Stock Markets

Over the past week, the markets reversed the seeming recovery it appeared to trek just the week before. All indexes are down after the Federal Reserve hiked interest rates another 75 basis points, putting to rest speculation that the central bank was rethinking its hawkish policy and would moderate the pace of its rate hikes. The Dow Jones Industrial Average (DJIA) descended 1.40% from the week before while the Total Stock Market charted a 3.33% drop. The S&P 500 Index mirrored the Dow Jones total stock market, giving up 3.35% from the week before. The Nasdaq Stock Market Composite underperformed the general indices more, plunging 5.65%, suggesting that the technology sector and growth stocks bore the brunt of the sell-down more than the other sectors. The NYSE Composite dipped by 0.63%, and CBOE Volatility (VIX) dropping 4.66%. Typically, the VIX negatively correlates with the S&P 500, so the results this past week appear to run against previous experience, with both indicators falling by about the same percentage.

Hopes were dashed during the week that the Fed may slow down the degree to which they raise interest rates anytime soon. The fed funds rate was jacked up 0.75% at its November FOMC meeting, its fourth consecutive increase by the same percentage points. In just eight months, the fed rate shot up from almost 0% to 4.0%, an unprecedented pace in the history of the U.S. economy. Chair Powell stressed that while the pace of rate hikes may slow as soon as the December meeting, any chance that the rate-hiking may pause is still “very premature.” This shows that the Fed perceives greater risk in pausing and easing prematurely the rate hikes, than in overtightening. The message from Chair Powell provided the greatest incentive for the markets to broadly retreat last week, retracing much of the gains from the rebound last October.

U.S. Economy

The higher interest rates the country is facing can put downward pressure on consumption as well as directly impact those sectors of the economy that are more sensitive to interest-rate movements. The financial sector which includes credit card debt is the most interest-rate-sensitive industry. Aside from it, the consumer discretionary and housing markets will be impacted by rising interest rates because of the higher cost of commodities and rising mortgage rates.

Reports released also cast a mixed picture of the labor market in October. The Labor Department reported that employers added 261,000 jobs to nonfarm payrolls which outperformed consensus estimates. The department, therefore, adjusted its September jobs figures higher. Running counter to this, however, is the 3.7% rise in the October unemployment rate from 3.5% in September on the back of a decline in the labor force participation rate. While the labor market remains resilient, the unemployment rate is starting to move upward and the year-over-year gains are softening.

Metals and Mining

Over the summer, many analysts have pointed to pent-up demand building in the precious metals market. Gold prices have been in a consolidation pattern as many investors remain seated on the sidelines as they wait for the market conditions to shift. As gold prices ended up on Friday, it is still a mystery whether the precious metals market is ready to take off or this is again another feint in an unsustainable direction. The Fed’s aggressive monetary policy stance has held down investment demand for gold even as the rising interest rates have driven the dollar to 20-year highs. If Fed Chair Jerome Powell’s speech were any indicator, the central bank believes that inflation is not yet done in its ascent. In the meantime, there is renewed demand for safe-haven investments as the World Gold Council reported solid demand for gold. There is hope for global physical demand for gold to increase by 28% in the third quarter.

Precious metals spot prices were mixed for the week. Gold gained 2.25% over the past week, from the previous week’s close at $1,644.86 to the recent week’s close at $1,681.87 per troy ounce. Silver closed at $20.86 per troy ounce, which is 8.31% higher from the previous week’s close at $19.26. Platinum came from $947.97 the previous week and ended this week at $964.16 per troy ounce, recording a weekly gain of 1.71%. Palladium ended the previous week at $1,911.50 and the recent week at $1,876.50 per troy ounce, a decline of 1.83%.  The 3-mo LME prices for base metals were also mixed. Copper came from $7,764.50 the prior week and closed at $8,099.00 per metric tonne this week, locking in an increase of 4.31%. Zinc began at $2,942.00 and ended the week down by 2.31% at $2,874.00 per metric tonne. Aluminum rose by 2.97% week-on-week, from $2,287.50 the previous week to its close this week at $2,355.50 per metric tonne. Tin ended this week at $18,872.00 per metric tonne, a 0.97% increase over the previous week’s $18,690.00.

Energy and Oil

Oil prices have been pushed higher lately by a softer currency and speculation that China may be coming out of its Covid restrictions. In the longer term, however, the Federal Reserve’s hawkish pronouncements may exert downward pressure on oil prices. In the much-anticipated press conference held by Fed Chair Jerome Powell, many who expected that the Fed may soon adopt a more dovish stance were disappointed by the announcement of a 75-basis point rate hike, with the terminal rate possibly rising above current expectations. Fears that continued restrictive monetary policies may lead to a recession in the U.S. weighs on oil demand, even though it coincides with the possible opening up to China from years of self-imposed pandemic lockdowns. On the international scene, the Organization of Petroleum Exporting Countries issued a warning of an impending energy crisis. Facing annual production decline rates of four to five percent, OPEC Secretary General Haitham al Ghais called upon the global oil industry toincrease their investments in new oil projects to dispel the possibility of future energy crises, particularly since oil is still a decade away from peaking.

Natural Gas

For the report week beginning Wednesday, October 26, to Wednesday, November 2, 2022, the Henry Hub spot price fell by $0.75 from $5.26 per million British thermal units (MMBtu) at the start of the week to $4.52/MMBtu by the week’s end. Concerning Henry Hub future prices, the November 2022 NYMEX contract expired on Thursday at $5.186/MMBtu, lower by $0.42 from the preceding Wednesday. The December 2022 NYMEX contract price increased to $6.268/MMBtu, up, higher by $0.15 from the previous Wednesday to this Wednesday. The price of the 12-month strip averaging December 2022 through November 2023 futures contracts ascended $0.08 to $5.351/MMBtu.

The international natural gas futures prices were mixed throughout the report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased $2.55 to a weekly average of $28.97/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 $2.35 to a weekly average of $33.96/MMBtu.

World Markets

European shares rose for a third consecutive week, which investors may take as a signal by central banks that they may soon curb the pace of interest rate increases. Market sentiments were further boosted by speculation that China may soon lift its zero-Covid policies. The pan-European STOXX Europe 600 Index closed the week 1.51% higher. Major bourses followed this trend. Germany’s DAX Index gained 1.63%, France’s CAC 40 Index climbed 2.29%, and Italy’s FTSE MIB Index ascended 3.34%. The UK’s FTSE 100 Index advanced by 4.07%. European bond yields once more headed toward 11-year highs after the record inflation data for October prompted the European Central Bank to aggressively raise interest rates further. The market response was broad-based, with the yields from French, Italian, and Swiss sovereign bonds making a comeback from recent declines. The 10-year gilt yields in the UK rose after the Bank of England (BoE) raised its benchmark interest rate by 0.75 percentage point to 3% to contain inflation. This is the highest level it has been since 2008. The BoE warned that the UK faces a “very challenging” two-year recession and predicted that inflation would stay above 10% for the next six months and above 5% for the rest of 2023. The central bank forecasts that unemployment may rise to nearly 6.5% by 2025.

In Japan, stock market returns were positive for the week. The Nikkei 225 gained 0.35% and the broader TOPIX Index was up 0.86%. The positive sentiment was spurred by data indicating that Japan’s services sector expanded in October and that China was likely to reopen soon from its pandemic shutdowns. The U.S. Fed’s announcement that its hawkish monetary policy will continue dampened somewhat the positive investor sentiment. The yield on the 10-year Japanese government bond increased to 0,25% from 0.23% at the end of the previous week. The Bank of Japan (BoJ) reiterated its commitment to its ultra-loose monetary policy, but the Governor of the BoJ, Haruhiko Kuroda, hinted at a possible reassessment of the central bank regarding its policy yield curve control to arrest inflation. An increase in inflation beyond the BoJ’s 2% target and a rise in wages may compel the central bank to tweak its monetary policy. The yen weakened to about JPY 148,0 against the greenback, from approximately JPY 147.5 the week before. Authorities have intervened on several occasions to prop up the yen as it came under pressure due to the U.S. Fed’s tightening monetary policy.

China’s equities markets rallied on the expectation that the country was soon to relax its zero-tolerance policy regarding Covid-19. The broad, capitalization-weighted Shanghai Composite Index advanced by 5.3% for the week. Meanwhile, the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, surged by 6.4% for the week. Reports that surfaced in the just-concluded week stated that China was preparing to exit from its zero-Covid strategy that has adversely affected the country’s economy. In an unverified but widely circulated social media report, high-level officials had allegedly met during the prior weekend at the request of President Xi Jinping to discuss the conditional opening plan aimed at substantially opening by March in the coming year. The yield on the 10-year Chinese government bond ascended last Friday to 2.721% from 2.621% one week earlier.

The Week Ahead

This week, important economic data scheduled for release include consumer credit, CPI inflation data, and jobless claims.

Key Topics to Watch

• Consumer credit (level change)
• Cleveland Fed President Loretta Mester and Boston Fed President Susan Collins speak about women in economics
• Richmond Fed President Tom Barkin speaks on inflation
• NFIB small-business index
• New York Fed President John Williams speaks at Swiss National Bank event
• Wholesale inventories (revision)
• Richmond Fed President Tom Barkin speaks on outlook
• Fed Gov. Christopher Waller speaks on central bank digital currencies
• Consumer price index (monthly exchange)
• Core CPI (monthly change)
• CPI (12-month change)
• Core CPI (12-month change)
• CPI (3-month SAAR)
• Core CPI (3-month SAAR)
• Initial jobless claims
• Continuing jobless claims
• Federal budget (compared with year ago)
• Philadelphia Fed President Patrick Harker speaks on economic outlook
• Dallas Fed President Laurie Logan speaks on energy and the economy
• UMich consumer sentiment (early)
• UMich consumer 5-year inflation expectations (early)
• Cleveland Fed President Loretta Mester speaks
• Kansas City Fed President Esther George speaks on energy and the economy
• New York Fed President John Williams speaks

Markets Index Wrap Up

 

Stock Markets

The Dow Jones Industrial Average (DJIA) rose 5.72% and the total stock market index likewise climbed 4.15% for the week. The broad S&P 500 Index rose by 3.95%. The NYSE Composite ascended by 4.61% while the technology-heavy Nasdaq Stock Market Composite increased by 2.24%. The relative underperformance of the Nasdaq compared to the other indexes suggests that value stocks are attracting more investor action than tech and growth stocks. The CBOE volatility index fell by 13.27%.

Big Tech stocks, including Alphabet, Microsoft, Meta, Apple, and Amazon, on average declined 9% on the day of their earnings release and weighed on the markets. The mega-cap technology companies, which accounted for 20% of the S&P 500, exerted an outsized influence on the market averages. Almost 50% of the market cap, represented by 164 of the S&P 500 companies, reported results over the week. The tone of the earnings updates was not one-sided, though. Solid earnings trends were reported by several companies that rely mostly on consumer spending. Three themes dominated these stocks. First, online advertising spending continues to slow, thus weighing on the results of tech and other communication companies. Second, U.S. consumer spending is shifting more to services and less to goods. Third, strong pricing power and improving supply chains are helping support corporate profits.

U.S. Economy

Some of the improvement in market sentiment appeared to have been driven from beyond U.S. borders. Midweek, the Bank of Canada announced unexpectedly that it will raise rates by only 0.50% instead of 0.75%, sparking hopes that the Federal Reserve will follow its example. The possible continued aggressive monetary policy by the Fed and the consequent strengthening of the U.S. dollar intensified concerns that instability in the global financial system may be triggered. Optimism that the Fed may slow down its rate hikes was boosted by the report by the Commerce Department that the gross domestic product (GDP) growth rose for the first time this year. The third-quarter GDP suggested that the economy expanded by an annualized 2.6%, higher than the consensus estimate of 2.4%. Behind the reading were resilient consumer spending and business investment, together with increased government outlays. These helped offset a deep decline in residential investment, which is the first clear impact of the Fed rate hikes. In September, pending home sales declined by 10.2%, the sharpest monthly fall of the indicator since the onset of the pandemic.

Although the third-quarter GDP was positive, a look at the figures behind the metric reveals a less-than-rosy picture of the economy. The rebound was mostly due to a boost from net trade, where imports fell and exports rose. Since the global economy remains weak and the U.S dollar is nearly 20% higher from this same time last year, the surge in exports that pushed the GDP up this time around will likely fade in future quarters. The first-half GDP data appeared to have overstated the weakness in the economy while the third-quarter GDP overstated its strength. The rest of the picture is not encouraging. Consumption, which is the U.S. economy’s primary driver, slowed from 2% in the previous quarter to 1.4% this quarter. The consumption figure was helped by a rise in service spending, while goods consumption declined. As previously observed, residential investment (housing) sharply declined due to its sensitivity to interest rates. Mortgage rates have more than doubled since the year began. The positive side of this development is that as borrowing costs increase and the housing market cools, inflation can be expected to come down in the coming year.

Metals and Mining

The week began with gold performing solidly past the $1,650 per ounce price level. By the end of the week, the momentum had vanished. Rumors that the Federal Reserve will signal next week its readiness to slow its hitherto aggressive monetary policy rate hikes, weighing on the price of precious metals. While the sentiment in gold remains somewhat bullish, investors are not convinced that it will decidedly move up anytime soon. Players are likely to remain sidelined until confirmatory signals are seen. For this reason, attention is focused on next week’s FOMC meeting.

This week, gold inched downward by 0.77%, from $1,657.69 to $1,644.86 per troy ounce. Silver followed suit, dipping by $0.82 from the previous week’s $19.42 to this week’s $19.26 per troy ounce. Platinum, which closed the prior week at $934.83, ended this week at $947.97 per troy ounce, up by 1.41%. Palladium took a more substantial dip from its previous close at $2,018.50 to the more recent close at $1,911.50 per troy ounce, descending by 5.30%. The 3-mo LME prices for base metals were marginally up. Copper began from the previous week’s close at $7,624.00 and rose by 1.84% to close this week at $7,764.50 per metric tonne, an increase of 1.84%. Zinc, which ended the previous week at $2,928.00, closed this week higher by 0.48% at $2,942.00 per metric tonne. Aluminum came from $2,206.00 and ended this week at $2,287.50 per metric tonne, higher by 3.69%. Tin ended the week higher by 1.11%, closing at $18,690.00 per metric tonne from the prior week’s close at $18,484.00, an increase of 1.11%.

Energy and Oil

The oil markets sprang to life on the back of strong corporate earnings, with strong oil majors maintaining their policy of increasing dividends and ramping up share buybacks. The White House may not approve of this action taken by oil companies ahead of the midterm elections as a surge of optimism has supported the oil prices well, with ICE Brent approaching the psychological barrier at $100 per barrel. The problems that arose earlier this past week, including the widespread dumping of Chinese assets amidst Xi Jinping’s re-election and the ECB’s reluctant interest rate increase, appear to have been discounted for now. In the meantime, concerns arose about the U.S.’s distillate inventories being at their lowest level since 1982 when the EIA started collecting weekly data. It now sits at 106 million barrels, and diesel prices are expected to have a massive upside in the winter months unless the rate of diesel consumption declines.

Natural Gas

For the report week beginning Wednesday, October 19, and ending Wednesday, October 26, the Henry Hub spot price fell $0.24 from $5.50 per million British thermal units (MMBtu) at the start of the week to $5.26/MMB at the week’s end. Regarding futures prices, the price of the November 2022 NYMEX contract increased by $0.144, from $5.462/MMBtu to $5.606/MMBtu for the week. The price of the 12-month strip averaging November 2022 through October 2023 futures contracts ascended $0.122 to $5.302/MMBtu.

International natural gas futures prices descended during this report week. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.59 to a weekly average of $31.52/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 $5.69 to a weekly average of $31.61/MMBtu. The TTF prices fell below the East Asia price earlier this report week for the first time since April of this year.

World Markets

In Europe, shares rose strongly on expectations that central banks might mitigate the pace at which they increased interest rates. The pan-European STOXX Index closed the week 3.65% higher in local currency terms. The principal stock market indexes likewise surged. Italy’s FTSE MIB Index sharply rose by 4.46%, followed by Germany’s DAX Index which climbed by 4.03%, and France’s CAC 40 Index which advanced by 3.94%. The UK’s FTSE 100 charted a weekly gain of 1.12%. European government bond yields fell across the board. The yield on Germany’s 10-year government bond descended to a three-week low. Likewise, Italian bonds retreated, their 10-year yield falling to a five-week low. UK gilts enjoyed calm trading in the hopes that greater stability may be afforded by a new conservative government. Its 10-year yields dipped to a five-week low. In the meanwhile, the European Central Bank (ECB) again raised its rates by 0.75 percentage point for a second consecutive time. It indicated that it may pursue the same policy to curb inflation that is still perceived to be far too high. The euro fell below parity against the dollar.

Japanese equities ended higher for the week, with the benchmark Nikkei 225 closing above the 27,000 mark, at 27,015. The broader TOPIX index moved essentially sideways and ended at 1,899. Local markets gained early in the week on expectations that the U.S. central bank may adopt a more dovish monetary stance. However, local markets lost some ground later in the week as investors were greeted by domestic earnings reports and announcements by Prime Minister Fumio Kishida that the government will embark on a JPY 71.6 economic stimulus package. Meanwhile, the yen began the week on softer trading despite government intervention. Early Monday, the yen rallied sharply by almost 1.5%, on the back of a surge on Friday that sent the yen surging against the U.S. dollar for the most since March 2020. The currency moved sideways for most of the week, ending at JPY 146 versus the greenback. The benchmark 10-year Japanese government bonds (JGB) dipped sharply late in the week to finish at around 0.237%, from 0.251% where it began the week.

China’s stock markets pulled back on weakened investor sentiment due to new COVID-related lockdowns in several parts of the country. Some Chinese cities intensified their COVID-19 restrictions after the country reported three consecutive days of more than 1,000 new cases nationwide. Data indicated that profits at China’s industrial firms fell at a faster pace in September. The broad, capitalization-weighted Shanghai Composite Index declined by 4.05%. According to reports, major Chinese state-owned banks sold U.S. dollars in both onshore and offshore markets during the week after the yuan’s recent drop. The 10-year Chinese government bond yield descended to 2.691% from the earlier week’s 2.75% amid increasing expectations that global central banks may slow down their aggressive rate hike policies. China’s economy expanded by 3.9% in the third quarter from the same period last year, faster than the 0.4% growth in the second quarter. Exports grew 5.7% from last year in September, higher than expected but still the slowest pace since April. Imports rose by only 0.3%, way below the expected 1.0% growth expected.

The Week Ahead

This week, the important economic data due for release include the Chicago PMI, job openings, unemployment rate, and labor productivity.

Key Topics to Watch

• Chicago PMI
• S&P U.S. manufacturing PMI (final)
• ISM manufacturing index
• Jobs opening
• Quits
• Construction spending
• Motor vehicle sales (SAAR)
• ADP employment report (level change)
• Rental vacancy rate
• FOMC announcement
• Fed Chair Jerome Powell press conference
• Initial jobless claims
• Continuing jobless claims
• Foreign trade deficit
• Productivity (SAAR)
• Unit labor costs (SAAR)
• Nonfarm payrolls (level change)
• Unemployment rate
• Average hourly earnings
• Labor-force participation rate, ages 25-54

Markets Index Wrap Up

Stock Markets

Over the past week, there appeared hints of investor optimism, raising stock market indexes across the board. The Dow Jones Industrial Average (DJIA) gained 4.89% with all sectors up, bringing the total stock market index higher by 4.58%. The S&P 500 Index rose by 4.74%, while the Nasdaq Stock Market Composite surged 5.22%, suggesting that technology and growth stocks outperformed the rest of the market. The NYSE Composite ascended by 3.94%. The CBOE Volatility Index lost 7.28%, suggesting that the fear of traders may be dissipating and more positive investor sentiment may be prevailing in the market.

The improving market sentiment may be attributed to the start of the third-quarter earnings season. Over the past week, several bellwether companies have reported revenues and earnings that exceeded analyst expectations. About 73% have exceeded their earnings forecasts, exceeding the usual 70% average. This has been generally attributed to a resilient consumer base that continues to patronize local goods and services despite economic headwinds. Strong consumer spending with low delinquency rates is observed by big banks that offer retail consumer banking services.

Investors also reacted with optimism to hints that future interest rate hikes by the Federal Reserve will proceed at a more moderate pace. The rise of the S&P 500 marked its best weekly gain in four months. Within it, energy shares outperformed in a show of resilience in the face of an announcement of another release from the U.S. Strategic Petroleum Reserve (SPR). The DJIA recorded its third straight week of gains. The small real estate sector lagged, even as trading remained volatile and active.

U.S. Economy

As the stock market reaction showed, the third-quarter earnings announcement of listed companies was better than expected. These were the results of business activity covering the quarter ending on September 30, however. Moving forward, higher interest rates may have a lagged impact on the real economy. Earnings may therefore be expected to soften in the future, especially in the coming year. Some downward adjustments in 2023 earnings growth may weigh on future economic expectations. The key to sustainable improvement in the economy is for inflation to recede significantly. Globally, central banks have signified their intention to continue raising interest rates until clear and consistent evidence of falling inflation materializes.

Economic reports during the week provided mixed signals concerning the depth by which Federal rate hikes are cutting into growth. The focus of a marked pullback on Wednesday’s bourses was the weak housing market following sharp declines in housing starts and mortgage applications. Simultaneous with the market reaction is downgrades by analysts of home supply stores Lowe’s and Home Depot. An index of homebuilder sentiment likewise dropped more than expected and touched a 10-year low. However, manufacturing production increased in September by a level that exceeded expectations. Jobless claims for the week ended October 15 also fell much more than forecast to a record low since late September.

Metals and Mining

The gold market was thrown another lifeline after falling to a new two-year low, on the back of expectations that the pace of interest rate hikes may start to slow. This was announced by the Wall Street Journal, anticipating the move after the Federal Reserve’s monetary policy meeting in November. Gold prices ended the week above the short-term psychological support level of $1,650 per ounce, indicating that it may have broken back up to a higher trading range. Many gold investors have, however, been burned by false hopes and it may take some time before they would venture to one more take long-term positions in the precious metal. So far this year, rallies have been short-lived due to a prevailing regime of persistently high inflation.

Gold ended the previous week at $1,644.47 and this past week at $1,657.69 per troy ounce for a weekly gain of 0.80%. Silver began from the week-ago price of $18.28 and ended the week at $19.42 per troy ounce, gaining 6.24% for the week. Platinum gained by 3.52% from the prior week’s price at $903.06 to this week’s close at $934.83 per troy ounce. Palladium moved from its previous close at $1,995.88 to $2,018.50 per troy ounce this recent week, climbing 1.13%. The 3-mo LME prices of the base metals ended mixed for the week. Copper, which closed one week ago at $7,573.00, ended this week at $7,624.00 per metric tonne for an increase of 0.67%.  Zinc moved from its previous close at $2,901.00 to its recent close at $2,928.00 per metric tonne, ending   0.93% higher. Aluminum, formerly $2,359.50, closed at $2,206.00 per metric tonne this week for a decline of 6.51%. Tin came from $20,100.00 but ended this week at $18,484.00 per metric tonne for a slide of 8.04%.

Energy and Oil

This week, President Joe Biden announced a 15-million-barrel SPR release, constituting the remaining volume of the 180 million barrels earlier suggested. The announcement, however, failed to move the oil market. Prices continued to trend sideways in recent trading sessions. The ICE Brent maintained around the $92 per barrel level as a consequence. The U.S. outlook is becoming increasingly bearish in light of the Federal Reserve’s announcement that it will continue to raise interest rates until it gets inflation under control. The bearish sentiment has been offset somewhat by the prospect of China easing its COVID restrictions, leading possibly to higher fuel demand, and a month-on-month decline recorded for OPEC+ crude in October. OPEC’s secretary general, Haltham al-Ghais, has also announced that the oil industry requires $12.1 trillion in additional investments to meet a projected 23% increase in global energy demand by 2045. Most of the increase is expected to come from gas utilization in Asia and Africa.

Natural Gas

For the report week beginning Wednesday, October 12, and ending Wednesday, October 19, 2022, the Henry Hob spot price dipped $0.97 from $6.47 per million British thermal units (MMBtu) at the beginning of the week to $5.50/MMBtu by the week’s end. In futures, the price of the November 2022 NYMEX contract fell by $0.973, from $6.435/MMBtu to $5.462/MMBtu week-on-week. The price of the 12-month strip averaging November 2022 through October 2023 futures contracts slid $0.553 cents to $5.180/MMBtu. Domestic natural gas spot prices fell at most locations, as week-over-week price declines at major pricing hubs ranged from $0.97/MMBtu at the Henry Hub to $0.29/MMBtu at Transco Zone 6 New York.

International gas futures prices, in the meantime, declined through the report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia declined by $2.71 to a weekly average of $32.11/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 $8.53 to a weekly average of $37.30/MMBtu.

World Markets

European shares climbed when UK Prime Minister Liz Truss announced her resignation and the scrapping of her fiscal policies this week. The pan-European STOXX Europe 600 Index closed the week 1.27% higher in local currency terms. The main stock indexes followed this trend. Italy’s FTSE MIB Index surged by 3.04%, Germany’s DAX Index rose 2.36%, and France’s CAC 40 Index advanced by1.74%. The UK’s FTSE 100 Index gained 1.62%. Ahead of the European Central Bank meeting that is anticipated to add another 0.75-percentage point increase in rate hikes, European government bond yields climbed. Yields on Germany’s 10-year debt ascended to their highest levels in the last 10 years. The 10-year gilt yields in the UK surged above 4% during a week of political uncertainty and volatile trading, with data indicating that inflation jumped to a 40-7ear high in September. Furthermore, the Bank of England (BoE) confirmed that n November 1, it will begin selling bonds that it accumulated under the quantitative easing program.

Japanese stocks went through a choppy week of trading and ended lower for the week, mainly due to fears of a global recession and continued currency weakness. During a midweek rally, investors bargain-hunted for undervalued stocks that followed the recent market sell-downs. The Nikkei 225 closed the week at 26,891, 0.7% lower than its close during the prior week. The broader TOPIX index also lost ground by 0.8% to end the week at 1,882. The Japanese markets appeared to be weighed down by U.S. inflation data released during the previous week. Growing expectations that the Federal Reserve will likely announce another 75-basis-point interest hike at its November meeting have had a delayed impact on Japanese bourses. The yen also was impacted after moving below the 150 level against the U.S dollar, a 32-year low. The dollar’s increased strength by Friday’s close saw the yen testing the 151 territory (150.9 JPY/USD), prompting the Japanese Finance Minister, Shun’ichi Suzuki, to pronounce his readiness to take decisive action to protect the yen against sudden sharp moves.

China’s stock exchanges charted a loss for the week after Beijing failed to explain its delayed release of key economic data. The broad capitalization-weighted Shanghai Composite Index slid 1.1% while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, dropped 2.6%. Last Monday, the country’s statistics bureau announced that it is postponing the release of third-quarter gross domestic product (GDP) and other key indicators. This included the monthly readings of retail sales, industrial production, and fixed asset investment. The data were scheduled to be released the next day, but the bureau did not give further comment other than announcing the delay, resulting in speculation that the third-quarter GDP would miss the official growth target of 5.5% for the year. Despite the efforts of state banks to support the currency, the onshore yuan fell to its weakest closing level against the dollar since the 2008 global financial crisis. The onshore yuan closed at 7.2494 per dollar on Friday, its lowest close since January 14, 2008.

The Week Ahead

GDP and inflation data are among the important economic data to be released in the coming week, as well as consumer confidence and consumer sentiment reports.

Key Topics to Watch

• Chicago Fed national activity index
• S&P U.S. manufacturing PMI
• S&P U.S. services PMI
• S&P Case-Shiller U.S. home price index (SAAR)
• FHFA U.S. home price index (SAAR)
• Consumer confidence index
• Trade in goods (advance)
• New home sales (SAAR)
• Real gross domestic product, first estimate (SAAR)
• Real final sales to domestic purchasers, first estimate (SAAR)
• Initial jobless claims
• Continuing jobless claims
• Durable goods orders
• Core capital equipment orders
• Employment cost index (SAAR)
• PCE price index
• Core PCE price index
• PCE price index (12-month change)
• Core PCE price index (12-month change)
• PCE price index (3-month SAAR)
• Core PCE price index (3-month SAAR)
• Real disposable income (SAAR)
• Real consumer spending
• UMich consumer sentiment index (late)
• UMich consumer 5-year inflation expectations (late)
• Pending home sales index

Markets Index Wrap Up

Stock Markets

In September, the markets reached new lows for the year, but for the first two weeks of the last quarter of 2022, they appeared to have rebounded from what might be the ultimate bottom. However, nothing is certain at this point. For instance, this week the S&P 500 saw its biggest two-day rise since April 2020, although it returned some of those gains later in the week despite a strong jobs report. Therefore, the question remains whether the recent rebound from last month’s lows is a true reversal or just relief rallies on the way to a continued bear market. Over the past week, the Dow Jones Industrial Average (DJIA) gained 1.15% although the total stock market lost 1.75%. The Nasdaq Stock Market Composite lost 3.11%, suggesting relative weakness in the technology sector and growth stocks in general. The NYSE Composite likewise slid 1.38%. CBOE Volatility increased by 2.10%.

Factors that led to major indexes underperforming were the third-quarter earnings report which began in earnest this week and the inflation data and their implications for Federal Reserve policy. The resulting investor pessimism led to the S&P 500 losing almost half of its gains since its March 2020 bottom. The typically defensive healthcare and consumer staples sectors remain resilient, however, while consumer discretionary and communication services shares lagged. Tech stocks Amazon.com, Tesla, and Facebook parent Meta Platforms dragged the sectors lower. Growth stocks were steadily outperformed by their slower-growing value counterparts.

U.S. Economy

Thursday’s CPI inflation report suggested that lower wholesale prices were not yet trickling down to consumers in a more significant manner. On the contrary, inflation data trended in the opposite direction. Core consumer prices ascended by 6.6% year-over-year in September. This was hotter than expected, even higher than the previous peak in March, and showed the fastest growth pace in four decades. The price increases were mostly concentrated in medical services, transportation, and housing. In September, shelter prices increased by 0.7%, making up 40% of the rise in the core index. Many observers, however, expected the rapidly-cooling housing market to impact the calculation of owner-equivalent rents by the Labor Department, as well as the rental market itself.

Treasury yields climbed over the week. The 10-year U.S. Treasury note yield rose above 4.0% while the two-year yield reached 4.5%, the highest level it has hit since 2007. (Bond prices and yields travel in opposite directions.) Following the consumer inflation data release, yields surged broadly on Thursday morning. The municipal bond market continued to be impeded by industrywide outflows, but strong demand for primary deals was observed. Meanwhile, the tight labor market maintains its pressure on Federal Reserve policies, but there appear to be signs of loosening. The U.S. economy was in line with expectations when it added 263,000 jobs last month. The unemployment rate dipped to 3.5% which coincided with a five-decade low. Hourly earnings were up by 5% from a year ago, still well above the pre-pandemic level.

Metals and Mining

On Thursday, gold prices dropped precipitously into negative territory in reaction to reports that the consumer price index (CPI) climbed higher than expected in September. This raised the possibility that the Federal Reserve will continue to implement its aggressive monetary policy strategy through the remainder of the year. On Friday, gold prices continued to tread close to session lows following the release of mixed U.S. retail sales. Sales were unchanged for September, defying expectations of a 0.2% increase based on the latest data from the U.S. Commerce Department. Sales growth is up at 8.2% for the year. Despite reports, the gold market continues to see solid selling pressure.

Gold ended the week lower by 2.97%, starting at $1,694.82 and ending at $1,644.47 per troy ounce. Silver, which closed a week ago at $20.13, ended Friday at $18.28 per troy ounce for a 9.19% drop. Platinum lost 1.50% for the week, from $916.82 to $903.06 per troy ounce. Palladium, which previously ended at $2,194.75, closed this week at $1,995.88 for a 9.06% price drop. The 3-mo LME prices for basic metals were mixed for the week. Copper, which was priced one week ago at $7,457.50, ended this week at $7,573.00 per metric tonne, gaining 1.55%. Zinc began at $2,991.50 and ended at $2,901.00 per metric tonne for a week-on-week loss of 3.03%. Aluminum realized a weekly gain of 2.63%, rising from $2,299.00 to $2,359.50 per metric tonne. Tin also gained by 3.47% for the week, from its previous close at $19,425.00 to this week’s $20,100.00 per metric tonne.

Energy and Oil

The oil markets this week were inundated with plenty of conflicting signals. Weighing on bearish sentiments was news of an increase in crude stocks of almost 10 million barrels, a large change week-on-week. Also rattling oil investors was the U.S. inflation data suggesting that the core consumer price index hit a 40-year high in September. Propping up the bulls, on the other hand, were reports that diesel inventories in the U.S. fell by 4.9 million barrels, pointing possibly to a worrisome shortage ahead of winter. Strikes in France are adding to the fuel supply fears in Europe, particularly after one union walked out of talks on Friday after rejecting a pay hike offer. Less than a month after announcing its pledge to cut production by up to 2 million barrels per day, the OPEC also cut its demand growth figures for both 2022 and 2023 to 2.64 and 2.34 million barrels per day respectively, on a forecasted slowdown in economic growth, monetary tightening, and ongoing supply issues. The big picture for the week shows oil prices falling, with both WTI and Brent poised to report weekly losses after charting two weeks of gains.

Natural Gas

For the report week beginning October 5, Wednesday, and ending on October 12, 2022, Wednesday, the Henry Hub spot price rose $0.41, from $6.06 per million British thermal units (MMBtu) at the beginning of the week, to $6.47/MMBtu by the end of the week. Regarding futures, the price of the November 2022 NYMEX contract descended by $0.495, from $6.930/MMBtu to $6.435/MMBtu week-on-week. The price of the 12-month strip averaging November 2022 through October 2023 futures contracts decreased by $0.097 to $5.733/MMBtu.

In the international market, the natural gas futures prices came down for this report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia declined by $3.18 to a weekly average of $34.81/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 $5.17 to a weekly average of $45.83/MMBtu.

World Markets

European shares changed little after they pulled back sharply in the prior week. The pan-European STOXX Europe 600 Index ended slightly lower in local currency terms. Major continental indexes climbed. Germany’s DAX Index forged upward by 1.34%, France’s CAC 40 Index advanced 1.11%, and Italy’s FTSE MIB Index gained slightly by 0.14%. The UK’s FTSE 100 Index, however, declined by 1.89%. European government bonds experienced high volatility for the week, with the yield on Germany’s 10-year government debt descending from more than 11-year highs that they hit earlier in the week. Keeping yields trading within a range, however, was the higher-than-expected U.S. CPI data, with Italian and French sovereign bonds oscillating widely. Yields on 10-year gilts in the UK retreated from close to 14-year highs after the government reversed some of the controversial policy changes that it announced late last month. European Central Bank (ECB) Governing Council member Pablo Hernandez de Cos, governor of the Bank of Spain, raised the possibility that the economy could soon contract as indicated by the occurrence of some shocks in the ECB downside scenario. There is a possibility that interest rates will have to keep rising into the next year.

Japanese stocks began the shortened week with a sharp pullback as traders returned from a long weekend on Tuesday. Hawkish signals from the U.S. Federal Reserve fueled fears. A weak domestic currency that has failed so far to respond to government intervention measures fed bearish sentiments for most of the week. Stocks snapped a four-day losing streak on Friday, however, responding to a strong turnaround in the U.S. on Thursday, where equity markets rebounded despite higher-than-expected inflation numbers. The Nikkei average jumped 3.3% on Friday to end the week essentially unchanged at 27,091. The broader TOPIX index climbed by 2.4% to also finish sideways for the week at 1,898. There was also positive local economic news. Although business confidence among big manufacturers for the second straight week to its lowest level in five months, this report was followed by data from the Bank of Japan showing that Japanese corporate goods prices grew the most in five months in September. The yield on Japan’s 10-year government bond briefly rose to 0.255% during the week before sliding to 0.254% in late Friday trading.

China’s stock market surged after the weeklong National Day Holiday, optimistic at supportive comments from the central bank and encouraged by policy signals during the Communist Party Congress, a twice-a-decade gathering of the country’s political elite that commenced on Sunday. The broad, capitalization-weighted Shanghai Composite Index gained 2.07% and the blue-chip CSI 300 Index, which follows the largest listed companies in Shanghai and Shenzhen, gained 1.32% from the pre-holiday closing levels. According to People’s Bank of China (PBOC) governor Yi Gang, the bank will concentrate its efforts on supporting infrastructure construction and encouraging quicker delivery of home projects. The governor further elaborated that the PBOC will also step up the implementation of prudent monetary policy and provide stronger support for the real economy.

The yuan, which descended to a near 28-month low in September, traded at 7.191 per U.S. dollar late on Friday after falling to a two-week low on Thursday, when U.S. inflation data sparked fears of larger rate hikes. The yuan has already lost more than 10% of its value against the dollar and is on track to register its largest annual loss since 1994 when China unified its official and market rates. The yield on the 10-year Chinese government bond fell to 2.719% from September’s close of 2.776% after September inflation data came in lower than expected.

The Week Ahead

Among the important economic data to be released this week are inflation, consumer confidence, and leading economic indicators.

Key Topics to Watch

• Empire State manufacturing index
• Industrial production index
• Capacity utilization rate
• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Beige Book
• Initial jobless claims
• Continuing jobless claims
• Philadelphia Fed manufacturing index
• Existing home sales (SAAR)
• Leading economic indicators
• Index of common inflation expectations, 5-10 years
• Index of common inflation expectations, 10 years

Markets Index Wrap Up

Stock Markets

For the first time in four weeks, stocks ended higher although most of the week’s gains were relinquished before the close of trading on Friday. While encouraging economic reports prompted some buying interest, the data suggested that inflation was not slowing enough to satisfy the policymakers in the Federal Reserve. Only the utilities sector ended down for the week. The Dow Jones Industrial Average (DJIA) ended 1.99% up while the total stock market gained 1.66%. The S&P 500 Index rose by 1.51% while by Nasdaq Stock Market Composite inched up 0.73%. The NYSE Composite ascended 2.42%. The CBOE Volatility Index slid down by 0.82%.

On Monday and Tuesday, stocks rebounded off their nearly two-year lows, with the S&P 500 surging by 5.6%, its best two-day performance since the beginning of the pandemic and the third-best October opening since 1930. The unexpectedly positive economic data released during the week caused investors to hope that the Fed may halt or at least slow down its rate hikes aimed at controlling inflation. The Institute for Supply Management’s (ISM) metric of manufacturing activity fell to 50.9 in September; descending below 50 signals contraction. The reading fell short of consensus expectations and was also its lowest level since 2020. Inflation fears resurfaced after the OPEC+ group of oil exporters announced on Wednesday that they will cut 2 million barrels per day in their target production. This brought the benchmark price for a barrel of domestic oil up by USD 10 over the week. This is the first time since late August that the benchmark crossed the USD 90 level.

U.S. Economy

Signs of a strong labor market also boosted inflation fears, as the Labor Department reported an additional 263,000 jobs in September and the employment rate falling back to 3.5%, a multiyear low. Further bolstering concerns is a surprise drop in the participation rate to 62.3%, an indication that labor force competition for available workers will remain strong. The increase in wages appears to be slowing, however, as average hourly earnings continued to decline to 5% year-over-year from March’s 5.6% high.

In the meantime, the swings in interest-rate expectations and bond yields continue to drive market valuations and stock performance for this year. A brief easing in yields helped boost equities from their June lows, but some offshore developments appear to temper interest rate hike concerns. For one, Australia’s central bank slowed its pace of rate hikes, a surprise move that acted as the catalyst for a let-up of hawkish policies. Also material was the intervention by the Bank of England (BoE) pledging unlimited purchases of long-dated bonds to steady the markets. Such moves raised hopes that the Fed officials may become more aware of red flags signaling financial distress, and convince policymakers to become less aggressive in further financial tightening. That being said, it appears that a mild recession has a high chance of materializing in the first half of 2023.

Metals and Mining

For the past few weeks, analysts in the precious metals market have been warning that the sharp downtrend in metals prices through the summer may push gold and silver into oversold territory. The bearish market sentiment has been at its highest level in years, prompting the possibility that both precious metals were due for a rebound. Those forecasts paid off in the past week. Silver rose to a 12% gain at its peak as prices saw $21 an ounce. The gold market experienced a 4% rally we prices broke above $1,730 per ounce. Heading into the weekend, however, momentum began to slow as gold ended the week testing its support at $1,700 and silver clinging on to $20. The market’s performance over the week is an encouraging sign that bargain hunters are scouring opportunities. The rally may not be sustained, however, unless more bullish investors are inclined to begin buying for the long term.

Gold, which closed a week ago at $1,660.61, ended this week up by 2.06% at $1,694.82 per troy ounce. Silver gained 5.78%, from $19.03 to $20.13 per troy ounce. Platinum rose 6.11% from its week-ago close at $864.03 to this week’s close at $916.82 per troy ounce. Palladium ended the week at $2,194.75 per troy ounce, 1.31% higher than its week-ago close at $2,166.46. The 3-mo LME prices for base metals ended mixed for the week. Copper closed this week at 7,457.50 per metric tonne, down by 36% from the previous week’s $7,560.00. Zinc began at $2,968.00 and ended at $2,991.50 per metric tonne for a slight gain of 0.79%. Aluminum increased by 6.34% from the week-ago close at $2,162.00 to this week’s close at $2,299.00 per metric tonne. Tin began at $20,634.00 and ended the week at $19,425.00 per metric tonne, losing 5.86%.

Energy and Oil

The big news for the week in the oil market is the decision of OPEC+ to cut their production by 2 million barrels per day (bpd) during the group’s Vienna summit. This decision put to rest any speculation about the cohesion of the group, as it achieved exactly what the members wanted – higher oil prices. Concerns of a global economic slowdown have been set aside to oil market fundamentals and geopolitical uncertainty. The country that will spearhead the production cuts is Saudi Arabia, as Russia is already producing at its lower target. This move puts the U.S. on the road to higher prices at the pump, a development that compromises the Biden administration’s position only a few weeks before the midterm elections. Possibly in anticipation of this move, the U.S. Department of Energy (DOE) Office of Petroleum Reserve announced on September 19 a Notice of Sale of up to 10 million barrels of crude oil to be delivered from the Strategic Petroleum Reserve (SPR) in November 2022.  Meanwhile, the production cut by OPEC+ has prompted the Biden Administration to issue a threat to trigger anti-trust action against the oil group. Legal committees in both Congressional chambers had passed legislation giving the White House the power to take such legal action.

Natural Gas

For the week starting September 28, Wednesday, to October 5, Wednesday, the Henry Hub spot price fell $0.55 from $6.61 per million British thermal units (MMBtu) to $6.06/MMBtu. Regarding futures, the October 2022 NYMEX contract expired at $6.868/MMBtu at the end of the report week. The November 2022 NUMEX contract decreased to $6.930/MMBtu, down by $0.03 for the week. The price of the 12-month strip averaging November 2022 through October 2023 futures contracts rose by $0.09 to $5.830/MMBtu.

International natural gas futures prices descended for the week. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia came down by $1.78 to end at a weekly average of $37.99/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, fell by $2.45 to a weekly average of $51.00/MMBtu.

World Markets

European shares firmed up this week following their global counterparts in the expectation that central banks will begin to pull back on their interest rate increases. The pan-European STOXX Europa 600 Index closed the week 0.98% higher in local currency terms. The major indices also regained some ground. France’s CAC 40 Index gained 1.82%, Germany’s DAX Index rose by 1.31%, and Italy’s FTSE MIB Index climbed 1.22%. The UK’s FTSE 100 Index added 1.41%. Germany’s 10-year government bond yields resumed their trek toward recent highs in reaction to the European Central Bank’s (ECB) September meeting. Minutes of the meeting indicated that the policymakers continue to worry about high inflation, which is likely to lead to another large rate hike in October. Yields trended upward in the eurozone. Climbing from the week’s lows were French, Spanish, and Italian sovereign bond yields after data indicated that eurozone inflation surged to 10% last month. In the UK, yields on 10-year gilts ascended after Fitch Ratings cut the UK’s outlook to negative following a similar action by Standard & Poor’s last week.

Japanese equities similarly rebounded this past week, following September’s poor performance that affected Asian markets in general. The first full week of trading in October saw Japan’s stock markets finishing solidly higher. The Nikkei average finished once more above the 27,000 level at 27,116 for a gain of 4.55%. The broader TOPIX rose above the 1,900 mark to end at 1,907, for a rise of 3.86% for the week. The optimism was fueled by sentiments that the U.S. Federal Reserve may assume a more dovish stance in its monetary policy. The largest single-day increase in Japanese shares occurred on Tuesday, going back to March 10. Investor confidence led a bargain-basement hunt for oversold heavyweights and growth stocks. Although the bourses performed remarkably for the week, it ended on a down note as stocks closed lower on Friday, cutting short a four-day winning streak. Hopes for a policy pivot by the Fed were curtailed with the release of solid private payrolls and services sector data from the U.S. on Thursday. Hawkish comments from the U.S. Fed officials on Friday further weighed on investor sentiments. The yen briefly rallied midweek to a high of JPY 143 against the U.S. dollar. Japan’s 10-year government bond dipped sharply by midweek to 0.210% but rallied late in the week to settle around 0.245%.

China’s stock markets were closed for the week in celebration of the National Day holiday from October 1 to October 7, known as Golden Week. In September, Beijing took steps to support its debt-laden property sector ahead of China’s Communist Party congress. This is scheduled to begin on October 16 and last for about one week. China’s President, Xi Jinping, is widely expected to secure an unprecedented third term at the twice-a-decade gathering. China’s foreign exchange reserves fell to USD 3.029 trillion at the end of September from USD 3.055 trillion at the end of August. This marked the third month of decline in China’s foreign exchange reserves.

 The Week Ahead

Inflation, consumer confidence, and jobless claims are among the important economic data that are scheduled to be released in the coming week.

Key Topics to Watch

• NFIB small-business index
• NY Fed 5-year inflation expectations
• Producer price index, final demand
• FOMC minutes
• Consumer price index
• Core CPI
• Core CPI (three-month SAAR)
• CPI (year-on-year)
• Core CPI (year-on-year)
• Initial jobless claims
• Continuing jobless claims
• Retail sales
• Retail sales ex-motor vehicles
• Import price index
• UMich consumer sentiment index (early)
• UMich 5-year inflation expectations
• Business inventories

Markets Index Wrap Up

Stock Markets

Market volatility has once again intensified over the past several weeks, particularly after the last FOMC meeting. Although there is much controversy about whether the economy can emerge unscathed from the increasingly tightening monetary policy onto a so-called “soft landing,” the financial markets appear to be pricing in an impending recession as a new base-case scenario. The S&P 500 has entered bear-market territory once more after losing 2.91% for the week. Overall, its value has descended by 23% for the year. This past week, the Dow Jones Industrial Average (DJIA) matched the S&P 500, losing 2.92% while the total stock market index fell 2.64%. The Nasdaq Stock Market Composite came down 2.69% while the NYSE Composite lost 2.35%. The CBOE Volatility index rose by 5.68% for the week.

The past week was the third consecutive weekly decline of the bourses. Consequently, the yield on the benchmark 10-year U.S. Treasury note breached 4%, albeit briefly, for the first time since 2008. This is expected to bring bond prices down to record levels since bond prices and yields move in opposite directions. The stock market’s biggest move came on Wednesday in response to a surprise decision by the Bank of England (BoE) to purchase long-dated UK government bonds. This move by the BoE triggered extreme volatility before the start of trading on Wall Street, although a silver lining was the easing of recent upward pressure on interest rates and the U.S. dollar, which caused a rally for stocks as the result. There was also some positive news concerning results in a large-scale trial of Biogen’s Alzheimer’s treatment, sending the pharmaceutical company’s shares surging upward by 40% and providing much-needed support to the market.

U.S. Economy

It may be a source of some comfort to note that despite attempts to deny it, expectations of an imminent recession have well been sounded off by market participants, including Federal Reserve Chairman Jerome Powell. The Chair noted in his last press conference that chances for a “soft landing” are gradually diminishing as the central bank continues to tighten policy or keep it aggressively restrictive over a longer period. The focus is therefore shifting from whether a recession is coming, to when and how deep the potential economic downturn could be.

Although some positive developments in the pharmaceutical sector created a buying opportunity on Wednesday, the markets reversed their gains the following day. The sell-down was tempered by the release of data indicating weekly jobless claims fell to 193,000, well below consensus expectations and their lowest level since late April. The news shows continued resilience in the economy. Other data pointed to inflationary pressures despite tightening monetary policy. The Fed’s preferred inflation gauge, the core (less food and energy) personal consumption expenditures (PCE) price index, rose at an annualized rate of 4.7% in the second quarter. The figure well exceeds expectations of 4.4% as well as the Fed’s long-term inflation target of 2.0%.

Feeling the immediate impact of the Fed’s rate hikes is the housing sector, as seen in the rising mortgage rates that breached an average of 7%. But the evidence was also mixed for this sector. New home sales rose nearly 20% in August to hit a five-month high. However, pending sales of both new and existing homes, where contracts have been signed but not closed, fell slightly. The Case-Schiller Home Price Index declined by 0.24% in July, the first time the indicator retreated since early 2012. Prices slowed from June to July on a year-over-year basis, at the fastest pace in the history of the index.

Metals and Mining

The gold market has fallen for six months straight without a substantial rally, bringing the bearish sentiment to its highest in four years among investors. In the metals market, commodity analysts downgraded their gold prices for 2023 by 6%, and their silver prices by 11%. Historically, however, the negative sentiment toward precious metals has never proven to be sustainable. After the period April to September 2018, the last time the gold market declined for six months consecutively, gold went on to build a strong uptrend that ended with the prices establishing a new record high above $2,000 an ounce. The same pattern appears to be forming now in gold’s bearish speculative positioning, its highest level since December 2018. While the consolidation may take some time, investors are likely at some point to recognize the value opportunity building in precious metals.

Last week, gold gained 1.01% from its prior close at $1,643.94 to this week’s close at $1,660.61 per troy ounce. Silver moved slightly higher by 0.85% from $18.87 to $19.03 per troy ounce. Platinum closed at $864.03 per troy ounce, up 0.51% from $859.64. Palladium, which began at $2,073.00, ended the week at $2,166.46 per troy ounce, gaining 4.51% week-on-week. The 3-month LME prices for base metals were mixed. Copper, which ended the week prior at $7,433.00, closed this week at $7,560.00 per metric tonne for a gain of 1.71%. Zinc slid 1.33% from the previous week’s close at $3,008.00 to end this week at $2,968.00 per metric tonne. Aluminum came from $2,165.00 the week before to close at $2,162.00 per metric tonne this week, a drop of 0.14%. Tin gained 1.93% from its previous close at $20,243.00 to this week’s close at $20,634.00 per metric ton.

Energy and Oil

The fluctuation in oil prices during September is not an unusual event as this month is the season when hurricanes ravage the U.S Gulf of Mexico. This fact notwithstanding, Hurricane Ian did not affect crude prices significantly despite the grave damage it wreaked in Florida and other southeastern states. While there occurred some pricing upside from U.S. stock draws, a new batch of Iranian sanctions, and some slight weakening of the U.S. dollar, the next important determinant of oil prices will be the OPEC+ meeting that is scheduled for the 5^th of October. An upward run towards $100 may be in the future for ICE Brent, with production cuts being discussed by the oil cartel as a means of maintaining prices within an attractive bandwidth. According to OPEC+ sources, members of the oil group have begun discussions about potential cuts in oil production beginning November 2022 as Russia has already proposed a target reduction of 1 million barrels per day for the October 5^th meeting.

Natural Gas

For the report week beginning September 21, Wednesday, and ending September 28, Wednesday, the Henry Hub spot price declined by $1.38 from $7.99 per million British thermal units (MMBtu) to $6.61/MMBtu for last week. Concerning the Henry Hub futures prices, the October 2022 NYMEX contract expired on Wednesday at $6.868/MMBtu, down by $0.91 from one week earlier. The November 2022 NYMEX contract price descended to $6.955/MMBtu, lower by $0.87 for the week. The price of the 12-month strip averaging November 2022 through October 2023 futures contracts lost $0.50 to end at $5.741/MMBtu. At most locations this report week, natural gas spot prices fell, with week-over-week decreases ranging from $0.70 to $2.00 at most major pricing hubs.

International natural gas futures prices fell for this report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $4.20 to a weekly average of $39.77/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe dropped by $3.17 to a weekly average of $53.45/MMBtu.

World Markets

European stock prices plunged amid disappointing corporate earnings and concerns of a coming recession. The pan-European STOXX Europe 600 Index closed the week down by 0.65% in local currency terms. Italy’s FTSE MIB Index lost 1.98%, Germany’s DAX Index dropped 1.38%, and France’s CAC 40 Index slid 0.65%. The UK’s FTSE 100 Index declined by 1.78%. UK government bond (gilt) yields closed higher after they underwent historic swings resulting from the new UK fiscal plan announced last Friday. The plan proposed large tax cuts, energy subsidies, and sizable borrowing. At the beginning of the week, yields rose sharply amid worries of a serious deterioration in the public finances, but then eased after the Bank of England (BoE) declared that it would make temporary purchases of long0dated bonds “on whatever scale is necessary” in attempts to “restore orderly market conditions.” Core eurozone bond yields fluctuated, ending higher mostly in tandem with UK gilts. Some upward pressure on yields was exerted by higher-than-expected inflation in Germany later in the week Core markets were broadly tracked b peripheral eurozone bonds.

Japanese equities began the week on a downtrend and by the end of the week, they finished as they began. Japanese shares ended at a three-month low even in the face of some positive economic news. The Nikkei average fell 4.5% to 25,937, its lowest close since July 1. Also finishing down is the broader TOPIX benchmark, which closed at 1,836, about 4.2% from where it began for the week. The further strengthening of the U.S. dollar against Asian currencies continued to dampen market sentiment. The Bank of Japan (BoJ) released the minutes of its meeting on monetary policy last Wednesday. The policymakers voted overwhelmingly to maintain a negative benchmark interest rate of -0.1%, signaling a further divergence from the U.S. tightening policy. The BoJ also confirmed that it will continue to purchase Japanese government bonds (JGBs) at the necessary amount without setting an upper limit, to keep the 10-year JGB yields to remain at approximately zero percent. Because of this, the yen weakened further against the U.S. dollar midweek. The yen recovered slightly later in the week as the U.S. dollar somewhat withdrew. The end ended in the mid-144 range against the dollar by the week’s end. The 10-year JGB yield ended the week at 0.247%.

Stock markets in China were weighed down by currency weakness and signs of a flagging economy. The broad, capitalization-weighted Shanghai Composite Index fell 2.1% and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, lost 1.4%. The yuan traded at 7.0898 per U.S dollar at the close of the week, slightly stronger than the 7.1066 per USD rate at which it traded one week earlier.  On Monday, the currency fell to a 28-month low, at which rate it lost more than 11% against the greenback for this year. This trend has the yuan on track to register its biggest annual loss since 1994 when China unified its official and market rates. Like the currencies of other emerging markets, the weakness in the yuan is being caused by a surging U.S. dollar that continues to gain strength as the Federal Reserve continues to pursue its aggressive interest rate hikes. As for the rest of the Chinese economy, profits at industrial firms contracted by 2.1% in the first eight months of the year compared to the same period one year ago, versus a 1.1% decline in the first seven months of the year.

The Week Ahead

Among the important data scheduled to be released this week are consumer credit, hourly earnings, and job openings.

Key Topics to Watch

• S&P U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Motor vehicle sales (SAAR)
• Job openings
• Quits
• Factory orders
• Core capital goods orders revision
• ADP employment report
• International trade balance
• S&P services PMI (final)
• ISM services index
• Initial jobless claims
• Continuing jobless claims
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor force participation rate ages 25-54
• Wholesale inventories revision
• Consumer credit

Markets Index Wrap Up

Stock Markets

This is the second consecutive week that stocks fell sharply, particularly after the Federal Reserve policymakers announced that short-term interest rates are expected to move up aggressively over the next several months. Indexes this past week dropped precipitously, with the Dow Jones Industrial Average (DJIA) losing 4.00% of its value and the total stock market plunging 5.03%. The broad-based S&P 500 Index dropped 4.65% while the technology-heavy Nasdaq Stock Market Composite dove 5.07%. The NYSE Composite shed 5.33%. The Cboe Volatility Index (VIX), a measure of investor sentiment, became more entrenched below its spring highs but rose sharply by the end of the week. Nasdaq underperformed the other indexes for the second consecutive week and briefly dipped to a level of more than one-third of its January record high.

Stocks began their sudden descent at 2 p.m. on Wednesday following two days of listless trading. The catalyst for the sell-off was the announcement of a 75-basis-point (0.75 percentage-point) federal fund rate hike to a target of 3.00% to 3.25%, the highest level it has reached since March 2008. What was more concerning to investors was the survey of the Fed policymakers’ expectations for further rate increases. The results of the survey pointed to a hike up to 4.50% by the end of this year and remain at that level for most of 2023. The uncertainty of future developments makes it difficult for businesses to plan ahead, creating pessimism in the stock market. A further dampener on investor confidence was Powell’s admission that “no one knows whether this process [of raising rates] will lead to a recession or, if so, how significant that recession would be.”

U.S. Economy

This week’s market sell-off was influenced by other factors, such as troubling developments in Europe. Not all news was negative, however, as there were some moderately encouraging economic data. Measures of current manufacturing and services activity reported by S&P Global proved surprisingly optimistic. There was an expansion and some acceleration of manufacturing activity (51.8 compared to 51.5, wherein levels above 50 suggest expansion) from August data; the services sector continued to contract, but at a slower pace (49,2 against 43.7). Weekly jobless claims that were released on Thursday slightly increased to 213,000, but this would have been flat if not for the downward revision in the previous week’s numbers. The four-week moving claims average dropped to its lowest level in three months.

The short-term Treasury yields rose briefly in reaction to the latest projections by the Fed, but the week’s most sudden yield increases took place on Thursday as futures market activity elevated. The two-year U.S. Treasury note yield was pushed above 4.10%, which is its highest level going back to October 2007. The benchmark 10-year Treasury note yield briefly rose to 3.77%, its highest point since November 2008. It should be recalled that bond prices and yields move opposite to each other, signaling a drop in bond prices. Investment-grade corporate bonds were relatively resilient ahead of the Fed meeting. After the meeting, however, corporate bonds also weakened, mirroring moves in the stock market and rising U.S. Treasury yields.

Metals and Mining

Heading into the weekend, sentiment in the metal industry had changed considerably from its bearish direction midweek. There is a perception of optimism building in the gold market as it managed to hold onto its long-term support despite the Federal Reserve raising interest rates by 75 basis points and signaling a terminal rate above 4.5%. Analysts speculate that gold is beginning to look attractive as the prospect of a recession appears to be materializing going into the next year. Fed Chairman Powell reiterated that the central bank will not hesitate to continue its hawkish policy in efforts to get inflation under control. In the meantime, the bears still rule as gold is heading towards a new two-year low as it is unable to withstand the surging momentum of the U.S. dollar, now at a fresh two-year high. It is still heartening to see that gold is in a better place compared to other assets. Gold prices are down less than 2% this week, while oil prices are down more than 7%. Precious metals remain a sturdy safe-haven asset in this period of geopolitical and macroeconomic uncertainty.

Gold prices this week slid by 1.86%, from $1,675.06 to $1,643.94 per troy ounce. Silver came down 3.68% from $19.59 to $18.87 per troy ounce. Platinum moved from $909.66 to $859.64 per troy ounce for a weekly loss of 5.50%. Palladium came from $2,138.16 the previous week to close at $2,073.00 per troy ounce, a drop of 3.05%. The 3-month LME prices of base metals did not fare better. Copper began at $7,762.00 and ended at $7,433.00 per metric tonne for a weekly loss of 4.24%. Zinc closed the week earlier at $3,153.50 and this week at $3,008.00 per metric tonne, shedding 4.61%. Aluminum came from $2,277.00 and closed at $2,165.00 per metric tonne for a weekly loss of 4.92%. Tin closed the week earlier at $21,137.00 and this week at $20,243.00 per metric tonne, sliding by 4.23%.

Energy and Oil

As the U.S. Federal Reserve brought interest rates to their highest level since 2008, it further affirmed its commitment to bring down inflation as its main target, overriding any oil-related concerns. During the week’s escalation of the Russian-Ukraine conflict, fears were stoked over Russian supply cuts and their effect on the coming winter’s energy supply. As Russia expects to annex parts of east Ukraine after next week’s referendum, the European Union meanwhile is attempting to assemble another sanctions package that may further curb high-tech exports and implement a group-wide oil price cap. Concurrent with this, concerns are heightened over the forthcoming increase in energy demand by China where cities, which were closed over covid lockdowns in the past months, are once again opening up. For the time being, these developments that may usher in a tightening of the oil supply may counter the downward pressure on oil prices.

Natural Gas

For this report week, beginning Wednesday, September 14, and ending Wednesday, September 21, the Henry Hub spot price fell $0.70 from $8.69 per million British thermal units (MMBtu) to $7.99/MMBtu. Regarding the Henry Hub futures prices, the price of the October 2022 NYMEX contract dropped by $1.335, from $9.114/MMBtu at the beginning of the week to $7.779/MMBtu by the end of the week. The price of the 12-month strip averaging October 2022 through September 2023 futures contracts descended from $0.976 to $6.448/MMBtu. International gas futures prices suffered a decline this report week. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $9.23 to a weekly average of $43.97/MMBtu. The natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, likewise declined by $4.18 to a weekly average of $56.63/MMBtu.

World Markets

European shares plunged for a second straight week in response to central banks raising their interest rates sharply to keep up with the Federal Reserve rate hikes. The move is seen to intensify investor fears that a prolonged economic slowdown is imminent. The pan-European STOXX Europe 600 Index closed the week lower by 4.37% in local currency terms, its lowest level in over a year. The major indexes across the board likewise lost considerably. France’s CAC 40 lost by 4.84%, Italy’s FTSE MIB declined by 4.72%, and Germany’s DAX slid by 3.59%. The UK’s FTSE 100 Index lost 3.01% of its value. As stocks fell, yields climbed. The yields on Germany’s 10-year government bonds rose to their highest levels in a decade as central bank rate hikes intensified market expectations for monetary policy tightening at eh European Central Bank. Across Europe, other markets followed as Italian, French, and Spanish yields rose across the board. The UK gilt yields jumped sharply on the possibility of escalating public debt and a steep increase in interest rates after the government cut taxes by the most since 1972 in an attempt to support the economy. The UK pound fell to USD 1.09, its lowest level in 37 years.

In a holiday-shortened trading week, Japan’s stock exchanges closed at their lowest levels over the past two months. The Nikkei 225 Index declined by 2.6%, at one point traversing below the 27,000-mark for the first time since July 19. The Nikkei mirrored losses on Wall Street as a significant rate hike by the Fed further weakened the U.S.-Japan rate differential. For the first time since 1998, the government intervened in the foreign exchange market to support the yen after the Bank of Japan (BoJ) decided to maintain its dovish monetary policy. Japan’s intervention came after the yen fell below JPY 145 per USD. Japan’s Finance Minister, Shunichi Suzuki, observed that while their policy was to let the market determine the exchange rates, the intervention was necessary because “we cannot tolerate repeated rapid fluctuations by speculative moves.” The government intends to closely monitor the market and has promised to take any actions necessary to temper excessive rate swings.

China’s stock markets fell as concerns about a global growth slowdown impacted investor sentiment. The broad, capitalization-weighted Shanghai Composite Index slid 1.2% and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, dipped by 1.9%. The week’s close saw the yuan currency fall to a near 28-month low and traded at 7.1066 per U.S. dollar compared to 7.0185 a week earlier. The People’s Bank of China (PBoC), which sets a reference rate each trading day for the onshore yuan versus the U.S. dollar, set the so-called fixing at its lowest level since early August 2020. The onshore yuan can trade up to 2% on either side of the fixing. However, the PBoC has set the fixing stronger than market expectations at every single session for nearly a month, which is indicative of China’s efforts to slow the pace of depreciation. Any significant discrepancy between the market’s expectations of the fixing and the level at which the PBoC sets the midpoint is interpreted by analysts as a signal of how Beijing intends to influence the currency. Aside from the Fed’s rate hikes, the yuan’s slide has also been influenced by China’s surprise decision to lower its key interest rates in August.

The Week Ahead

Inflation and consumer confidence data are among the important economic data scheduled for release this week.

Key Topics to Watch

• Chicago Fed national activity index
• Boston Fed President Susan Collins speaks
• Atlanta Fed President Raphael Bostic speaks on wealth inequality
• Dallas Fed President Lorie Logan speaks
• Cleveland Fed President Loretta Mester speaks
• Chicago Fed President Charles Evans speaks
• Fed Chair Jerome Powell speaks on digital finance
• Durable goods orders
• Core capital goods orders
• San Francisco Fed President Mary Daly speaks
• S&P Case Shiller U.S. home price index (SAAR)
• FHFA U.S. home price index (SAAR)
• Louis Fed President James Bullard speaks
• Consumer confidence index
• New home sales (SAAR)
• Trade in goods, advance report
• Atlanta Fed President Raphael Bostic speaks
• Pending home sales index
• Fed Chair Jerome Powell delivers opening remarks
• Fed Gov. Michelle Bowman speaks on bank competition
• Chicago Fed President Charles Evans speaks
• 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)
• Louis Fed President James Bullard speaks
• PCE price index
• Core PCE price index
• PCE price index (year-on-year)
• Core PCE price index (year-on-year)
• Real consumer spending
• Real disposable incomes
• Fed Vice Chair Lael Brainard speaks
• Chicago PMI
• UMich consumer sentiment index (late)
• UMich 5-year expected inflation (late)
• Fed Gov. Michelle Bowman speaks on bank supervision
• Richmond Fed President Tom Barkin speaks on what’s driving inflation
• New York Fed President John Williams speaks on financial stability

Markets Index Wrap Up

Stock Markets

Stocks fell sharply this week, registering their largest weekly drop in three months. Inflation fears intensified with the announcement of a higher-than-expected consumer price index (CPI). Simultaneously, and for the same reason, short-term bond yields reached levels not seen since 2007, during the advent of the subprime financial crisis. The Dow Jones Industrial Average (DJIA) slumped by 4.13% from the previous week, while the total stock market index lost 4.80%. The S&P 500 Index dropped by 4.77% while the technology-heavy Nasdaq Stock Market Composite plunged by a hefty 5.48%. The NYSE Composite lost 4.06 % of its value.

Among the sectors, communication services underperformed the rest within the S&P 500 as a result of Google parent Alphabet and Facebook parent Meta Platforms sinking to new lows going back 52 weeks. There was also marked weakness in the industrials and materials shares. Despite the CBOE Volatility Index (VIX) rising 15.40%, it remained well below the levels seen at the beginning of the pandemic. On Tuesday, the S&P 500 suffered its worst drop in two years; on that day, however, trading volumes remained contained, with the number of shares traded coming in below the average for the year, suggesting the market may hold.

U.S. Economy

Tuesday’s CPI report appeared to have been the week’s prime mover. Consumer prices rose by 8.3% for the 12 months ended in August, which overshot consensus expectations for an increase of approximately 8.1%. The indicator was telling because it dimmed investors’ hopes that they had seen the worst of inflation and the economy was poised to recover. More worrisome was the core inflation (excluding food and energy) figure registering 6.3%, its highest level over the last six months and above the expected core inflation rate of 6.1%. The August housing cost increase of 7.0% was partly the cause of the higher-than-expected rise, but price increases in food and medical care also significantly contributed to the surge. On Wednesday, the core producer prices were released and offered some comfort to investors. Producers’ prices continued their year-on-year decline that commenced in April, registering 7.3% in August from 7.6% in July.

Regarding wage inflation, a key concern of policymakers, there were mixed messages over the past week. A large list of companies are planning layoffs, among which are Ford Motor and Microsoft, soon joined by Goldman Sachs. Weekly jobless claims released on Thursday suggested the opposite as they fell to 213,000, the lowest level since summer. Retail sales data released on the same day pointed to consumers’ reduced spending. The Labor Department reported a decline of 4.2% in spending at gas stations in August. There were, however, solid increases in spending on cars, restaurants and bars, and other stores. Some positive news in the form of falling gas prices helped to perk consumer sentiment. It slightly offset the gloomy outlook on the global economy reported by shipping giant FedEx. After Thursday’s market close, FedEx announced it was withdrawing its earnings guidance for fiscal year 2023 due to a foreseen “continued volatile operating environment” and that its CEO expected a global recession.

Overall, this week began with investors hopeful that inflation has rounded its peak and energy prices will continue their descent since August. This should have convinced the Federal Reserve to moderate its aggressive monetary tightening. The rise in food, shelter, and medical costs, however, offset gains made in decreasing gasoline prices, again raising fears of a further Fed rate hike.

Metals and Mining

The gold market is immersed in much doom and gloom as prices closed the week at their lowest levels since April 2020. Gold broke its support level at $1,700, but it still holds above its critical long-term support in the narrow range between $1,680 and $1,675 per ounce. There is hope that if the precious metal holds for some time within this range, it could build a solid base at a critical long-term level. Analysts are keen to observe that a strong break below the $1,675 level could mark the end of gold’s three-year bullish uptrend. There is a slight ray of hope, however. In the coming week, the central bank is expected to be fairly hawkish, but if Fed Chair Jerome Powell does not meet those elevated expectations, some profit-taking may take place in the U.S. dollar, and this development may drive gold prices higher.

This week, the spot prices of precious metals were mixed. Gold dropped -2.43% from the previous week’s close at $1,716.83 to its new close at $1,675.06 per troy ounce. Silver, on the other hand, gained 3.87% from its prior close at $18.86 to this week’s close at $19.59 per troy ounce. Platinum also rose 2.88% from its earlier price of $884.19 to the week’s ending price of $909.66 per troy ounce. Palladium lost some ground, beginning at $2,178.58 and ending at $2,138.16 per troy ounce for a loss of 1.86%. The 3-mo LME prices of base metals were mostly down. Copper, which closed the week earlier at $7,856.50, ended this week at $7,762.00 per metric tonne for a drop of 1.20%.  Zinc dipped 0.44% week-on-week, from $3,167.50 to $3,153.50 per metric tonne. Aluminum, which a week ago traded at $2,286.00, closed this week at $2,277.00 per metric tonne for a price depreciation of 0.39%. Tin closed this week at $21,137.00 per metric tonne, down by 0.13% from its previous price of $21,165.00.

Energy and Oil

Fears of an economic downturn were signaled this week by a host of developments, including the largest single-day stock market crash in recent memory, U.S. yields breaching multi-year highs, and expectations of an impending global recession announced by the multinational shipping giant FedEx. There is widespread expectation that at next week’s Fed meeting, another aggressive rate hike will be announced. This will likely exacerbate a decidedly bearish sentiment in the oil market, with oil prices poised to record a decline for the third straight week. In the not-so-distant future, there remain plenty of catalysts to spur a bullish oil market, but none of them are likely to materialize soon enough to reverse the economic fears weighing heavily on this sector. Currently, investors can only sigh with relief for positive developments such as the aversion of an expected U.S. railroad strike that might have caused a major disruption to the country’s commodity markets and potentially derailed the energy sector.

Natural Gas

For the week beginning Wednesday, September 7, and ending Wednesday, September 14, the Henry Hub spot price rose by $0.56 from $8.13 per million British thermal units (MMBtu) to $8.69/MMBtu. Regarding the Henry Hub futures prices, the price of the October 2022 NYMEX contract increased by $1.272 from $7.842/MMBtu from the beginning of the week to $9.114/MMBtu by the week’s end. The price of the 12-month strip averaging October 2022 through September 2023 futures contracts increased by $0.898 to $7.424/MMBtu. Spot prices for natural gas increased at most locations this report week, while the international natural gas futures prices descended. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia declined by $2.88 to a weekly average of $53.19/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 $5.68 to a weekly average of $60.81/MMBtu.

World Markets

European shares drew back due to signs of an impending economic slowdown. The pan-European STOXX Europe 600 Index closed 2,89% lower in local currency terms, Germany’s DAX Index fell by 2.65%, France’s CAC 40 Index declined by 2.17%, and the UK’s FTSE 100 Index dipped by 1.56%. Italy’s FTSE MIB Index remained roughly flat by the week’s end. The British pound weakened against the dollar, descending to levels not seen since 1885. Concerns of an impending recession accounted for the downward pressure on the markets. Further aggressive policy action is feared by investors, on the possibility that the Bank of England may hike interest rates by 0.5 percentage point (0.50%) at its next meeting, way smaller than an increase the U.S. Federal Reserve may announce that would further strengthen the dollar against the pound.  In Germany, yields on the 10-year government debt rose due to hawkish comments from the European Central Bank policymakers that also boosted expectations of more substantial rate increases. Peripheral eurozone government bonds broadly tracked core markets. The British 10-year government bond yields climbed to their highest levels in more than a decade.

Japan’s stock market plunged in last week’s trading. The Nikkei 225 Index plummeted 2.29% of its value while the broader TOPIX Index lost 1.37%. The government announced the lifting of its COVID-related restrictions on individual tourists and removed its limit on daily international arrivals to the country. Trade data for August indicated that Japan’s exports grew by 22.1% from August 2021, further exceeding a 19% annual increase in July. This is largely accounted for by Japan’s top export market, the U.S. Exports may be further helped by the continued weakening of the Japanese currency against the dollar. The yen-to-dollar exchange rate finished at JPY 143, lower from the previous week’s level at JPY 142 versus the U.S. currency. Despite rumors that circulated midweek concerning a possible intervention by the Bank of Japan (BoJ), the central bank took no action and allowed the yen to further slide against the dollar. The yen’s decline was driven by the Fed’s rapid rate hikes whereas the BoJ has not made any such move to defend the yen. The 10-year Japanese government bond yield increased to 0.25% from 0.23% the week earlier. The BoJ began purchasing bonds at 0.25% which is the upper limit of the yield range for the 10-year note under the central bank’s yield curve control policy.

China’s stock markets fell due to currency weakness and lackluster property data overshadowing the unexpectedly strong factory output and retail sales indicators. The broad, capitalization-weighted Shanghai Composite Index sank by 4.2%, while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, tumbled 3.9% in its largest weekly drop in two months. The People’s Bank of China (PBoC) siphoned off liquidity from the banking system for the second month in a row, but it maintained interest rates at their current levels in an attempt to ease selling pressure on the yuan due to a widening policy divergence with the Federal Reserve. China’s central bank has pegged a set of stronger-than-expected yuan fixings against the greenback while reducing banks’ foreign currency reserves requirement in an attempt to stabilize the currency. China’s surprise decision to lower key interest rates in August has accelerated the yuan’s slide amid the Fed’s hawkish tightening stance that has strengthened the dollar against emerging market currencies. Both the onshore and offshore yuan slumped to their lowest level since July 2020. The yield on the 10-year Chinese government bond rose to 2.692% from 2.663% one week earlier, ahead of another possible U.S. rate hike in the coming week.

The Week Ahead

Housing data and leading economic indicators are among the important economic data being released in the coming week. The next Federal Open Market Committee meeting will also take place during the week.

Key Topics to Watch

• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Existing home sales (SAAR)
• Federal Reserve statement
• Fed Chair Jerome Powell’s news conference
• Initial jobless claims
• Continuing jobless claims
• Current account deficit (% of GDP)
• Leading economic indicators
• S&P U.S. manufacturing PMI (flash)
• S&P U.S. services PMI (flash)

Markets Index Wrap Up

Stock Markets

After a streak of three consecutive weekly losses, stocks rebounded this week, a sign that investors are gaining confidence that the market may have temporarily bottomed out after retracing half of its summer gains. Inflation concerns appear to have been moderated with the expectation that the Fed’s future hawkish measures may be tempered. Energy shares underperformed the other sectors due to a midweek decline in oil prices, which briefly descended to their lowest level since the Russia-Ukraine war broke out; nevertheless, the sector still registered a modest gain for the week. The consumer discretionary sector outperformed the market due to a rally in heavily-weighted Tesla.

The markets were closed on Monday in observance of Labor Day. During the four-day trading week, the Dow Jones Industrial Average (DJIA) saw a 2.66% climb, while the total stock market did better, gaining 3.23%. The Nasdaq Stock Market Composite, which tracks technology stocks, surged by 4.14%. The broad S&P 500 Index rose by 3.65%, while the NYSE Composite gained 3.41%. The market began to turn on Wednesday in a relief rally on light trading volumes, suggesting the unlikelihood of a reversal. The rally was partly a reaction to the more dovish comments made by Federal Reserve Vice Chair Lael Brainard and Cleveland Fed President Loretta Mester. Brainard further remarked that she believed, despite the Fed continuing to raise rates, a recession could still be avoided. It appears that inflation may be cooking faster than the Fed originally expected when it released some hawkish projections in the past weeks.

U.S. Economy

The pandemic shutdown has wrought notable imbalances and distortions in the economy. The more significant impact was the impairments to global supply chains, increased consumer spending on goods relative to services, and record-high household savings. Moving towards the end of the year and on to 2023, economic growth is expected to continue. Growth drivers will shift from the pandemic stimuli to normalization in the underlying GDP trends, among which are the improvements in clearing supply bottlenecks, consumer spending supported by a drawdown in excess savings, and a shift to more services spending as pent-up demand due to the shutdown is released.

The healthy labor market appears to have tightened amid a return this year to full employment and strong hiring demand. The unemployment rate may likely fall back to below 4% from 2021’s average of 5.4%, with wage growth remaining steady for the rest of the year. While payrolls in the leisure and hospitality sector still lag behind the other sectors, total employment has returned to pre-pandemic levels. We may expect to see some cracks in the otherwise solid labor-market situation as demand slows and hiring freezes and layoffs may take place in certain industries. These are starting to emerge in pockets of the technology sector. The pace of monthly job growth as well as the pace of monthly job openings will begin to slow. The high trend in job quits has descended from its record highs in recent months. Workers’ confidence that opportunities will remain plentiful as they were in the past year appears to be moderating. Nevertheless, overall employment conditions will remain reasonably favorable, fueling support for consumer spending and moving the economy further forward.

Metals and Mining

Analysts observe that gold and precious metals appear to gain solid footing, although it is still premature to speculate that gold is close to a breakout. The precious metal has registered some strength from the fact that it did not break down to new lows this week. Another development this week was the major breakout of the U.S. dollar against a basket of foreign currencies, including the Japanese yen and the Chinese yuan. The pound also fell to a 35-year low against the greenback, and the euro continues to trade below parity with the dollar. Against this backdrop, gold has managed to hold steady to its support at $1,700. The precious metal has also remained steady despite rising bond yields, as the U.S. 10-year yields surged to 3.5% this week, the highest it has been in two months. The trend in yields will continue to prevail as the market sees a 90% likelihood that the Federal Reserve will raise interest rates by 75 basis points. This will further test the price of gold, which tends to weaken vis-à-vis assets that have yields.

Gold closed the week at $1,716.83 per troy ounce, higher by 0.27%, from the earlier week’s close at $1,712.19. Silver, which closed the previous week at $18.04, ended this week at $18.86 per troy ounce, higher by 4.55%. Platinum rose by 5,38% from its prior close at $839.05 to its closing price this week at $884.19 per troy ounce. Palladium began the week at $2,024.00 and closed at $2,178.58 per troy ounce for a gain of 7.64%. The three-month LME prices of base metals were mixed at trading this week. Copper gained 2.93% from its previous close at $7,633.00 to this week’s close at $7,856.50 per metric tonne. Zinc saw a slight gain of 1.02% from the previous week’s close at $3,135.50 to this week’s close at $3,167.50 per metric tonne. Aluminum dipped by 0.41% from the earlier close at $2,295.50 to end at $2,286.00 per metric tonne. Tin, which ended one week earlier at $21,155.00, closed this week at $21,165.00 per metric tonne for a gain of 0.05%.

Energy and Oil

The oil markets continue to be impacted by weak macroeconomic data. ICE Brent continues to trend around $90 per barrel after it bounced back from multi-month lows where it treaded mid-week. Bearish sentiment appears to prevail as news of weak Chinese trade data and ECB interest rate hikes overpowered the story of Iran’s nuclear deal getting sidetracked, a story more relevant to the supply/demand situation. Nevertheless, threats of supply cut-offs appear to have countered a very bearish inventory report by the U.S. Energy Information Administration (EIA), sending oil prices upward early on Friday morning. Russia’s President Vladimir Putin raised the stakes in Europe’s energy crisis as the EU considers a pipeline gas price cap. Putin threatened to halt energy exports to any country that will implement price gaps on the country’s oil, gas, and coal.

Natural Gas

For the report week from Wednesday, August 31 to Wednesday, September 7, the Henry Hub spot price fell by $0.82 from $8.95 per million British thermal units (MMBtu) at the start of the week to $8.13/MMBtu by the week’s end. Regarding futures prices, the price of the October 2022 NYMEX contract descended by $1.285 for the week, from $9.127/MMBtu to $7.842/MMBtu. The price of the 12-month strip averaging October 2022 through September 2023 futures contracts decreased by $0.869 to $6.526/MMBtu. In all regions this report week, natural gas spot prices decreased as prices at major pricing hubs declined. After reaching record highs last week, international natural gas futures prices declined this week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia slid by $7.95 to a weekly average of $56.07/MMBtu, while natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $17.13 to a weekly average of $66.49/MMBtu.

World Markets

European bourses climbed after announcements by some member countries concerning plans to address the energy crisis and boost their economies. The pan-European STOXX Europe 600 Index concluded the week 1.06% higher. Major indexes followed the trend. Germany’s DAX Index gained 0.29%, France’s CAC 40 Index rose 0.73%, and Italy’s FTSE MIB Index advanced 0.79%. The UK’s FTSE 100 Index increased by 0.96%. The British pound lost ground against the U.S. dollar before it bounced back to approximately USD 1.16, close to its lows in 1985. Uncertainty about the economic agenda of the new UK Prime Minister Liz Truss appeared to be at the center of the pound’s weakness, at least in part. After the European Central Bank (ECB) hiked its key interest rates by a record 0.75%, the euro climbed above parity with the U.S. dollar.

Japan’s stock markets ascended for the week as the Nikkei 225 climbed 2.04% and the broader TOPIX Index rose by 1.83%. Investors showed optimism as the government announced new measures to help Japan contend with rising inflation. Meanwhile, the yen fell to its lowest level in 24 years, eliciting fresh comments from government officials that any options on foreign exchange moves will not be ruled out. The yen weakened to about JPY 142 against the U.S. dollar from about JPY 140 the week before. The 10-year Japanese government bond yield dipped to 0.23% from 0.24% at the close of the preceding week. The government declared that by October, a new counter-inflation package will be launched, including cash handouts to low-income households and measures to keep the prices of some commodities and food items at their current levels. Priority is being given to the protection of households and businesses from the repercussions of higher import prices due mainly to the Russia-Ukraine war.

China’s stock markets climbed as modest inflation data and expectations of added policy support perked buying interest. The broad, capitalization-weighted Shanghai Composite Index surged 2.4% while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, gained 1.7%. Although inflation slowed, so did trade and domestic demand. China’s consumer and factory gate inflation in August came down from their levels in July even better than analysts’ expectations. Over the 12 months ending in August, consumer prices rose 2.5%, as did factory gate prices, down sharply from the 4.2% recorded in July. Year-over-year factory gate inflation (excluding transport or delivery charges) peaked in October 2021 at 13.5%; since then, it had consistently trended lower. Earlier this past week, official data showed that exports and imports began to slow in August as growing inflation slowed overseas demand and China’s output was disrupted by coronavirus restrictions and the prevailing heat wave.

The Week Ahead

Inflation and economic activity information comprise some of the important economic data scheduled for release in the coming week.

Key Topics to Watch

• NY Fed 3-year inflation expectations
• NFIB small-business index
• Consumer price index
• Core CPI
• CPI (year-on-year)
• Core CPI (year-on-year)
• Federal budget
• Producer price index final demand
• Initial jobless claims
• Continuing jobless claims
• Retail sales
• Retail sales excluding vehicles
• Philadelphia Fed manufacturing index
• Empire State manufacturing index
• Import price index
• Industrial production index
• Capacity utilization
• Business inventories
• UMich consumer sentiment index
• UMich 5-year consumer inflation expectations

Markets Index Wrap Up

Stock Markets

Stocks ended in negative territory for the week as market participants continued to discount the ramifications of messages from the Federal Reserve officials pointing to more aggressive policy tightening ahead. Fed Chair Jerome Powell informed investors on Friday this week that they are committed to further raising rates in further attempts to rein in inflation until it “gets the job done.” The markets took this pronouncement seriously, causing a 3.29% drop in the broad S&P 500 for the week. The Dow Jones Industrial Average (DJIA) dropped 1.07% and its total stock market index dived 3.48%. The tech-heavy Nasdaq Stock Market Composite plunged 4.21% while the NYSE Composite also fell 3.22%.  Markets will continue to remain volatile in the near term as a forecast remains for a further 75-basis point (0.75%) rate hike at the September FOMC meeting and a terminal fed funds rate of close to 4.0%. The previous forecast of a Fed rate cut for mid-2023 forecast appears to have been abandoned.

U.S. Economy

The week ended with the release of a resilient jobs report which, nevertheless, failed to lift the equities market. Uppermost in the concerns of many investors is the continued rate-hike policy by the Feds which threatens a possible deepening of what is currently seen as an economic recession. The expected pivot in Fed policy in the form of a rate cut by mid-2023 has morphed into a possible Fed pause. Investors are now focused on the forthcoming inflation readings upon which the Fed is anchoring any forward-looking actions.

There are some data points indicating that it is possible inflation has peaked and may soon be descending. Oil and commodity prices have begun to soften although they remain volatile. The ISM manufacturing prices announced last week fell to the lowest levels of the year. Wage gains remain steady and the housing market has begun to cool as mortgage rates ascended. Despite these developments, the overall inflation figures may move lower only after several months while other components remain sticky, namely rent, shelter, and broader services.

The labor market remains resilient. The August jobs report was generally in line with and even slightly higher than expectations. Nonfarm jobs rose by 315,000, higher than the 300,000 forecasted, signaling a relatively robust job market. It is noticeable that unemployment also rose, up to 3.7% from the previous 3.5%, although it remains close to record lows. Some labor supply appears to be returning to the workforce as labor force participation increased from 62.1% to 62.4%, staving off some worries of a supply shortage. Wage growth remains at 5.2%, moderating from peak levels that were set in March of this year.

Metals and Mining

The metal markets experienced a dismal summer which is coming to an end. Nevertheless, there remains no strong impetus to move metal prices forward and they continue to hover at current levels. Thankfully, the gold market ended the week off its lows at $1,700 where it has its strong support, but it still has not broken its losing streak of the past three weeks. Despite a bounce on Friday this past week, prices are only slightly above the critical initial support level. Gold’s sluggish performance is attributed to the growing competition posed by the dollar; further negative sentiment may push gold prices lower. Many investors are eyeing $1,685, which marks gold’s breakout parabolic move to $2,000 per ounce seen two years ago. Analysts speculate that if this level is broken significantly, this move could signal the end of the precious metal’s three-year bull market. Below $1,675, gold has little support on its way to $1,600.

Gold closed the week at $1,712.19 per troy ounce, down by 1.49% from its previous close at $1,738.14. Silver, which ended the week previous at $18.90, closed this week at $18.04 per troy ounce, down by 4.55%.  Platinum ended the week at $839.05 per troy ounce, incurring a loss of 3.22% from the prior week’s close at $866.97. Palladium closed the previous week at $2,108.87 but ended this week at $2,024.00 per troy ounce for a loss of 4.02%. The 3-month forward LME prices for base metals also went southward for the week. Copper closed at $7,633.00 per metric tonne for the week, down by 6.46% from its close one week earlier at $8,160.50. Zinc ended this week at $3,135.50 per metric tonne, losing 12.06% from its previous weekly close of $3,565.50. Aluminum closed this week at $2,295.50 per metric tonne, down by 7.94% from the week-ago close at $2,493.50. Tin ended at $21,155.00 per metric tonne, for a loss of 14.53% from the previous week’s close at $24,750.00.

Energy and Oil

The slowdown in the Chinese economy has been the focus of this past week’s attention in the assessment of the future demand for energy and oil. The country’s PMI index for August registered only 49.4 which is roughly sideways from July, which investors see as a further delay in the much-anticipated economic activity rebound. Another concern is that the return of lockdowns in multimillion mega-cities, including Shenzhen or Chengdu, is likely to reduce oil demand as there is no way of predicting how long such measures will last.

The political instability in Iraq has further dampened any hopes of oil establishing a bullish trend, as much as the prospects of a nuclear deal for the country remain in limbo without political guarantees. Iran’s foreign minister stated that Tehran is seeking stronger guarantees from the U.S. for the nuclear deal to proceed, including an explicit no-snapback clause from Washington and a halt to IAEA probes into its nuclear program – conditions to which the U.S. will likely not agree. China-driven demand fears will continue to lead the market narrative, seeing ICE Brent down at $92 per barrel, until the OPEC+ meeting scheduled for September 5.

Natural Gas

For this report week covering Wednesday, August 24, to Wednesday, August 31, 2022, the Henry Hub spot price slid by $0.34 from $9.29 per million British thermal units (MMBtu) at the start of the week, to $8.95/MMBtu at the end of the week. Regarding Henry Hub futures prices, the September 2022 NYMEX contract expired Monday, August 29, at $9.353/MMBtu, higher by $0.023 from last Wednesday. The October 2022 NYMEX contract price declined to $9.125/MMBtu, lower by $0.17 for the week. The price of the 12-month strip averaging October 2022 through September 2023 futures contracts rose by $0.04 to $7.394/MMBtu.

Concerning international futures prices, international natural gas futures prices increased this report week to reach record-high levels, largely driven by natural gas supply constraints in Europe. The European market has experienced reduced pipeline flows from Russia and a maintenance event on the Nord Stream 1 pipeline. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia rose by $5.02 to a weekly average of $64.02/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, rose by $6.01 to a weekly average of $83.62/MMBtu, the highest weekly average price on record. Earlier in the report week, the price at TTF increased close to $100/MMBtu.

World Markets

European bourses plunged sharply on concerns that central banks could aggressively tighten monetary policy for a prolonged period. Fears that Russia might stop natural gas supplies to Europe likewise contributed to the negative investor sentiment. The pan-European STOXX Europe 600 Index fell on local currency terms, ending the week lower by 2.37%. Major indexes were mixed, with Germany’s DAX Index gaining 0.61% while France’s CAC 40 Index descended 1.70% and UK’s FTSE 100 Index losing 1.97%. Italy’s FTSE MIB Index was practically unchanged. Core eurozone government bond yields climbed due to record-high inflation and hawkish central bank comments. Peripheral eurozone bond yields and UK gilt yields followed the trend of core markets.

Eurozone money markets priced in an approximate 80% probability of an unusually large 0.75 percentage point rate increase by the European Central Bank (ECB) at its next meeting following a spate of hawkish comments by policymakers and the record inflation reflected by economic data. According to Executive Board member Isabel Schnabel, central banks should act “forcefully” to control high inflation, even at the risk of higher unemployment and lower growth, to reduce the risk of bad economic outcomes.

In the meantime, Japan’s stock exchanges registered losses for the week. The Nikkei 225 Index lost 3.46% while the broader TOPIX Index fell by 2.50%. The declines were attributed to the hawkish outlook by investors on U.S interest rate hikes and their likely impact on the Japanese economy. On this basis, the yield on the 10-year Japanese government bond rose to 0.24%, from 0.22% at the end of the previous week, driven by a sell-off in global bonds. The yen weakened on expectations of continued monetary policy divergence between the U.S. Fed policy and the monetary policy pursued by the Bank of Japan (BoJ), which remains committed to keeping its interest rates low. The yen fell to its lowest level since 1998, breaching the JPY 140 level against the dollar. This has improved Japan’s export competitiveness, although it has pushed up the cost of importing energy and food, thus increasing the burden on businesses and households.

China’s stock markets have once again fallen to the impact of coronavirus outbreaks in major cities that have triggered renewed lockdowns and weighed down the near-term economic outlook. The broad capitalization-weighted Shanghai Composite Index fell by 1.54% and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, retreated by 2.01%. In the southern tech hub of Shenzhen, a large segment of the city’s almost 18 million residents were restricted by virus-related control amid the country’s most serious spike since the spring. Chengdu, the capital of Sichuan province in southern China, was put under lockdown on Thursday with mass testing scheduled throughout the weekend. The southern port city of Guangzhou was also placed under severe restrictions. About 41 Chinese cities, which controls about 32% of the country’s gross domestic product, are currently under coronavirus control measures, the highest number since April.

The Week Ahead

Inventories and the PMI index are among the important economic data to be released this week.

Key Topics to Watch

• S&P U.S. services PMI (final)
• ISM services index
• Cleveland Fed President Loretta Mester speaks
• International trade balance
• Beige book
• Initial jobless claims
• Continuing jobless claims
• Quarterly services
• Consumer credit
• Wholesale inventories revision

Markets Index Wrap Up