobs as shown by the nonfarm payrolls data. This exceeded the consensus estimate for the pace of additional jobs to fall to 200,000. Job gains were in the sectors of leisure and hospitality, health care, and government. Employment declined in the retail, transportation, and warehousing industries. The unemployment rate was unchanged at 3.7%.

In other economic news, consumer confidence and manufacturing activity demonstrated signs of weakening. Sequentially in October, consumer spending rose by 0.8%, but when adjusted for inflation this increase falls to 0.5%. The core personal consumption expenditure price index, which includes volatile food and energy costs, grew 5% year-over-year. This slowed down from the 5.2% inflation rate recorded in September. On the other hand, consumer confidence slipped in November based on the Conference Board’s metric. The survey providing this basis registered an increase in inflation expectations and, therefore, an increased reluctance among households to purchase big-ticket items over the next six months. The purchasing manager’s index (PMI) of the Institute for Supply Management slid to levels indicative of a contraction in activity for the first time since May 2020, as demand was weighed down by the uncertain economic environment.

Metals and Mining

The gold and silver markets came to life as the prices of the precious metals rallied to their highest in months. Both metals ended the week at their significant support levels, silver above $23 and gold at about $1,800 per ounce. The week constituted a significant reversal in the monthly chart. Gold ended November with a 7.5% gain following seven consecutive months of losses. Silver, on the other hand, gained 14% in November. The price action has turned bullish, in addition to which gold has held to its critical support level for three months in a row. It suggests that investor sentiment is certainly changing, but there remains some uncertainty that the bulls are going to be sustained. Investors are sitting on the sidelines, prepared to buy upon confirmation of the reversal.

Gold gained 2.43% week-on-week, from $1,754.93 to $1,797.63 per troy ounce. Silver added 6.39%, from the previous week’s close at $21.75 to this week’s close at $23.14 per troy ounce. Platinum ascended 3.61% from its earlier close at $983.56 to its recent close at $1,019.11 per troy ounce. Palladium began at $1,847.69 and ended this week at $1,901.40 per troy ounce for an increase of 2.91%. The three-month LME prices of base metals tracked the trend of the precious metals’ spot prices. Copper, which ended the previous week at $8,008.00, ended the week at $8,336.00 per metric tonne, for a gain of 4.10%. Zinc began at $2,920.50 and rose to end the week at $3,079.50 per metric tonne, climbing 5.44% week-on-week. Aluminum rose by 5.19%         from the previous week’s price of $2,362.50 to close the week at $2,485.00 per metric tonne. Tin, which ended the week earlier at $22,231.00, ended this week at $23,331.00 per metric tonne, for an increase of 4.95%.

Energy and Oil

The OPEC+ meetings were customarily held physically; their purpose was to revisit the group’s production strategy as the oil community carefully analyzed the post-meeting statements. The meeting switched from a physical gathering in Vienna to an online conference call, suggesting to many analysts that the most likely outcome will be a rollover of production quotas. As a result, there are no drastic moves expected on Sunday. It is a given that the EU has tentatively agreed to an oil price cap level for crude. EU member states have tentatively agreed to a $60 per barrel oil price cap on Russian seaborne oil which comes into effect on December 5. The agreement comes with an automatic adjustment mechanism that will keep the cap at 5% below the market price. Because of this, there is a possibility that OPEC may spring a surprise at its next meeting. On the other hand, OPEC+ has been supported by rumors of China’s reduction of its COVID restrictions and lockdowns, which led oil prices to close the week with a significant gain.

Natural Gas

This report covers the week beginning Wednesday, November 23, to Wednesday, November 30, 2022. The Henry Hub spot price rose $0.34 from $6.46 per million British thermal units (MMBtu) at the beginning of the week to $6.80/MMBtu at the end of the week. The December 2022 NYMEX contract expired Monday at $6.712/MMBtu, down by $0.60 from the preceding Wednesday. The January 2023 NYMEX contract price decreased to $6.930/MMBtu, lower by $0.78 for the week. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts fell by $0.15 to $5.709/MMBtu. International gas futures prices rose during the report week. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia rose by $2.95 to a weekly average of $31.01/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, ascended $4.07 to a weekly average of $40.01/MMBtu.

World Markets

European shares climbed for the seventh straight week as investors gained optimism from the receding inflation rates. There is greater confidence that central banks are likely to slow the rate of their interest rate increase, gradually loosening their tight monetary policies. China’s announcement that it would be relaxing its strict coronavirus measures was also well-received and helped to improve market sentiment. The pan-European STOXX Europe 600 Index closed the week higher by 0.58% in local currency terms. The major country stock indexes were mixed. Italy’s FTSE MIB Index dipped 0.39%, Germany’s DAX Index moved sideways, and France’s CAC 40 Index ascended 0.44%. The UK’s FTSE 100 Index climbed 0.93%. European government bond yields dropped in reaction to data showing that euro area November inflation slowed more than expected. The market also reacted to comments by U.S. Fed Chair Jerome Powell indicating that the Fed may slow the pace of its rate increases. The announcement fueled a broader rally in bond markets, causing a decline in Italian, French, and Swiss yields. The 10-year gilt yields in the UK hardly changed.

Japan’s stock market returns were negative for the past trading week. The Nikkei 225 Index lost 1.79% while the broader TOPIX Index plummeted by 3.17% due to exports suffering as a result of a strong yen. Investors generally directed their attention toward COVID-related developments in China as government authorities suggested that they will begin to ease the strict coronavirus containment measures they had been implementing. There were also expectations among investors that the U.S. Federal Reserve will likely slow the pace of interest rate hikes, further raising investor sentiments. The yield on the 10-year Japanese government bond was hardly impacted by developments during the week prior and remained broadly unchanged at 0.25% as it traded around the implicit policy cap of the Bank of Japan (BoJ). Simultaneously, the yen rose to about JPY 134.5 from JPY 139.1 against the U.S. dollar, its strongest level in more than three months. The move was in anticipation of the Fed shifting to a more dovish stance.

Chinese stocks rallied amid indications that the U.S. Federal Reserve is poised to lower the pace at which it was hiking interest rates, and that Beijing was inching closer to fully reopening the economy after months of pandemic lockdowns. The blue-chip CSI 300 Index surged by 2.5% during the past week’s trading, the best weekly gain it had in a month. Early in the week, however, markets plunged on reports that civil unrest broke out in major cities nationwide over the weekend. The unrest was sparked by a fire in Urumqi, the capital of Xinjiang province, that killed 10 people purportedly locked in their residences due to coronavirus restrictions. After the incident, Beijing expressed intentions of moving away from its zero-tolerance approach to coronavirus control, lifting investor sentiments.

The Week Ahead

Productivity, jobless claims, and the producer price index are among the important economic data being released this week.

Key Topics to Watch

• S&P U.S. services PMI (final)
• ISM services index
• Factory orders
• Trade deficit
• Productivity (SAAR) revision
• Unit labor costs (SAAR) revision
• Consumer credit (level change)
• Initial jobless claims
• Continuing jobless claims
• Producer price index final demand
• UMich consumer sentiment index (early)
• UMich 5-year inflation expectations (early)
• Wholesale inventories revision

Markets Index Wrap Up

Stock Markets

The holiday-truncated trading week produced gains in the major stock benchmarks. The Dow Jones Industrial Average (DJIA) climbed 2.39% while the Dow’s total stock market index likewise gained 1.98%. The S&P 500 Index added 2.02%, outperforming the technology-heavy Nasdaq Stock Market Composite which inched upward by 0.73%. The NYSE Composite advanced by 2.51%. Expectedly, the CBOE Volatility index plunged by 14.33%. For the first time in two months, the S&P 500 Index closed the week above 4,000. The market rally was fueled by favorable earnings reports in the retail and technology sectors. There are also indications that the Federal Reserve is increasingly amenable to loosening its policy and slowing the pace of rate hikes that it had pursued in recent months. Investors had overcome concerns early in the week regarding the potential repercussions of a fresh round of COVID-related lockdowns in China on global economies. Trading was light going into the Thanksgiving holiday.

U.S. Economy

The inflationary trend, and the Federal Reserve’s response to try to rein it in, appear likely to continue to drive markets in the months ahead. There is still no clear indication as to how far the Fed will need to hike interest rates further before inflation is brought under control. Investors, however, are of the view that the end of the tightening cycle is closer than the beginning, There is a stronger expectation that inflation will soon trend downward over the months to come, potentially shifting the market environment and lifting some of the pressure from investment portfolios.

The bond market was characterized by decreasing yields of longer-maturity Treasury debt by more than shorter maturities. This has led to a further inversion of the yield curve as bond prices and yields move in opposite directions. Municipal bonds traded higher from the start of the week through Wednesday, assisted by a continued pullback in interest rates and limited issuance in the course of the short trading week. Nevertheless, the bonds sector lagged U.S. Treasuries at the broad market level, prompted by the underperformance of long-maturity principals. While bonds typically move in the opposite direction to stocks to provide a buffer against stock-market losses, the quickly rising interest rates and demand concerns indicated that bonds entered into a bear market almost simultaneously as equities. Bonds, therefore, afforded little protection to the stock-market declines.

Metals and Mining

The price of gold continued to prove its resilience as it closed the week slightly above the $1,750 per ounce support level. The Federal Reserve provided a lifeline to the precious metal after the minutes from its November monetary policy meeting were perceived to have a more dovish undertone. A majority of the participants in the meeting saw that slowing the pace of rate increases will soon be justified by pending inflation rate slowdowns. The message advanced by the meeting is helping to strengthen expectations that the U.S. central bank will adjust interest rate hikes down to 50 (rather than 75) basis points starting next month. While the gold market is holding fast to the current support levels, precious metal investors still appear reticent to advance their bullish bids. The lack of confidence is not unjustified because past pivot rumors that have circulated through the summer have burned some investors who untimely entered the market. Despite the strong headwinds, however, gold continues to outperform the broad market and continues to remain an effective portfolio diversifier.

Gold ended this week at $1,754.93 per ounce, 0.24% higher than the previous week’s close at $1,750.68. Silver, which ended the week before at $20.94, closed this week at $21.75 per ounce, representing a gain of 3.87%. Platinum ended the week before at $981.87 and closed this week at $983.56 per ounce, inching upwards by 0.17%. Palladium came from $1,939.21 and ended at $1,847.69 per ounce, declining by 4.72%.  The three-mo LME prices of base metals moved down across the board. Copper closed this week at $8,008.00 per metric tonne, down by 1.26% from the previous week’s closing price of $8,110.00. Zinc descended by 2.23% from the week-ago price of $2,987.00 to this week’s price of $2,920.50 per metric tonne. Aluminum, which closed the week before at $2,391.00, ended this week at $2,362.50 per metric tonne, for a weekly loss of 1.19%. Tin came from its previous week’s price of $22,584.00 to end this week at $22,231.00 per metric tonne, a decline of 1.56%.

Energy and Oil

Oil markets are once more impacted by bearish sentiments as China’s renewed COVID lockdown once more casts a pall over the global economic recovery. As the oil price cap comes into effect in only 10 days, clarification is desperately awaited by the oil markets on the actual details of the price limit. Although the European Union convened to align on a joint oil price cap, talks collapsed as members failed to agree on the best price point.

The reports of some media players suggested that the G7-proposed oil price cap level would fall within the range of USD 65 to 70 per barrel. This figure is substantially higher than what was first assumed. The proposal of the EU to cap gas prices, reportedly at €275 per MWh, was lambasted by member states. Discontent was fueled by the lack of clarity while Germany and the Netherlands claim that any cap would only shift supply elsewhere.

China’s COVID resurgence and pending reduction in economic activity have only pushed oil prices lower over the week. China’s daily recorded COVID-19 cases had risen to an all-time high in the past week, surging to more than 31,000 and prompting the government to lock down Henan and Guangdong once again. Beijing residents were subjected to the strictest restrictions since the pandemic began.

Natural Gas

For the week beginning Wednesday, November 16, and ending Wednesday, November 23, 2022, the Henry Hub spot price ascended by $2.29 from $3.45 per million British thermal units (MMBtu) at the beginning of the week to $5.74/MMBtu at the week’s end. Regarding Henry Hub futures prices, the price of the December 2022 NYMEX contract increased by $0.335, from $5.865/MMBtu to $6.200/MMBtu through the week. The price of the 12-month strip averaging December 2022 through November 2023 futures contracts rose by $0.203 to $5.349/MMBtu. International natural gas futures price movements were mixed this report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia declined $0.85 to a weekly average of $27.06/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $0.15 to a weekly average of $34.10/MMBtu.

World Markets

In Europe, equities rose for a sixth straight week on expectations that central banks are about to slow the pace of interest rate increases. The pan-European STOXX Europe 600 Index closed the week 1.66% higher than last week in local currency terms, France’s CAC 40 rose by 0.88%, Germany’s DAX Index added 0.62%, and Italy’s FTSE MIB remained unchanged. The UK’s FTSE 100 Index advanced by 1.16%. European government bond yields softened based on speculations that the region’s monetary policy may loosen soon. A survey conducted among purchasing managers suggested that the eurozone economy teetered on the brink of contractionary territory with inflationary pressures easing. The 10-year German government bond yields were kept subdued below 2%, while in the UK, the 10-year bond yields remained steady at about 3% as hopes for smaller rate hikes were broadly offset by concerns about record issuance.

In Japan, stock markets climbed during a holiday-shortened trading week. The Nikkei 225 Index rose by 1.37% and the broader TOPIX Index ascended by 2.59%. Positive sentiment was driven by expectations that the U.S. Federal Reserve would likely adopt a more dovish monetary policy stance soon. There are indications that inflationary pressures appear to be broadening in November, amid a rise in Tokyo core consumer prices, widely recognized as a leading indicator of nationwide trends. PMI data showed the first contractions in the Japanese manufacturing sector going back to January 2021. Furthermore, a recovery in the tourism industry continued to support the services sector which stagnated nevertheless. The yield on the 10-year Japanese government bond climbed to 0.25% from 0.24% where it ended the previous week. The yen strengthened to approximately JPY 138.7 against the U.S. dollar, compared to the earlier week’s exchange rate of JPY 140.3 to the greenback. The move was in response to the anticipation of a more dovish Fed policy and the Bank of Japan’s commitment to its ultra-liberal monetary policy. Inflationary pressures continue to build in November, though, with Tokyo’s core consumer prices rising by 3.6% year-over-year, higher than consensus estimates.

Chinese shares were moderately positive for the week, as investors balanced concerns over new coronavirus restrictions against declarations by authorities that they will provide greater support towards stimulating the economy. News of additional funding for property developers further boosted market sentiment. The Shanghai Composite Index added 0.76% while Hong Kong’s Hang Seng Index gained 0.59%. The COVID situation provided headwinds to the country’s economic recovery as cases soared to record highs. Several cities were placed under broad restrictions on movement, and mass testing was resumed to track the rise of daily coronavirus cases. No city-wide lockdowns have yet been announced, but the widespread restrictions have hampered economic activities across the country. Government authorities have stated that their responses will be more targeted and less disruptive. Eight districts in Zhengzhou, the site of Apple’s largest iPhone manufacturing facilities, will be locked down for five days beginning November 25 due to the virus reaching a “critical phase” in the region. This elevated tensions after workers at Foxconn’s plant, protesting unpaid wages and poor hygiene conditions, clashed with security personnel. To provide further support to the economy, the People’s Bank of China announced on Friday that it will cut the reserve requirement ratio (RRR) by 25 basis points. This is part of a pledge by the central bank to employ monetary tools “in a timely and appropriate manner” to maintain reasonably ample liquidity.

The Week Ahead

Important economic data scheduled for release in the coming week include real GDP, job openings and quits, PCE price index, and real consumer spending.

Key Topics to Watch

• MarketWatch interviews St. Louis Fed President James Bullard
• S&P Case-Shiller U.S. home price index (SAAR)
• FHFA U.S. home price index (SAAR)
• Consumer confidence index
• ADP employment report
• Real GDP (SAAR) revision
• Real gross domestic income (SAAR)
• Real domestic final sales (SAAR) revision
• Trade in goods deficit (advance)
• Chicago PMI
• Job openings
• Quits
• Pending home sales index
• Fed Chair Jerome Powell speaks at the Brookings Institution
• Beige Book
• Initial jobless claims
• Continuing jobless claims
• PCE price index
• Core PCE price index
• PCE price index (year-on-year)
• Core PCE price index (year-on-year)
• Real disposable income
• Real consumer spending
• S&P U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Motor vehicle sales (SAAR)
• Nonfarm payrolls (level change)
• Unemployment rate
• Average hourly earnings
• Labor-force participation rate, 25-to-54-year-olds

Markets Index Wrap Up

Stock Markets

This week, the equities market gave back a modest proportion of the previous week’s stellar gains as investors try to gauge the scale of the economic slowdown. The major stock indexes saw moderate retracements. The Dow Jones Industrial Average (DJIA) slid back 0.01% and its total stock market index receded 0.97%. The S&P 500 Index declined 0.69% while the Nasdaq Stock Market Composite dropped 1.57%. The NYSE Composite inched down 0.28%, while the CBOE Volatility Index (VIX) rose 2.66%. The increase in the volatility metric generally indicates a heightened perceived risk among investors, although the current VIX value of 23.12 is still significantly below the 30-benchmark level indicating large volatility.

In this week’s trading, growth stocks underperformed value-oriented shares as the latter was supported by gains in the consumer staples sector. On the other hand, the energy sector underperformed due to European oil and natural gas inventories reaching near-peak levels. A brief sell-off on Tuesday was sparked by dispelled reports of a Russian missile strike on Polish territory. For much of the week, trading volumes remained subdued. Investors remained focused on earnings reports from prominent retailers and what they may indicate about a possible economic slowdown.

The U.S. Treasury yield curve inverted further during the week, driving the inversion level in the two-year/10-year curve segment to its deepest level in more than four decades. This is of some concern since this is typically an indicator of a coming recession, although this prognosis remains far from conclusive. James Bullard, President of the Federal Reserve Bank of St. Louis, announced that the Fed’s terminal policy should reach a minimum level of 5% and may need to reach as high as 7% for the central bank to achieve its inflation objectives. This news caused short-term U.S. Treasuries to reprice to higher levels. Meanwhile, “dip buying” in longer maturities helped push long-end yields downward since bond prices and yields are negatively correlated.

U.S. Economy

The labor market remains resilient although the manufacturing sector showed slower growth. In October, industrial production unexpectedly slowed as it was weighed down by weakness in the energy and materials sector. A gauge of manufacturing activity in the Mid-Atlantic region also plummeted to its lowest level since May 2020. Another round of massive layoffs was announced by Amazon.com in the form of a 10,000-strong job cut. The jobless claims over the previous week remained muted, however. Some 222,000 workers filed for unemployment benefits, still within the 214,000 to 226,000 tight range of jobless claims since late September.

While there were reports of flagging discretionary spending impacting some retailers, others reported better-than-expected results that offset concerns and reflected a more positive picture. The Commerce Department reported on Wednesday that retail sales excluding the volatile auto segment rose 1.3% in October, the biggest gain since May and well above consensus expectations.

Metals and Mining

Gold and silver have seen impressive rallies since the start of November. Silver prices rose 19% in the last three weeks as they briefly pushed above $22 per ounce, and gold prices rallied almost 11% to within proximity of $1,800 per ounce. While both precious metals maintain most of their gains heading into the weekend, they are still well off their highs and continue to test important support levels at $1,750 and $21 for gold and silver, respectively. While there appears a new impetus to the rise in precious metals prices, one requisite remains missing. Still sitting on the sidelines are the long-term investors in gold-backed exchange-traded funds (ETFs). Analysts note that rallies in gold and silver will remain unsustainable until these investors rejoin the market. This prospect may not occur for some time, as long as the Federal Reserve maintains its aggressive monetary policy stance.

This past week, gold fell 1.16% from the previous week’s level of $1,771.24 to this week’s end at $1,750.68 per troy ounce. Silver, which closed a week ago at $21.70, ended this week at $20.94 per troy ounce, lower by 3.50%. Platinum came from $1,033.07 a week ago and closed this week at $981.87 per troy ounce, losing 4.96%. Palladium descended 5.37% from its week-ago price of $2,049.35 to this week’s close at $1,939.21. Base metals 3-mo LME prices ended mixed for the week. Copper, which was priced one week ago at $8,271.50, ended this week at $8,110.00 per metric tonne, down by 1.95%. Zinc rose from $2,327.00 the previous week to $2,987.00 per metric tonne this week, up by 28.36%. Aluminum lost 17.09% from its previous price of $2,884.00 to its price this week at $2,391.00 per metric tonne. Tin rose 11.12% for the week, from $20,324.00 to $22,584.00 per metric tonne.

Energy and Oil

The week was replete with both negative and positive disruptive events, including the prospect of World War III, a drone missile attack on a tanker in the Middle East, and market optimism from improving inflation data suddenly cut short by a protracted coronavirus outlook in China. Concerning the covid outbreak, the situation in that country has become so dire that Chinese retailers have reportedly asked Saudi Arabia to cut already nominated December volumes, simultaneously withdrawing on other buying. China’s re-emergence was a critical consideration of the recent upswing in prices. The latest developments have caused ICE Brent prices to slip below $90 per barrel again, as would have been expected given the recent events. For the longer-term outlook, the U.S. is expected to ban fossil fuel heavy-duty cars by 2040. U.S. Energy Secretary Jennifer Granholm, speaking at the COP27 climate summit in Egypt, stated that the White House intends to sell only zero-emissions medium- and heavy-duty vehicles including buses, delivery vehicles, and trucks, by the end of the next decade.

Natural Gas

For the report week beginning Wednesday, November 9, and ending Wednesday, November 16, 2022, the Henry Hub spot price rose $2.29, from $3.45 per million British thermal units (MMBtu) at the start of the week, to $5.74/MMBtu at the end of the week. The price of the December 2022 NYMEX contract increased by $0.335, from $5.865/MMBtu to $6.200/MMBtu. The price of the 12-month strip averaging December 2022 through November 2023 futures contracts rose $0.203 to $5.349/MMBtu. International natural gas futures price movements were mixed this report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased $0.85 to a weekly average of $27.06/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 $0.15 to a weekly average of $34.10/MMBtu

World Markets

European stocks consolidated as the pan-European STOXX Europe 600 Index ended mostly higher in local currency terms. The region’s major stock indexes solidified their positions, with Germany’s DAX Index rising 1.46%, Italy’s FTSE MIB Index advancing 0.90%, and France’s CAC 40 Index ascending 0.76%. UK’s FTSE 100 Index gained 0.92%. In his Autumn Statement, UK Finance Minister Jeremy Hunt announced a round of tax increases, spending cuts, and new fiscal rules, intent on repairing the public finances and restoring Britain’s credibility in international markets. The government will raise taxes by GBP 25 billion and cut spending by GBP 30 billion by 2027-2028 to plug the fiscal hole of GBP 55 billion. The greater portion of the cutdown in public spending is scheduled for implementation after the next general election in 2024. Inflation in the UK accelerated and hit a 41-year high of 11.1% in October, more than was expected and higher than the 10.1% inflation rate registered in September. Its primary drivers were sharp increases in energy bills and food prices.

Japan’s stocks fell over the past week. The Nikkei 225 Index declined by 1.29% while the broader TOPIX Index slid by 0.54%. The rate of core consumer price inflation ascended to a 40-year high, further exerting pressure on the Bank of Japan (BoJ) which remains committed to its ultra-loose monetary policy stance. For the third quarter of the year, the Japanese economy unexpectedly contracted, weighing down investor sentiment. The yield on the 10-year Japanese government bond rose to 0.24% from 0.23% at the end of the week before. The yen weakened slightly to approximately JPY 139.8 against the U.S. dollar, compared to the prior week’s rate of about JPY 138.8 to the greenback. Core consumer prices for October rose at their fastest rate in four decades. Excluding fresh food, consumer inflation grew 3.6% year-to-year, higher than the BoJ’s target for the seventh consecutive month.

Stocks in mainland China rose modestly over the week. The Shanghai Composite Index gained 0.32% while Hong Kong’s Hang Seng Index outperformed with a rise of 3.85%. Investor sentiment struck a balance between optimism about the easing COVID restrictions and concerns over rising cases. New cases of coronavirus infections averaged 16,000 by the end of the week, with a seven-month high of over 25.000 on Thursday alone. Although the breakout was widespread, China’s National Health Commission announced that it was ending mass testing in districts not at risk of community transmission. Furthermore, plans to create new COVID-focused treatment centers were announced by the Commission. This is evidence that the government was gradually retreating from its “zero-COVID” policy, contrary to official statements. The strict official policy, together with the troubled housing sector, appeared to impact negatively on the consumer as evident in Monday’s October retail sales report. Data showed sharp year-on-year declines in almost all categories of retail sales (for instance, sales of home appliances plunged by over 14%). However, investors’ hopes were enhanced by recently announced support measures for the property sector. Officials unveiled 16 new programs to shore up the property markets, including loan extensions to both homebuyers and developers.

The Week Ahead

Among the important economic data scheduled for release in the coming week are building permits, durable goods orders, and the Markit PMI.

Key Topics to Watch

• Chicago Fed national activity index
• Durable goods orders
• Core capital equipment orders
• Initial jobless claims
• Continuing jobless claims
• S&P U.S. manufacturing PMI (flash)
• S&P U.S. services PMI (flash)
• UMich consumer sentiment index (final)
• UMich 5-year inflation expectations (final)
• New home sales (SAAR)
• FOMC minutes

Markets Index Wrap Up

Stock Markets

Investors heaved a sigh of relief at the cooler-than-expected inflation data released this week. Although this in no way guarantees that the worst is over, the market is hopeful that October could be the start of a disinflationary trend that could hopefully spill over to next year. The lower-than-expected headline consumer price index (CPI) sent stocks surging, Treasury yields declining, and a weakening in the dollar. The market reactions point to inflation as the top driver of market movements for the year, and a significant factor for consideration for Federal Reserve policy and investment strategy. There was heightened activity in the investment-grade corporate bond primary market even as the broad tax-exempt bond market traded higher.

Over the trading week just concluded, the Dow Jones Industrial Average (DJIA) rose 4.15% while the Total Stock Market Index gained 5.99%. The S&P 500 Index ascended even higher, adding 5.90%, although it was even outperformed by the Nasdaq Stock Market Composite which advanced 8.10%. The NYSE Composite Index gained 4.42% while the CBOE Volatility Index declined 8.27%, a sign of falling risk perception among investors. Furthermore, the S&P 500 Index recorded its best week since June as well as hit its best intraday level in two months. Its largest daily gain since April 2020 materialized after the release of the consumer inflation data on Thursday. Growth stocks, including technology and internet-related shares particularly, benefitted from falling bond yields which typically enhances the perceived value of future profits. An index of nonprofitable tech stocks, where a significant proportion of revenues is supposedly being invested in future growth, surged by more than 15% on Thursday.

U.S. Economy

The CPI registered an increase of 7.7% over last year, down from September’s 8.2% inflation rate and the smallest annual increase since January. More significantly, core inflation (excluding food and energy) slowed more than expected, adding only 0.3% over the month before and 6.3% from last year, compared to 0.6% and 6.7% in September, respectively. The September increase marked a 40-year high. Among the sectors where prices fell most were used cars and trucks which dropped by 2.4% in October, and apparel and medical services which also pulled back. Bucking the trend was the cost of shelter which continued to keep inflation elevated as it rose by 0.8% in October, its biggest increase in more than 32 years.

Some of the market surge may be owed to policymakers’ pronouncements regarding the economic data. Four Fed officials delivered speeches on Thursday, stating in effect that they believed the pace of rate increases should be tempered and perhaps halt at a lower terminal rate.  A more cautious tone was adopted by Federal Reserve Bank of Cleveland President Loretta Mester when she said that policy should “become more restrictive.” The results of the midterm election on Tuesday also impacted the perception of the economy’s future. Some investors appear to favor a divided government that would restrain new spending and regulation, and therefore welcomed the likelihood of a Republican majority in the House of Representatives and, possibly, the Senate.

Metals and Mining

It was an amazing week for the precious metals markets. Gold registered its best weekly performance in almost two years, with December gold futures ending the week at about $1.770 per ounce, up by 5.5% from the previous week. Several major factors appear to be driving the new bullish momentum in metals. The top concern remains to be growing fears of a recession as the inverted U.S. yield curve remains at its widest level in 40 years. Another factor influencing the rally in gold prices is the optimistic news that inflation rose at a slower rate than economists expected, possibly signaling that the Fed is close to slowing down further interest rate hikes.

A third factor that is driving the precious metal’s safe-haven appeal is the increasingly chaotic cryptocurrency market. The week took a bad turn for one of the world’s largest crypto exchanges as FTX announced Thursday night that it was filing for bankruptcy. The digital exchange went from a market value of $32 billion to basically worthless in the span of a few days. There was a significant knock-on effect as the 130 corporate entities affiliated with the exchange filed for bankruptcy. The problems in this market are seen to possibly impact broader market conditions.

The gold spot price rose 5.31% from the previous week’s close at $1,681.87 to this week’s close at $1,771.24 per troy ounce. Silver ascended 4.03% from the price the week before at $20.86 to this week’s $21.70 per troy ounce. Platinum came from $964.16 to end this week at $1,033.07 per troy ounce, a gain of 7.15%. Palladium gained 9.21% week-on-week, from $1,876.50 to $2,049.35 per troy ounce. The 3-month LME prices of base metals were mixed for the week. Copper gained 2.13% from its previous week’s closing price of $8,099.00 to this week’s price of $8,271.50 per metric tonne. Zinc began at $2,874.00 and ended at $2,327.00 per metric tonne for a weekly loss of 19.03%. Aluminum shot up by 22.44% from its earlier week’s close at $2,355.50 to this week’s $2,884.00 per metric tonne. Tin closed this week at $20,324.00 per metric tonne, up by 7.69% from the previous week’s price of $18,872.00.

Energy and Oil

Covid is once more putting its thumb on the weighing scale of oil prices, but this time in a positive way. The Covid news out of China is encouraging as the government appears to be rethinking its zero-Covid policy and easing some of its Covid restrictions. This development boosts hopes that China’s oil demand could start bouncing back, providing an impetus for oil prices to recover. The announcement of better-than-expected U.S. inflation data has also helped push back a significant oil price decline this week, bringing ICE Brent back to $96-97 per barrel. While coronavirus cases continue to surge in China, reprising and, in some cases, surpassing the 2020 contagion levels, Beijing’s shifting stance on lockdowns towards greater leniency have calmed the ripples in the oil markets and offset fears of a year-on-year drop in oil demand in the country. Although the threat of more bearish news remains, China’s move towards greater openness supports further increases in oil prices. Meanwhile, in the U.S. the Energy Information Administration (EIA) lowered its forecast for 2023 U.S. crude production growth by a significant 21%. The EIA cited inflation and supply chain constraints and expects next year’s increase to be 480,000 barrels per day.

Natural Gas

For the report week beginning Wednesday, November 2, to Wednesday, November 9, 2022, the Henry Hub spot price fell by $1.06 from $4.51 per million British thermal units (MMBtu) to $3.45/MMBtu. The closing price was the lowest daily price since December 2021. The price of the December 2022 NYMEX contract decreased by $0.403 from $6.268/MMBtu On November 2 to $5.865/MMBtu on November 9. The price of the 12-month strip averaging December 2022 through November 2023 futures contracts lost $0.205 to $5.146/MMBtu. International natural gas futures prices decreased for this report week. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $1.06 to a weekly average of $27.91/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by less than $0.02 to a weekly average of $33.95/MMBtu.

World Markets

European shares climbed on the news of slowing U.S. inflation, together with news of better-than-expected results this earnings season by listed firms, thus lifting investor sentiments. The pan-European STOXX Europe 600 Index closed the week 3.66% higher in local currency terms. Germany’s DAX Index jumped by 5.68%, Italy’s FTSE MIB Index rose by 5.04%, and France’s CAC 40 Index climbed by 2.78%. The U.K.’s FTSE 100 Index, on the other hand, slid 0.23% after the release of poor economic growth data eroded gains. In the bonds market, European government bond yields descended from multiweek highs on the back of weaker-than-expected U.S. CPI data that fueled a global rally in bond markets. Germany’s 10-year bond yield settled at a two-week low in response to a broad-based drop in U.S. treasury yields. However, yields remained near recent highs in Italy, France, and Switzerland, in response to still red-hot inflation data in the bloc. Weak gross domestic product (GDP) data in the U.S. weighed with a downward bias on bond yields ahead of next week’s budget. The lower GDP reading in the U.K indicates a shrinking economy and suggests an impending recession.

Japanese stocks rose over the week as the Nikkei 225 Index registered a 3.9% gain and the broader TOPIX Index ascended by 3.3%. Positive investor sentiment in the Japanese markets resulted from the lower-than-expected U.S. CPI inflation figure. This raised hopes that the U.S. Federal Reserve will begin to loosen its restrictive monetary policy and allow for a more dovish stance. The relaxation of coronavirus restrictions in China also contributed to the more optimistic Japanese outlook. The Bank of Japan (BoJ) asserted that it will continue to pursue its ultra-loose monetary policy to support the fragile economic recovery. The yield on the 10-year Japanese government bond fell to 0.23% from 0.25% even as the yen strengthened at about JPY 139.4 versus the U.S. dollar, from around JPY 146.6 towards the end of the week before. The stronger yen appears to be the result of the BoJ’s intervention in the currency markets.

Chinese equities benefitted from a surprise boost following the announcement of better-than-expected numbers in U.S. inflation. For most of the week, however, Chinese bourses trailed most other global markets due to investors’ concerns about new signs of the economy remaining fragile. The Shanghai Composite Index slid by 0.54% for the week. Some relief was provided to property stocks by news of additional support for the troubled housing market. Chinese officials ordered another USD 56 billion in loans to be extended by second-tier banks to developers. For much of the week, continuing concerns were fueled by the number of daily COVID cases reaching above 10,000 for the first time in over a year, posing the possibility of further lockdowns and a postponement of the opening of the Chinese economy. The increase in infection appeared broad-based and included Henan province, where Foxconn’s iPhone assembly plant was kept open but placed in a “closed loop” with workers living on-site. In any case, an announcement of China’s relaxation of its zero-COVID policy appears to have provided the impetus for Friday’s rally. The government is rumored to soon ease travel restrictions and other measures following President Xi Jinping’s reelection. While policy remains firmly in place, for now, Beijing announced on Friday afternoon that mandatory quarantine time for inbound travelers would be reduced, together with testing requirements.

The Week Ahead

Important economic data scheduled to be released this week include housing starts, retail sales, and leading economic indicators.

Key Topics to Watch

• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• Producer price index final demand
• Empire state manufacturing index
• Real household debt (SAAR)
• Real mortgage debt (SAAR)
• Retail sales
• Retail sales excluding vehicles
• Import price index
• Industrial production
• Capacity utilization rate
• Business inventories
• NAHB home builders’ index
• Initial jobless claims
• Continuing jobless claims
• Building permits (SAAR)
• Housing starts (SAAR)
• Philadelphia Fed manufacturing index
• Existing home sales (SAAR)
• Leading economic indicators

Markets Index Wrap Up