Stock Markets

Stocks were driven sharply lower this week due to concerns that the Federal Reserve may not be able to control inflation without further aggressive rate hikes. Investors fear that further increases in interest rates may well cause a significant economic slowdown. The Dow Jones Industrial Average (DJIA) plunged 4.22% while the total stock market lost 3.84% of its value. The S&P 500 Index gave up 4.04% while the Nasdaq Stock Market Composite lost 4.44%. The NYSE Composite slid 2.63%. The underperformance by the Nasdaq, which fell to its lowest level in a month, compared to the other stock market indexes suggested that technology and other high-growth stocks fared worse in this slowing environment.  The rising price of oil further drove inflation worries, but also boosted the energy sector.

It is notable that the major indexes entered a bear market in June, rebounded strongly in July, and inbound to end flat in August, returning to their levels three months ago. Currently, the markets are in search of a reason to move in either direction, with the worst-case scenario for risks having been dissipated although strong resistance to further growth is expected. Volatility is forecasted to remain high in the coming prolonged market recovery.

U.S. Economy

Inflationary pressures seem to be receding, although levels remain far from the Fed’s 2% target rate. The constraints against supply appear to be easing even as demand is weakening. Companies are reporting improved delivery times which indicates that the tight supply chain situation of the past months is lifting. Inventories are rising relative to sales as the economic growth has softened, thus it is likely that inflation for consumer goods is likely to come down significantly in the months to come. It is therefore plausible that the Fed may eventually ease up on its tight monetary policy that it has aggressively pursued so far this year, and adopt a neutral stance that neither stimulates nor restrains growth if the inflation rate continues to improve.

Although the economy continues to slow down, it has been largely policy-driven, therefore it is too soon to tell whether the full effects of the rate hikes have already been felt. Consumption appears to be healthy and sustained, expanding 1.5% after adjusting for inflation, Strong consumer spending is behind the small contraction in the economy indicated after the first revision for the second-quarter GDP. Annualized increase in services rose 3.6% while personal income rose in July due to the tight labor market. However, this trend may be soon arrested as suggested by the upward trend in jobless claims and the declines in the job openings and quit rates.

Metals and Mining

The gold market has once more been stymied in neutral, clinging to its support at around $1,750 per ounce despite the pressure to move downward exerted by increasing interest rates. Market participants, including traders and investors, are still discounting the substance of the comments of Federal Reserve Chair Jerome Powell during the annual central bank symposium. Powell appears to sound hawkish without actually divulging future policy moves. In light of the fluid economic conditions, the central bank’s gold demand will continue to provide critical support for the gold market.

The sport price for gold, which ended the preceding week at $1,747.06, closed this week at $1,738.14 per troy ounce, losing 0.51%. Silver closed at $19.05 previously and this week at $18.90 per troy ounce for a 0.79% drop. Platinum began at $899.21 and ended this week at $866.97 per troy ounce, sliding 3.59%. Palladium, which previously closed at $2,129.59, closed this week at $2,108.87 per troy ounce, dipping 0.97%.  The 3-month LME price of industrial metals performed relatively better for the week. Copper, which was previously $8,078.50, closed the week at $8,160.50 per metric tonne, rising 1.02% week-on-week. Zinc began at $3,487.50 and ended the week at $3,565.50 per metric tonne, climbing 2.24%. Aluminum rose week-on-week from $2,386.00 to $2,493.50 per metric tonne, gaining 4.51%. Tin closed the previous week at $24,795.00 and this week at $4,750.00, declining 0.18%.

Energy and Oil

Oil prices were directionless this week. ICE Brent remained at around $100 per barrel as the market’s attention was focused on the likelihood of the successful negotiation of the Iranian deal. The Biden administration relayed its response to the European Union, which acted as a broker between it and Iran in light of their refusal to negotiate directly. According to the grapevine, the proposed terms are far from what Tehran anticipated, effectively creating a “take it or leave it” dilemma for the Iranian leadership.  Absent any breakthrough in the Iranian stalemate, the Feds Jackson Hole symposium will continue to drive oil prices. In the meantime, U.S. Energy Secretary Jennifer Granholm, in a letter sent to the country’s leading refiners, called upon them to withhold exports to Europe and South America and commence building up inventories, despite both the gasoline and diesel curves being firmly backwardated.

Natural Gas

For the report week from Wednesday, August 17, 2022, to Wednesday, August 24, 2022, the Henry Hub spot price fell by $0.22, from $9.51 per million British thermal units (MMBtu) to $9.29/MMBtu. The price of the 2022 NYMEX contract increased by $0.086/MMBtu, from $9.244/MMBtu at the start of the week to $9.330/MMBtu at the end of the week. The price of the 12-month strip averaging September 2022 through August 2023 futures contracts rose $0.114 to $7.659/MMBtu. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $9.06 to a weekly average of $59.01/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, increased by $12.53 to a weekly average of $77.60/MMBtu.

World Markets

European shares fell due to growing fears that the efforts so far of key central banks to rein in inflation can exacerbate an economic downturn. The pan-European STOXX Europe 600 Index closed 2.58% lower than the preceding week in local currency terms. Major stock indexes likewise declined, with Germany’s DAX Index plunging 4.23%, France’s CAC 40 Index coming down 3.41%, and Italy’s FTSE MIB Index sliding 2.84%. The UK’s FTSE 100 Index suffered a 1.63% loss. Core eurozone government bond yields inched higher in the midst of rising expectations of sharper increases in interest rates and indicators of stalling economic activity. The peripheral eurozone and UK government bond yields tracked core markets broadly. Natural gas levels shot up to record levels after the Russian state-owned natural gas producer Gazprom announced further closures of the Nord Stream 1 pipeline to Europe at the end of August, reasoning maintenance processes. This further weighed on investor sentiments as pipeline flows are currently only at 20% of the agreed volume. The euro traded close to parity with the dollar due to the pessimistic economic outlook.

In Japan, despite a rally late in the week, stocks finished the week lower than they began as investors anticipated an announcement of further rate hikes from U.S. Federal Reserve Chair Jerome Powell on Friday. The Nikkei 225 Index closed at 28,641.4, the week down by 1.0%. The broader TOPIX likewise ended down by 0.75% to close at 1,979.6 for the week. That being said, the week actually brought the bourses into a positive trend. On Thursday, the Nikkei broke out of a five-session losing streak, mainly attributable to positive cues from Wall Street and actions by bargain hunters, extending the gains to Friday. Exporters and technology stocks noticeably led the other sectors. In the bond market, the 10-year Japanese government bond (JGB) yields surged to more than a one-month high on Thursday (0.230%), following the lead of its U.S. counterparts. JGP yields closed the week at around 0.224%, higher than the close of the previous week. Regarding currencies, the U.S. dollar traded firmly against the yen intermittently during the week, however, the yen eventually finished the week broadly unchanged from where it began, at JPY 136.8 against the dollar.

China’s stock markets slumped as concerns about the growth outlook were challenged by extreme temperatures and power shortages in some provinces. The broad, capitalization-weighted Shanghai Composite Index slid 0.67% while the blue-chip CSI 300 Index, which broadly tracks the largest listed companies in Shanghai and Shenzhen, dropped 1.05%. Beijing last week announced that the government will adopt several measures to support the economy. The State Council, China’s cabinet, laid out a 19-point policy package that intends to add CNY 300 billion to state policy banks’ investment in infrastructure projects, over and above CNY 300 billion announced in June. The cabinet further allocated CNY 500 billion of special bonds from previously unused quotas to local governments. China appears geared to flood the economy with excessive stimulus. The People’s Bank of China (PBOC) also cut two key interest rates, contrary to the direction taken by most central banks around the world, in its efforts to revive the economy. The 10-year Chinese government bond yield rose to 2.68% from 2.639% the week earlier. The yuan weakened to 6.8624 per U.S. dollar compared to 6.80 the week before.

The Week Ahead

Unit labor costs and the unemployment rate are among the important economic data scheduled to be released this week.

Key Topics to Watch

• S&P Case-Shiller U.S. home price index (year-over-year)
• Consumer confidence index
• Job openings
• Quits
• New York Fed President John Williams speaks
• Cleveland Fed President Loretta Mester speaks
• ADP employment report
• Chicago manufacturing PMI
• Atlanta Fed President Raphael Bostic speaks
• Initial jobless claims
• Continuing jobless claims
• Productivity revision (SAAR)
• Unit labor costs revision (SAAR)
• S&P U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Atlanta Fed President Raphael Bostic speaks
• Light motor vehicle sales (SAAR)
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor force participation rate, 25-54 years
• Factory orders
• Core capital equipment orders revision

Markets Index Wrap Up

Stock Markets

Markets were generally down for the week. The Dow Jones Industrial Average (DJIA) slipped by 0.16%. All sectors were down although the utility average bucked the trend and climbed by 1.39%. The S&P 500 Index descended by 1.21% while the Nasdaq Stock Market Composite slumped by 2.62%. The NYSE Composite fell by 1.37%. Meanwhile, the CBOE Volatility Index, which is the popular measure of stock market volatility based on the S&P 500, increased by 5.48%. The market drop was fueled by recession worries due to high inflation, supply bottlenecks, and expected Federal Reserve rate hikes. The negative returns for the week could also be seen as the market technically retracing from the strong gains of the preceding week. A sharp decline in the stock price of Facebook parent Meta Platforms dragged the S&P 500 Index down more than the other indexes.

U.S. Economy

On Thursday, St. Louis Fed President James Bullard voiced the question on everybody’s mind as to whether inflation has already really peaked despite the sudden downturn in the year-over-year CPI from 9.1% in June to 8.5% in July.  Bullard called attention to the lack of statistical confirmation at this point, hinting that the Fed may again vote in favor of another 75-basis-point (0.75 percentage point) increase in the federal fund target rate at its next policy meeting. Other economic data that emerged this week showed that household finances may be a source of optimism. The economy is slowing, which was the intended effect of the rate hikes.

Personal consumption accounted for 70% of GDP, indicating that consumption holds the key to the path forward for the economy. The underlying retail sales, excluding auto and gasoline sales, increased by a healthy rate of 0.7% month-over-month. Online sales rose sharply while restaurant sales noticeably increased, projecting a balance between goods and leisure spending. The lower food and gasoline costs appeared to prompt consumers to redirect their purchasing power towards discretionary items instead of reducing their spending altogether. This is a healthy indication that there is further upside in consumption to move the economy forward.

Initial jobless claims registered at 250,000 this week, which is a downtick from the reading of the week before. While it is still historically healthy, it is 50% above the lows in March, reflecting some deterioration in employment conditions. It should be noted, however, that March figures were at all-time lows, so this week’s figures may still be seen as a return to historically normal levels. Caution should be taken as a material increase in initial jobless claims is an indicator of an emerging labor-market softness. It is worthy to note that the unemployment figure has actually declined during this same time.

Metals and Mining

Gold has declined for the last five trading days. Gold opened on Monday, August 15, at approximately $1,816 per ounce and registered strong price declines throughout the week. While the price declines were significant, they were not rare or historically unusual. On the other hand, the gains in the dollar index this week were rare and significant. In percentage terms, gold experienced a larger percentage drop than what the dollar gained. In just one week, the dollar index opened at 98.46 and closed at 103.48, advancing strongly by 502 points. Recall that gold prices are based on two primary underlying factors, dollar strength (or weakness) and traders bidding the precious metal higher or lower. Thus for this week, out of gold’s 3.86% decline, 1.65% is attributable to market players actively selling gold, and 2.21% to the dollar’s strength.  It is generally accepted that gold and the dollar are in direct competition as a haven asset during times of economic uncertainty. Also, when the Fed raises interest rates, this weighs on the dollar which does not yield any interest. For this week at least, market participants are focused on further interest rate hikes rather than on the current level of inflation.

For this week, Gold began at $1,802.40 and ended at $1,747.06 per troy ounce, for a decline of 3.07%. Silver, which closed the week prior at $20.82, closed this week at $19.05 per troy ounce, losing 8.50%. Platinum dipped by 6.85% from the earlier week’s close at $965.33 to this week’s $899.21 per troy ounce. Palladium slid from $2,224.95 to $2,129.59 per troy ounce, declining by 4.29%. The three-month LME prices for base metals also took a hit for the week. Copper, which closed the previous week at $8,091.50, ended this week at $8,078.50 per metric tonne for a decline of 0.16%. Zinc began at $3,589.00 and closed this week at $3,487.50 per metric tonne for a loss of 2.83%. Aluminum closed last week at $2,434.50 and this week at $2,386.00 per metric tonne, sliding by 1.99%. Tin began at $25,177.00 and closed this week at $24,795.00 per metric tonne for a price attrition of 1.52%.

Energy and Oil

Oil prices began the week with a sudden plunge on week Chinese economic data and rumors that an Iranian nuclear deal may soon be finalized. Worries were alleviated for bullish oil market participants when large U.S. stock draws materialized across the oil and products spectrum, easing speculation of domestic demand destruction. U.S. refiners argued that there is little sign of demand destruction and that inventories are still below their optimal state. The refiners are expected to maximize their refinery runs over the upcoming weeks. Analysts are expecting a nationwide average of 94%, in line with second-quarter forecasts. As a result, WTI and Brent prices both experienced a strong bounce back.

Natural Gas

During the report week, from August 10 to August 17, 2022, the Henry Hub spot price ascended from $7.89 per million British thermal units (MMBtu) at the start of the week, to $9.51/MMBtu by the week’s end, for an increase of $1.62/MMBtu. Regarding futures, the price of the September 2022 NYMEX contract increased by $1.042, from $8.202/MMBtu to $9.244/MMBtu for the week. The price of the 12-month strip averaging September 2022 through August 2023 futures contracts rose by $0.813 to $7.545/MMBtu. Domestic natural gas spot prices rose at most locations during this report week. International futures prices for liquefied natural gas (LNG) cargoes in East Asia on average increased by $5.33 to a weekly average of $49.94/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, increased by $5.92 to a weekly average of $65.07/MMBtu.

World Markets

Stock markets across Europe pulled back due to renewed concerns that central banks will aggressively tighten their monetary policies to rein in persistently high inflation. The pan-European STOXX Europe 600 Index closed the week lower by 0.80% in local currency terms. France’s CAC 40 Index dipped by 0.89%, Germany’s DAX Index declined by 1.82%, and Italy’s FTSE MIB Index slumped by 1.90%. The UK’s FTSE 100 Index, however, bucked the trend by adding 0.66% due to the depreciation of the UK pound against the U.S. dollar. Weakness in the pound tends to raise the index since most of the listed companies are multinationals earning revenues overseas. Higher dollar revenues will fetch higher corporate earnings in terms of the pound sterling. The core eurozone government bond yields ascended in response to a double-digit increase in UK consumer prices. Also driving the increase in yields was a comment by European Central Bank (ECB) official Isabel Schnabel that inflation may rise further in the near term. Peripheral eurozone and UK government bond yields followed the trend of core markets.

Japan’s shares rose solidly through the first half of the week in reaction to the release of positive U.S. economic data. This bolstered expectations that the Federal Reserve may be less aggressive in its monetary policy and will not raise interest rates too high in the coming months. Japanese equity markets rallied on Wednesday despite mixed domestic economic news and weak data emerging from China that stoked worries that global growth may slow down. Both the Nikkei 225 Index and the TOPIX breached the psychological resistance levels of 29,000 and 2,000, respectively. However, by midweek, the optimism began to recede after the minutes from the U.S. Fed’s July meeting were released, pointing to a prolonged retention of high interest rates. The minutes reaffirmed that the Fed planned to continue raising interest rates in attempting to return inflation to its long-term objective of 2% (the July inflation rate figure was at 8.5%). This resulted in Japanese stock markets closing notably lower on Thursday. The yen weakened from its previous level of JPY 133.5 per USD to JPY 136.7 per USD. On the bond market, the benchmark 10-year JGB yields inched higher during the week, from 0.184% to 0.191%.

China’s stock markets also declined for the week in response to weak economic data and elevated levels of COVID cases, exacerbated by drought conditions in parts of the country. The broad, capitalization-weighted Shanghai Composite Index slipped 0.6% while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, dipped by 1%. July’s retail sales data released during the week indicated that it grew by 2.7% year-on-year and that industrial output was 3.8% higher than one year ago. Both indicators were lower than expected, however. Data on the property sector showed that China’s home prices fell for an 11^th straight month in July. Regarding COVID infections, this was the worst seven-day period in China since mid-May as more than 18,000 new local cases were recorded. A national drought alert was also issued by the government as rising temperatures threatened crops and industrial activity in certain regions of the country. The severe heat wave has sparked power shortages and forest fires. The 10-year Chinese government bond yield fell sharply after the People’s Bank of China (PBOC), China’s central bank, unexpectedly cut a key interest rate due to July’s disappointing economic data. In the meantime, the yuan hit a three-month low versus the U.S. dollar as the currency reacted to soft economic data and tracked the PBOC’s weakened midpoint guidance.

The Week Ahead

Personal income and consumption, jobless claims, and inflation are among the important economic data expected to be released in the coming week.

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

When inflation data released last week showed it slowing down on a monthly basis, despite still being elevated year-on-year, stocks rallied significantly in hopes that the rise in consumer prices may have seen their highest level. The market appeared optimistic that the Federal Reserve would move away from raising rates by 75 basis points (0.75%) in September as they had resorted to in the recent past, although the Fed clarified that they still had much work to do before inflation can be tamed.  The consumer price index (CPI) and producer price index (PPI) inflation data for July moved down, which was a welcome development after June’s unexpected accelerated indicators.

The Dow Jones Industrial Average (DJIA) rallied 2.92% for the week with a 957.58-point rise. The total stock market surged higher by 3.43% or a 1.434.21 increase. The S&P 500 Index gained 3.26% while the tech-heavy Nasdaq Stock Market Composite also rose 3.08%. the NYSE Composite likewise returned 3.48% for the week. Consumer staples underperformed the other sectors. In the weeks following, volatility may still be high, but if inflation continues to improve moderately but consistently, the markets may be poised for a sustained, longer-term rally.

U.S. Economy

While the headline CPI reported this week was lower than last month, the core CPI remained largely unchanged. The lower inflation figure was attributed to lower fuel and energy prices which impacted both the CPI and the PPI. The latter also benefitted from an improvement in the global supply chain as indicated by better delivery times, lower shipping-container rates, and a reduction in the Fed’s Global Supply Chain Pressure Index. There is some concern that changes in consumer habits may also have lowered demand for energy and fuel which in turn contributed to the reduction in fuel prices.

The lower-than-expected inflation data prompted an increase in steepening bets among investors that caused a pullback in front-end rates and a slight rise in longer-term yields. The optimism that inflation may have peaked caused a risk-on rally in investment-. grade corporate bonds. For the moment, the Fed remains committed to further increasing interest rates, citing that despite the apparent slowdown, inflation figures remain at historic highs. Chicago Fed President Charles Evans opined that the central bank may need to raise rates to as high as 4% by the end of 2023.

Metals and Mining

On Friday, gold closed with a fourth straight weekly gain, Analysts were expecting gold to rally significantly after inflation figures slowed down, since gold is a non-yield asset that tends to fall when fixed-income rates increase following a Fed rate hike. When colder weather kicks in, however, there is a chance that energy and fuel prices may once again ascend which may prompt inflation to once more increase. Some speculate that if gold cannot close around the $1,820 per ounce price level, the much-anticipated breakout summer rally may be out of the question, implying that the precious metal may even pull back to $1,700 per ounce.

Over trading last week, gold rose 1.52% above its prior week’s close at $1,775.50 to end the week at $1,802.40 per troy ounce. Silver, which closed the previous week at $19.90, ended the just-concluded week at $20.82 per troy ounce, a rise of 4.62%. Platinum began at $936.26 but closed on Friday at $965.33 per troy ounce, gaining 3.10%. Palladium previously closed at $2,129.29 but ended the week at $2,224.95 per troy ounce, increasing week-on-week by 4.49%. The three-month futures prices for base metals likewise ended the week on a higher note. Copper increased by 2.81% from its previous week’s close of $7,870.50 to its recent close at $8,091.50 per metric tonne. Zinc ended the prior week at $3,488.50 but closed this week at $3,589.00 per metric tonne for a gain of 2.88%.  Aluminum, which was previously pegged at $2,416.00, closed Friday at $2,434.50 per metric tonne for a slight increase of 0.77%. Tin began at $24,455.00 and ended at $25,177.00 per metric tonne to lock in a gain of 2.95%.

Energy and Oil

The recently concluded week was a volatile one for oil markets. It was dominated by a gloomy sentiment although, by the week’s end, oil prices still registered a gain. Accounting for the late-week recovery was the flat U.S. month-on-month inflation data and pipeline supply disruptions in Europe. The increasingly divergent world views of the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) also contributed to market speculation. OPEC was reducing further its demand forecasts for 2022; it brought down its estimated this week by another 260,000 barrels per day (b/d) due to recessionary pressures. The IEA, on the other hand, has increased its outlook by 380,000 b/d to 2.1 million b/d, arguing that elevated gas prices will be incentivizing higher crude utilization and demand. The IEA was optimistic that gas-to-oil switching will provide a boost to the recessionary-wary oil markets.

Natural Gas

For the report week from August 3 to August 10, 2022, the Henry Hub spot price increased by $0.06 from $7.83 per million British thermal units (MMBtu) at the start of the week to $7.89/MMBtu by the week’s end. As for the Henry Hub futures prices, the price of the September 2022 NYMEX contract descended $0.06, from $8.266/MMBtu on August 3 to $8.206/MMBtu on August 10. The price of the 12-month strip-averaging September 2022 through August 2023 futures contracts fell by $0.02 to $6.032/MMBtu for the report week. Regarding international futures prices, the weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia rose by $0.65 to a weekly average of $44.61/MMBtu, while natural gas futures for delivery to the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, dipped by $0.38 to a weekly average of $59.16/MMBtu.

World Markets

European shares made gains for the week as concerns abated that central banks will further hike interest rates. The pan-European STOXX Europe 600 gained 1.18% for the week, in local currency terms. Major indexes likewise advanced. France’s CAC 40 Index rose by 1.26%, Germany’s DAX Index climbed 1.63%, and Italy’s FTSE MIB Index ascended 1.70%. The UK’s FTSE 100 Index added 1.80%. The core eurozone government bond yields likewise ascended higher. The UK and the peripheral eurozone government bond yields broadly tracked the core markets. Some of the major European countries proclaimed that they would make more emergency funds available to support the slowing economies and to enable citizens to keep up with the rising cost of living. For instance, German Finance Minister Christian Lindner announced that the government would provide EUR 10 billion in tax relief. The French Parliament also recently passed a support package of EUR 44 billion, which includes nearly EUR 10 billion for nationalizing the power company, Électricité de France. Industrial production in the euro area rose for a third consecutive month in June, while output increased more than expected due to a large uptick in capital goods.

Japan’s stock markets rose over the week. The Nikkei 225 Index and the broader TOPIX Index similarly increased by about 1.3%. Investment appetite strengthened mainly due to the weaker-than-expected U.S. inflation data, supporting hopes that the Fed will temper its currently aggressive monetary policy. A reshuffling of Japan’s Cabinet suggested that monetary policy will continue to be dovish by retaining top figures in key positions, boosting investor sentiment. The yield on the 10-year Japanese government bond rose to 0.19% from the previous week’s 0.16%. The yen gained strength against the U.S. dollar to end at approximately JPY 133.4 (from what was previously JPY 135.0).

China’s bourses ended the week mixed. Encouraging news of a record trade surplus last month and a central bank report that signaled support for growth were offset by a flare-up in coronavirus cases that coincided with the announcements. The broad, capitalization-weighted Shanghai Composite Index gained 1.5% while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, rose by 0.8%. A continued slowdown in the housing market and the coronavirus case spike that coincided with it were deemed serious risks to China’s recovering economy in the short term. Chinese coronavirus cases accelerated to a three-month high, half of which took place in the southern coastal island of Hainan which was widely locked down in the past week. The 10-year Chinese government bond yield slipped to 2.755% from the previous week’s 2.7652% as interbank money rates remained below policy rates, hovering at two-year lows.

The Week Ahead

Among the economic news to be released in the coming week are the building permits and housing starts, industrial production, retail sales, and jobless claims.

Key Topics to Watch

• Empire State manufacturing index
• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Industrial production
• Capacity utilization rate
• Retail sales
• Retail sales ex-motor vehicles
• Real retail sales
• Fed Gov. Michelle Bowman speaks
• Business inventories
• Federal Open Market Committee minutes
• Fed Gov. Michelle Bowman speaks
• Initial jobless claims
• Continuing jobless claims
• Philadelphia Fed manufacturing index
• Existing home sales (SAAR)
• Leading economic indicators
• Kansas City Fed President Esther George speaks
• Minneapolis Fed President Neel Kashkari speaks
• Richmond Fed President Tom Barkin speaks
• Advance report on selected services

Markets Index Wrap Up

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Stock Markets

Stocks were mixed throughout trading this past week due to a stronger-than-expected jobs report and renewed investor worries that the Federal Reserve will continue with its aggressive monetary policy. The Dow Jones Industrial Average (DJIA) dipped marginally by 0.13% with all sectors down although the total stock market index rose by 0.67%. Tech stocks did better, as indicated by the 2.15% weekly increase in the Nasdaq Stock Market Composite, while the broad S&P 500 Index recorded an increase of 0.36%. The NYSE Composite was down a slight 0.36%. Trading modestly higher during the week was the broad tax-exempt bond market. It appeared that the strong payroll report and hawkish tone of pronouncements from Fed officials helped drive U.S. Treasury yields higher during the week, outweighing the downward pressure from heightened U.S.-China tensions resulting from House Speaker Nancy Pelosi’s Taiwan visit.

U.S. Economy

The Labor Department’s payrolls report released on Friday showed that 528,000 nonfarm jobs were added in July, more than doubling consensus expectations of 250,000, while estimates for May and June were revised upward by a total of 28,000. The strong July gains have brought total nonfarm employment in the U.S. to its pre-pandemic level. The data suggests that the job market is heating up instead of cooling, which is contrary to the Fed’s intentions to slow growth and, consequently, inflation. The unemployment rate has fallen to its February 2020 level, at 3.5%. Notable hiring increases were accounted for by the leisure and hospitality, professional and business services, and health care sectors. Wage growth rose faster than expected, up 0.5% month-on-month and 5.2% year-on-year. This suggests that inflation may remain elevated in the near term due to wage pressure.

The strong payroll numbers indicate that the Fed has room to raise interest rates further, despite Fed Chair Jerome Powell’s somewhat dovish comments following the central bank’s July 26-27 policy meeting. Initial jobless claims inched up to 260,000 in line with forecasts, while the Institute for Supply Management (ISM) survey data showed an unexpected growth acceleration in the service sector. On the other hand, the ISM’s reading of manufacturing growth exceed expectations but still fell to its lowest level since June 2020.

Metals and Mining

There is not much good news for gold investors that the exceptionally strong jobs report provides. Wages rose more than expected in a contracting economy, which is far from normal. The Fed may decide to increase interest rates more aggressively to seek to control inflation, drawing investments more toward yield-generating assets and away from precious metals that have no yield. Although the next Fed monetary policy decision is still almost two months away, markets have chalked up a 70% chance that the rate will be increased another 75 basis points, whereas before the release of this week’s employment report, this possible movement was estimated at only 30%. Furthermore, the Bank of England hiked its interest rates by 50%, the first half-point movement since the BoE’s independence from the government in 1997. On the other hand, analysts have noted a strong risk premium in the marketplace is providing solid support for gold. The shift in focus was due to the deterioration in U.S.-Sino relations brought about by U.S. House Speaker Nancy Pelosi’s visit to Taiwan. These risks may continue to linger, providing an incentive for investors to remain with gold.

During this past week, the spot price of gold closed at $1,775.50 per troy ounce, 0.54% higher from its prior close at $1,765.94.  Silver dipped from its previous closing price of $20.36 to its recent weekly close at $19.90 per troy ounce, a loss of 2.26%. Platinum began at $899.35 and ended the week at $936.26 per troy ounce for a gain of 4.10%.  Palladium, which was previously priced at $2,131.10, ended the week at $2,129.29 per troy ounce, down by 0.08%. The three-month outright order price for base metals ended mixed. Copper, which closed at $7,917.50 during the previous week, ended this past week at $7,870.50 per metric tonne, down by 0.59%.  Zinc registered a weekly gain of 5.44%, from the prior week’s close at $3,308.50 to last week’s close at $3,488.50. Aluminum fell from the earlier week’s $2,488.50 to last week’s $2,416.00 for a loss of 2.91%. Tin likewise dipped from $25,047.00 the week before to $24,455.00 per metric tonne last week for a decline of 2.36%.

Energy and Oil

Despite the U.S. government’s reluctance to declare that a recession is technically underway, other news and analysis appear to lean to the contrary. The Bank of England issued a warning last week that a five-quarter-long recession is imminent, while the OPEC+ fails to take action on increasing oil production. During its recent meeting to set its collective September 2022 target, OPEC+ agreed to the lowest monthly quota increase since 1986, at 100,000 barrels per day, signifying that the group is still assessing the risk of recession before it takes more radical steps. These signals are taking their toll on oil prices which have fallen back almost to levels before the Russian invasion of Ukraine, with ICE Brent trending around $96 per barrel. For the first time in weeks, oil futures contracts are beginning to reflect expectations of a weak winter as monthly spreads halve week-on-week. While the market remains in backwardation (i.e., when the future prices exceed the spot price), the situation does not appear to be as drastic as it had been before the summer.

Natural Gas

For the report week from July 27 to August 3, 2022, the Henry Hub spot price fell $0.85 from $8.68 per million British thermal units (MMBtu) to $7.83/MMBtu. The price of the September 2022 NYMEX contract descended to $8.266/MMBtu, a decrease of $0.29 for the week. The price of the 12-month strip averaging September 2022 through August 2023 futures contracts slid by $0.20 to $6.748/MMBtu. International natural gas futures prices rose over the report week, with the weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia rising by $4.61 to a weekly average of $44.57/MMBtu. Also for the report week, natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, increased by $5.90 to a weekly average of $59.54/MMBtu.

World Markets

In Europe, equities weakened on the expectation that central banks will continue to hike interest rates aggressively in an attempt to control inflation. The pan-European STOXX Europe 600 Index slid by 0.59% in local currency terms while major market indexes advanced. France’s CAC 40 Index gained 0.37%, Germany’s DAX Index advanced 0.67%, while Italy’s FTSE MIB Index climbed 0.81%. The UK’s FTSE 100 Index rose 0.22%. Core eurozone government bond yields ended the week sideways. Due to an increase in tensions between the U.S. and China over Speaker Nancy Pelosi’s visit to Taiwan, yields fell early on, only to be driven up again by hawkish pronouncements from Federal Reserve officials ahead of key U.S. data releases. UK yields broadly tracked core markets but ended the week slightly higher after the BoE increased rates by a significant 50 basis points and warned that a recession may be on the horizon. The biggest rate increase in 27 years brought the interest rate to 1.75%. Inflation is projected by the BoE to hit 13.3% by October due to surging energy prices. Inflation will continue to remain “very elevated” throughout 2023 and will recede to its 2% target in two years. The U.K. is forecasted to remain in recession for five quarters beginning this winter.

Japanese equities gained over the past week. The Nikkei 225 Index rose 1.35% while the broader TOPIX Index ascended 0.35%. The impetus was largely pushed by optimistic corporate earnings on the domestic front, although worries about increased friction between the U.S. and China appeared to impose a ceiling on the surge. Japanese firms that earned their revenues from exports benefitted from a weak currency. The yen closed at around JPY 133 against the U.S. dollar for the week, which is broadly unchanged from the past week. The yield on the 10-year Japanese government bond (JGB) slumped to 0.16% the just-concluded week from 0.18% by the end of the previous week as a reflection of the risks of a global recession. A Ministry of Finance official opined that, while nothing yet is conclusive, investors should prepare for a normalization in Japanese bond trading when the Bank of Japan (BoJ) will cease to be the main purchaser of JGBs. Currently, the BoJ’s curve control policy mandate buying an unlimited amount of JGBs to defend an implicit 0.25% ceiling around its zero percent yield target.

Stock markets in China slowed as buyers were pushed to the sidelines by geopolitical tensions, mortgage boycotts, and lukewarm economic data. The broad, capitalization-weighted Shanghai Composite Index slid 0.8% while the blue-chip CSI 300 Index, which follows the largest listed companies in Shanghai and Shenzhen, descended 0.3%. The top issue that moved equities was the trip to Taiwan of U.S. House of Representatives Speaker Nancy Pelosi in the face of Beijing’s protests. The event led to live-fire drills in the waters around Taiwan and imposed sanctions on Pelosi and her immediate family. Shares of Chinese chipmakers surged as speculation grew ripe that the government will increase support for the domestic semiconductor industry coincident with the U.S. ramping up its efforts to curb China’s rise in chip manufacturing.

The Week Ahead

Among the important economic data scheduled for release in the coming week are productivity, jobless claims, and data focusing on inflation in the U.S.

Key Topics to Watch

• NY Fed 3-year inflation expectations
• NFIB small business index
• Productivity
• Unit labor costs
• Consumer price index
• Core CPI
• CPI (year-over-year)
• Core CPI (year-over-year)
• Wholesale inventories (revision)
• Federal budget (compared with year earlier)
• Initial jobless claims
• Continuing jobless claims
• Producer price index
• Import price index
• UMich consumer sentiment index (preliminary)
• UMich 5-year inflation expectations (preliminary)

Markets Index Wrap Up

Stock Markets

In the last trading week, three major data releases impacted the markets – the July Federal Reserve rate increase, the second-quarter gross domestic product (GDP) reading, and the current second-quarter earnings season focusing on large-cap technology. Market reaction was relatively optimistic despite the data seeming broadly soft since investors have already generally priced in the potential sluggish economic growth. The S&P 500 has already come down by more than 17% and the Nasdaq by almost 24%, already shedding much of the downside risk. Had they not plunged to such levels earlier this year, the markets would have exhibited much more volatility in reaction to this week’s announcements.

All indexes are up for the week, particularly after the release of the much-anticipated negative data. The Dow Jones Industrial Average (DJIA) rose 2.97% for the week, with the total stock market 4.19% higher. The S&P 500 Index gained 4.26% and the Nasdaq Composite, which tracks the technology sector, surged 4.70%. The NYSE Composite index ascended 3.63% week-on-week. All sectors made gains in the week, indicative of a “bad news is good news” dynamic, with growth stocks outperforming value stocks.

U.S. Economy

All attention was focused on the week’s Federal Open Market Committee (FOMC) meeting that ended with the announcement of a 75-basis-point rate increase on Wednesday. The announcement was generally expected, and thus was quickly discounted by investors, having priced in the restrictive measures in past weeks’ trading. Some softening of spending and manufacturing was noted in the FOMC statement, and Fed Chair Jerome Powell’s post-meeting press conference was mostly interpreted by market participants as more dovish than expected. The stronger-than-expected quarterly earnings reports from Amazon.com and Alphabet resulted in a one-day gain of more than 4% for the Nasdaq Composite Index.

The Commerce Department reported on Thursday that the second-quarter GDP contracted by 0,9% year-on-year. This was much lower than the consensus expectation of an increase of 0.5% to 0.8%.  The negative second-quarter GDP growth marks the second successive quarter of negative growth, the definition of a technical recession. Analysts noted, however, that job growth remained strong, indicating that the current business cycle has not yet turned. It is likely, however, that the U.S. economy is evidently slowing down to below-trend growth levels, and may slow further in the coming months. It should be kept in mind that the second-quarter GDP is backward-looking and has not yet taken into account most of the Fed rate hikes. The rate hikes and quantitative-tightening program adopted by the Feds will likely be felt in the medium term. The more interest-rate sensitive sectors of the economy may exhibit more weakening, such as the housing market which is already showing some softness. Hopefully, the economy may avoid a deep or prolonged recessionary period, given the strong starting position of the labor market and consumers. These factors may provide a cushioning effect against further rising interest rates and a weaker economy ahead.

Metals and Mining

The gold market appears to be experiencing some bullish momentum. This coincides with the fact that the U.S. economy has technically entered a recession, having contracted the second quarter of negative GDP growth. Despite the controversy among politicians and economists as to whether they are currently in a real recession or not, consumers are beginning to feel the effects of rising interest rates and the unrelenting rising inflation. Data from the U.S. Conference board in the past week showed that consumer confidence for July dropped to its lowest level since February 2021. This pessimism is expected to increase and weigh on further growth. Worse, a Twitter poll in the past week showed that as many as 80% of investors in the metal industry believe that the U.S. is headed for a recession. The recession debate notwithstanding, there is little doubt that the economy is slowing. With increasing inflation comes increased interest in gold as a safe haven asset. However, rising interest rates may cap the gold rally, thus it may be prudent to take some profits should gold prices push to $1,800 per ounce.

In the past week, gold moved from $1,727.64 the week before to $1,765.94 per troy ounce, gaining 2.22%. Silver rose by 9.46% from $18.60 to $20.36 per troy ounce. Platinum, which closed the week earlier at $876.84, closed this week at $899.35 per troy ounce for an increase of 2.57%. Palladium began at $2,039.00 and closed at $2,131.10 per troy ounce for a week-on-week gain of 4.52%. The 3-mo prices for base metal also realized gains for the week. Copper gained 6.24% for the week, beginning at $7,452.50 and ending at $7,917.50 per metric tonne. Zinc closed the week earlier at $2,992.50 but ended this past week at $3,308.50 per metric tonne, gaining 10.56%. Aluminum used to be at $2,475.50 but closed this past week at $2,488.50 per metric tonne, a rise of 0.53%. Tin came from $24,947.00 the week prior and ended at $25,047.00 this week, ascending by 0.40%.

Energy and Oil

Over the past week, the overall sentiment in oil markets has been greatly encouraged by record second-quarter profits posted by companies such as ExxonMobil, Chevron, and Shell. This time, it was due to falling gasoline prices in the U.S., thus saving the companies from accusations that they are making money at the expense of customers. Over the upcoming period, virtually all leading oil majors have indicated that they will either maintain or intensify their share buybacks, resulting in a much-needed surge among oil stocks this week. Together with improving confidence, rumors that the OPEC+ will keep September production targets unchanged have pushed oil prices higher. The front-month ICE Brent contract moved up to $110 per barrel.

Natural Gas

Prices rose at most locations this report week. The Henry Hub spot price increased by $1.12 from $7.56 per million British thermal units (MMBtu) at the start of the report week on July 20, 2022, to $8.68/MMBtu at the end of the report week on July 27, 2022. Increases at major pricing hubs ranged from its highest level of $1.15 at PG&E Citygate to its lowest level of $0.28 at the SoCal Citygate in Southern California. International natural gas futures prices rose also during the week. In East Asia, weekly average futures prices for liquefied natural gas (LNG) cargoes rose by $1.85 to a weekly average of $39.96/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 $6.04 to a weekly average of $53.64/MMBtu. This is the second-highest weekly average on record behind the $61.08/MMBtu weekly average reported for early March after Russia’s full-scale invasion of Ukraine.

World Markets

European equities climbed this week on the back of data indicating that the eurozone economy expanded faster than expected, at a rate of 0.7%, in the second quarter. Markets were generally unimpacted by concerns about rising natural gas prices caused by a reduction in Russian supply. The pan-European STOXX Europe 600 Index closed the week higher by 2.96% in local currency terms. Germany’s Xetra DAX Index gained 1.74%, France’s CAC 40 Index ascended 3.73%, and Italy’s FTSE MIB Index surged by 5.63%. The UK’s FTSE 100 Index rose 2.02%. The core eurozone bond yields dipped on rising concerns regarding global growth after Russia diminished its gas supplies into Europe. As the U.S. entered a technical recession, the International Monetary Fund downgraded its global growth forecast. The core markets were broadly tracked by peripheral government bond yields. UK gilt yields likewise tracked core markets but closed the week broadly level.

The Japanese stock markets ended the week slightly lower. The Nikkei 225 Index slid 0.40% while the broader TOPIX Index fell 0.80%. Equities were generally weighed down by a stronger yen, mixed domestic earnings releases, and the downgraded estimates for Japan’s economic growth. Over the week, risk appetite in global markets was propped by tentative expectations that the U.S. Federal Reserve may take measures to slow the pace of its interest rate hikes, seeing how the U.S. economy contracted for two straight quarters. The yen recovered from its recent 24-year lows in light of this development. It treaded six-week highs of around JPY 133 against the U.S. dollar from about JPY 136 one week earlier. The Deputy Governor of the Bank of Japan (BoJ), Masayoshi Amamiya, declared that the BoJ must maintain massive stimulus for the present, although the central bank must anticipate the means available to exit its accommodative policy. Amid fears of a global recession, the yield on the 10-year Japanese government bond dropped to 0.18% from the previous week’s 0.22%.

Chinese equity markets were reassured after a high-level meeting of the ruling Communist Party dropped calls that it will attempt to meet its 2022 growth target, without giving any indication of new stimulus, however. The broad, capitalization-weighted Shanghai Composite Index slid 0.5% and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, dipped 1.6%. Analysts reported that statements from the government signaled that it was implicitly abandoning its target growth rate of approximately 5.5% without specifying a new target. On Thursday, the IMF adjusted its full-year growth forecast for China to 3.3% from its April forecast of 4.4% and reduced its 2023 forecast by half a percentage point to 4.6%. The 10-year Chinese government bond yield slid from the prior week’s 2.806% to 2.775%. The yuan was flat against the U.S. dollar, in contrast with other currencies which gained against the greenback during the week.

The Week Ahead

Among the important economic data expected to be released in the coming week are hourly earnings, unemployment rate, and job openings.

Key Topics to Watch

• S&P U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Job openings
• Quits
• Rental vacancy rate
• Homeowner vacancy rate
• Real household debt
• Louis Fed President James Bullard speaks
• Motor vehicle sales (SAAR)
• S&P U.S. services PMI (final)
• ISM services index
• Factory orders
• Core capital equipment orders (revision)
• Initial jobless claims
• Continuing jobless claims
• Trade deficit
• Cleveland Fed President Loretta Mester speaks
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor force participation rate, ages 25-54
• Consumer credit

Markets Index Wrap Up

Stock Markets

Most indexes were up this past trading week. The Dow Jones Industrial Average (DJIA) was up 1.95% and the total stock market rose 2.76%, although the utility sector underperformed, sliding 0.23%. The S&P 500 Index gained 2.55%, while the Nasdaq Stock Market Composite, the benchmark for technology stocks, rose faster at 3.33%. The NYSE Composite also climbed 2.36%. This constitutes a short-term market rally that added to a run that pushed the S&P 500 up by 9% over last month’s levels. For the year, equities are still 17%, but this week’s rally is a breath of fresh air in a continuing bear market. It is, at best, a brief respite, however, as the economy is not yet out of the woods.

There appears to be a turnaround in sentiment as investors welcome signs that the economy is slowing and inflation concerns may be gradually alleviating. The rise this week shows shares carrying over the momentum from last week. Consumer discretionary shares performed best within the S&P 500 Index as share prices rebounded in Amazon.com and Tesla. Some weaknesses weighed in on Verizon and Alphabet, the parent company of Google, dragging communication services shares down. Aside from a shift in sentiment, investors also were heartened by several prominent second-quarter earnings reports. They indicate that the economy may be slowing, but companies also exhibited a greater resilience in profits and outlooks than analysts have expected. Much of the rally occurred on Tuesday, but later in the week, the indexes pulled back after social media shares fell sharply resulting from a flat increase in advertising revenue in the second quarter.

U.S. Economy

Weak economic data that came out this week briefly pushed the yield on the benchmark 10-year U.S. Treasury note down to 2.73% last Friday, the lowest level it has been in months. The upcoming second-quarter GDP report will give investors and analysts the latest situation on the state of the economy. Although a recession is not assured at present, the risk of a mild contraction appears to have risen appreciably, according to analysts’ readings. There are signs that inflation is peaking, as commodity prices have fallen sharply in recent weeks, providing much-needed relief. Oil prices are down 20% from their recent peak, while copper and lumber prices have receded 32% and 60%, respectively.

Also substantially down are prices of agricultural commodities including wheat, corn, and soybeans. Part of this is due to a UN-supported deal signed by Ukraine and Russia that will allow Ukraine to continue exporting its grain through the Black Sea. This will potentially increase the global food supply since Ukraine is one of the largest agricultural exporters in the world. Wage growth is still healthy but has moderated, possibly influencing inflation levels. Supply chain measures are also showing further improvement through signs of loosening bottlenecks, while PMI readings have slowed to levels consistent with lower cost pressures.

Metals and Mining

The gold market continues its struggle in recent months as the U.S. dollar has continued to rise. Although in the past week, the U.S. currency has retraced from its 20-year high and achieved parity with the euro, there is a strong consensus that it will remain at elevated levels at least for the foreseeable future. But what is good news for gold investors is that despite the strength of the U.S. dollar, it may eventually lose its relevance in global financial markets. There is a genuine fear of recession in the U.S., which threatens to create a stagflationary environment while high inflation persists. In periods of extreme uncertainty, such as this scenario suggests, both gold and the U.S. dollar can rally in tandem as investors look for safe-haven assets to protect their capital. The last time that speculative interest was this low was in May 2019, just preceding a months-long rally that gold embarked upon and which led it to record highs in August 2020.

This past week, gold gained 1.14% from its close in the preceding week at $1,708.17 to its close this week at $1,727.64 per troy ounce. Silver fell 0.59%, from $18.71 the week before to this week’s $18.60 per troy ounce. Platinum began at $851.31 and closed at $876.84 per troy ounce for an increase of 3.00%. Palladium gained 11.40% from $1,830.37 to $2,039.00 per troy ounce. The three-mo prices for base metals generally ended higher for the week. Copper prices moved from $7,190.50 to $7,452.50 per metric tonne for a gain of 3.64% week-on-week. Zinc closed one week prior at $2,915.00 and this week at $2,992.50 per metric tonne, higher by 2.66%. Aluminum gained 5.66% from the earlier week’s close at $2,343.00 to this week’s close at $2,475.50 per metric tonne. Tin slightly gained by 0.39%, from the close one week before at $24,850.00 to the recent close at $24,947.00 per metric tonne.

Energy and Oil

In contrast to the volatility of recent weeks, oil price movements this week were limited. ICE Brent hovered steadily within the $100-$105 per barrel price range. This did not happen merely due to the absence of big stories; it was quite the reverse. Libya returned to the market and the ECB hiked interest rates for the first time in many years. These moves provided significant downside risks for crude. However, prompt crude supply continues to lag demand, with the front months of the Brent and WTI curves exhibiting backwardation that remains as steep as ever. Curiously, this has created a balancing mechanism wherein neither the upside nor the downside is sufficiently strong to pull prices in either direction. In the meantime, oil majors operating in the Permian Basin risk slowing down drilling activity in the area. This is likely due to the Biden government’s proposal to cut smog limits in drilling hotbeds in Texas and New Mexico, above the Federal ozone threshold of 70 ppb.

Natural Gas

Spot prices of natural gas rose at most locations during the report week from July 13 to July 20. Henry Hub spot price rose from $6.63 per million British thermal units (MMBtu) to $7.56/MMBtu for the week. Price increases at major pricing hobs ranged from $0.87 at PG&E Citygate in Northern California to $17.86 at Algonquin Citygate in the Northeast. International natural gas futures prices decreased during the same week. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia descended by $1.02 to a weekly average of $38.11/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherland, the most liquid natural gas spot market in Europe, came down by $4.29 to a weekly average of $47.59/MMBtu.

World Markets

European stocks ascended on the strength of positive market sentiment, despite a string of discouraging economic data releases and the decision of the European Central Bank (ECB) to raise interest rates for the first time in more than ten years. The pan-European STOXX Europe 600 Index closed the week higher by 2.88% in local currency terms. Italy’s FTSE MIB Index closed up 1.33%, while France’s CAC 40 Index gained 3.00% while Germany’s Xetra DAX Index did slightly better, rising 3.02%. The UK’s FTSE 100 Index rose 1.64%, chalking in a good performance for the week. Core eurozone bond yields fell as economic growth concerns drove demand. The trend gained strength upon the release eurozone Purchasing Managers’ Index (PMI) data suggesting that economic activity contracted in July. UK gilt broadly followed core markets, while peripheral eurozone bond yields moved sideways. Following Prime Minister Mario Draghi’s resignation, the Italian 10-year government bond yield rose but eventually retreated by the end of the week.

Japan’s stock markets climbed during the week. The Nikkei 225 Index surged 4.20% while the broader TOPIX Index gained 3.35%. Consistent with expectations, the Bank of Japan (BoJ) continued to implement its ultra-accommodative monetary policy to support the country’s fragile monetary economy. In so doing, it proceeded to further diverge from the tightening policies of other major central banks. The yield on the 10-year Japanese government bond ended the week at 0.22% which is slightly lower than the previous week’s 0.23%. The yen strengthened to JPY 137.4 against the U.S. dollar, from, JPY 138.5 per dollar the week earlier. The yen continued to remain at close to 24-year lows. BoJ Governor Haruhiko Kuroda attributed this weakness to the rise of the greenback against major and emerging market currencies, rather than the BoJ’s loose policy stance.

China’s bourses were mixed after Premier Li Keqiang moderated expectations of excessive stimulus and indicated flexibility on China’s annual growth target. The broad, capitalization-weighted Shanghai Composite Index gained 1.3%, while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, slid 0.2%. Li told world business leaders at a meeting hosted by the World Economic Forum that slightly higher or lower growth rates are both acceptable as long as employment is relatively sufficient, household income continued to grow, and prices are stable. China announced a growth target of about 5.5% for the current year during a Politburo meeting in April, a goal most economists agree will be difficult for China to meet. The yuan eased to CNY 6.764 per U.S. dollar from CNY 6.75 the week before. The 10-year Chinese government bond yield was flat. Outflows from China’s bond market totaled USD 14 billion in June as the surging U.S. Treasury yields reduced the relative attractiveness of Chinese bonds.

The Week Ahead

The Federal Reserve rate decision, real disposable income, and real consumer spending are among the important economic data to be released in the coming week.

Key Topics to Watch

• Chicago Fed national activity index
• S&P Case-Shiller national home price index (year-over-year)
• Consumer confidence index
• New home sales (SAAR)
• Durable goods orders
• Core capital equipment orders
• Advance report on trade in goods
• Pending home sales index
• Fed funds target rate
• Fed Chair Jerome Powell press conference
• Gross domestic product, first release (SAAR)
• Final sales to domestic purchasers (SAAR)
• Initial jobless claims
• Continuing jobless claims
• PCE inflation index
• Core PCE price index
• PCE price index (year-over-year)
• Core PCE price index (year-over-year)
• Real disposable income
• Real consumer spending
• Nominal personal income
• Nominal consumer spending
• Employment cost index
• Chicago PMI
• UMich consumer sentiment index (final)
• UMich 5-year inflation expectations (final)

Markets Index Wrap Up

 

Stock Markets

Equities remained volatile in light-volume summer trading. Anticipation over the release of the important inflation data appeared to have kept investors out of the market, but inflation came in higher than expected. The higher-than-expected consumer prices for June pushed consumer inflation to 9.1%, higher than the expected 8.8%, resulting in a new 41-year high. Consumer prices jumped 1.3% in June alone accounted for by the surge in gas prices by 11.2% for the same month. The week also saw the release of the first major second-quarter corporate earnings reports. The S&P 500 descended to its lowest intraday level since June 22 on Thursday morning, but Friday saw it rallying to end the week well off its lows. Among the best performers in the Index were technology stocks mainly due to solid gains in Apple. The energy sector underperformed weighed down by the plunge of international oil prices to levels last seen before the Russian invasion of Ukraine.

For the week, nearly all sectors are down in the S&P 500 Index, which itself dipped 0.93%. The Dow Jones Industrial Average inched down 0.16%, while the Nasdaq Composite, which tracks technology stocks, slipped south by 1.57%. The NYSE Composite was also down 1.32%. The Dow Jones total stock market index dropped by 1.07%.

U.S. Economy

This week and likely for the next few weeks at least, high energy and food prices will continue to drive the story for the markets. The 9.1% CPI reading from a year ago is up from the May CPI indicator of 8.6%. Energy prizes alone rose 42% year-over-year and were up 7.5% from May. The rise in oil prices accounted for more than half of the overall increase in inflation. It is likewise concerning to note that food prices experienced their highest monthly increase since 1981. That being said, commodity prices have fallen sharply since June. Last week, as noted by the energy sector performance, oil prices decline to their lowest level since the advent of the Ukrainian invasion. It briefly traded at $91 before ending the week at $98. In mid-June, gasoline prices were well over $5 a gallon. Since then, it has dropped off to an average of $4.58. The core CPI indicator, which better represents the underlying inflationary trend because it excludes food and energy prices, rose at 5.9% over the past year, down only slightly from the 6.0% reported over the past month. The Federal Reserve is under pressure to continue to hike interest rates as a result of the higher-than-expected inflation reading, heightening fears of an impending recession.

Metals and Mining

Several gold investors are wondering why gold prices have dropped for the last five straight weeks, despite the surge in the inflation rate and a situation where the world is on the brink of a recession. There is one simple reason for gold’s slump. The market is anticipating that the Federal Reserve will maintain its stance to bring inflation under control. This explains why gold prices have fallen more than $100 this week, depreciating nearly 6% and looking to test the critical long-term support level at $1,700. The Fed is expected to continue to aggressively raise interest rates in an attempt to slow inflation and, subsequently, the demand for consumer goods, thus slowing the economy. The Fed’s stance is driving real yields higher even while consumer prices rise to a 40-year high. Gold is a traditional inflation hedge, but investors do not need a hedge if inflation comes under control. Gold may be down, but it is certainly not out. With a recession possibly on the horizon, gold may well find new buying incentives if investors begin to doubt the Fed’s credibility and commitment to inflation control should economic growth begin to falter.

Precious metals are down this week. Gold fell further from its prior week’s close at $1,742.48 to $1,708.17 per troy ounce, down by 1.97%. Silver is also down from its previous close at $19.32 to this week’s close at $18.71 per troy ounce, a loss of 3.16%. Platinum gave up 4.86% of its value one week before at $894.76 to this week’s $851.31 per troy ounce. Palladium is also down by 15.30%, from the prior week’s $2,160.96 to this week’s $1,830.37 per troy ounce. The 3-month prices of base metals did not fare better. Copper, previously at $7,805.50, closed this week at $7,190.50 per metric tonne, down by 7.88%. Zinc came from $3,099.00 and ended at $2,915.00 per metric tonne for a loss of 5.94%. Aluminum slipped from its previous weekend price of $2,436.50 to this week’s close at $2,343.00 per metric tonne, down by 3.84%. Tin went down by 2.03% from the earlier week’s $25,364.00 to $24,850.00 per metric tonne.

Energy and Oil

The oil market observers have become watchers of the world macroeconomy as the price swings of oil became increasingly dependent on the broader market sentiment. This week just ended was in most part influenced by the market anticipating a 100-basis-point hike, thus sending all global crude oil benchmark prices plunging by double digits. However, when the U.S. Federal Reserve instead decided to hike interest rates by only a modest 75 basis points, ICE Brent quickly recovered back to $102 per barrel. It seems there is still no consensus on the main driving trend in the markets after the recent hedge fund sell-off. The fears that an economic recession may materialize remain pronounced and just as strong as the sentiment of immediate physical tightness. Despite the present visit by the American President to Saudi Arabia, senior U.S. officials admit that they do not expect Riyadh to immediately boost crude production, thus lifting crude prices by $2 per barrel in Friday’s trading.

Natural Gas

For the report week beginning July 6 and ending July 13, 2022, natural gas prices generally moved sideways on listless trading, The Henry Hub spot price rose from $5.63 per million British thermal units (MMBtu) to $6.63/MMBtu, a week-on-week increase of $1. Regarding futures prices, the price of the August 2022 NYMEX contract rose $1.179, from $5.510/MMBtu to $6.689/MMBtu throughout the week. The price of the 12-month strip averaging August 2022 through July 2023 futures contracts ascended $0.812 to $5.834/MMBtu. At most locations during this report week natural gas spot prices rose. Increases ranged from $0.77 at Eastern Gas south in the Appalachia production region to $2.26 at SoCal Citygate in Southern California. In the domestic market, the average total supply of natural gas fell by 0.1% compared with the previous report week. Dry natural gas production decreased by 0.5% compared with the previous week. Total U.S. consumption of natural gas rose by 2.5% compared with the previous report week. Natural gas consumed for power generation increased by 5.0% week over week. U.S. LNG exports increased by four vessels this week compared to last week.

World Markets

In Europe, equities markets moved sideways to slightly lower. Central banks further hiked interest rates, raising concerns that a global recession may indeed materialize. During the five trading days ending on July 15, the pan-European STOXX Europe 600 Index closed 0.80% lower in local currency terms. Italy’s FTSE MIB lost 3.86%, Germany’s DAX dropped 1.16%, and France’s CAC 40 gained a marginal 0.05%. the UK’s FTSE 100 Index slid 0.52% down. Core eurozone bond yields fell due to worries that a cutoff of Russian gas might push European economies into a recession. As a result, markets tempered their expectations for policy tightening, causing core bonds to rally. UK government bond yields followed core markets and peripheral eurozone bond yields ended broadly level. Italian 10-year bond yields broadly tracked core bonds earlier in the week, but sold off after Italy’s ruling coalition collapsed. The euro broke below parity with the U.S. dollar for the first time in 20 years due to fears of a recession intensifying.

The stock markets in Japan rose for the week, with the Nikkei 225 Index climbing 1.02% and the broader TOPIX Index closing 0.27% higher. Japan mourned the passing of its former and longest-standing prime minister, Shinzo Abe, who was shot and killed on July 8 while campaigning for the parliamentary upper house election. World leaders offered their condolences. On July 10, the ruling Liberal Democratic Party (LDP) increased its seat count in the election. It won a majority with its coalition partner Komeito, signaling strong support for Prime Minister Fumio Kishida of the LDP. This also strengthened the government’s policy priorities, and its focus on lifting growth will likely remain unchanged. The Bank of Japan (BoJ) reiterated its commitment to the ultra-loose monetary policy it had been pursuing. The yield on the 10-year Japanese government bond dipped to 0.23% from last week’s 0.24%. The yen weakened to JPY138.8 against the U.S. dollar from last week’s JPY 136.1, after hitting a fresh 24-year low during the week.

China’s stock markets consolidated as data showed that the country’s economy slowed dramatically in the second quarter. Also, property and banking shares were hurt by a growing movement among homebuyers to stop paying their mortgages. The broad, capitalization-weighted Shanghai Composite Index declined by 3.8%, while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, plunged by 4.1%. The country’s GDP for the second quarter grew at a worse-than-expected rate. It registered 0.4% from one year earlier, compared to the 4.8% expansion in the first quarter. Friday’s GDP followed reports of a rapidly growing number of Chinese homebuyers who refused to pay mortgages for unfinished construction projects. As of Wednesday, homebuyers have halted mortgage payments on at least 100 projects in more than 50 cities across the country as of Wednesday, a sharp increase from just a few days earlier. Among other economic data, Industrial production grew 3.9% in June from one year earlier, up from May’s 0.7% increase, while fixed asset investment increased 6.1% in the first six months of the year from comparative figures last year. Retail sales surged 3.1% year-on-year in June, beating analysts’ expectation of flat growth after May’s 6.7% drop.

The Week Ahead

The important economic data scheduled for release in the coming week include building permits on Tuesday and the LEI index on Thursday.

Key Topics to Watch

• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Existing home sales (SAAR)
• Initial jobless claims
• Continuing jobless claims
• Philadelphia Fed manufacturing index
• Leading economic indicators
• S&P Global U.S. manufacturing PMI (flash)
• S&P Global U.S. services PMI (flash)

Markets Index Wrap Up

Stock Markets

The markets were generally up over the past week. The Dow Jones Industrial Average (DJIA) gained 0.77% from the previous week’s close, while the broader S&P 500 Index rose by 1.94%. The technology tracker Nasdaq Composite rose 4.56%, signaling that most of the rebound took place in the technology sector. Within the Dow Jones, the only sector to pull back was utilities whose average lost 3.08%. The general optimism that reigned this week stemmed from the perception that the Federal Reserve will be able to control inflation without plunging the economy into a recession. The S&P 500 Index gains pulled it out of the bear market such that at Friday’s close of trading it was down only 19.1% from its January peak.

The Nasdaq Composite gained the most among the indexes. This is due to the surge among the large communication services and information technology sectors which, together with consumer discretionary, outperformed the other sectors. On the other hand, the drop in the utilities was the result of a sharp fall in energy shares on Tuesday (the markets were closed on Monday in observance of Independence Day) following the drop in domestic oil prices. Oil fell below $100 per barrel for the first time in almost two months, but it rallied, together with crude prices, later in the week.

U.S. Economy

Last week’s release of economic data dominated investor sentiment as investors struggled to assess the likely repercussions of the currently restrictive Fed policy. On Wednesday, the final estimates of services activity in June were each released by S&P Global and the Institute of Supply Management (ISM), both versions of which came in slightly above the consensus estimate even as they also indicated a continuing slowdown in growth. The measure used by the ISM in its assessment hit its lowest level since June 2020, while its employment metric was well into contraction territory for the third time this year.

The main focus of most analysts, however, revolved around the labor market. Last Friday, the June jobs report released showed that the employment situation is relatively favorable, all else considered. In June 372,000 jobs were added to the economy, raising the three-month average to 375,000, which is inconsistent with a coming recession. Furthermore, the unemployment rate held at 3.6% for the fourth month in a row, which is close to the 50-year low. Again, this does not signal a coming recession, since historically, the unemployment rate has climbed about half a percent before recessions began. The initial jobless claims have inched higher in the past weeks, which may signal some upcoming weakness in hiring trends. At present, however, the job market situation does not appear to support either one side or the other on the recession speculation.

Metals and Mining

The gold market has seen an almost 4% drop since May when it experienced its biggest selloff. Investors are hoping that this recent plunge has shaken out some of the complacent long-term holders that still linger in the marketplace. Many players have been waiting for the shakeout of this overhang supply and are looking forward to adding to their long-term bullish bets. There is, however, the opposing view that this recent drop may just be the beginning of a bigger move as gold faces some major headwinds. The greatest barrier faced by the precious metal is the possibility that the Federal Reserve may continue to aggressively raise interest rates. Investors already anticipate that the Fed may increase interest rates by an additional 75 basis points by the end of July. This expectation has driven the U.S dollar to a 20-year high and pushed bond yields back above 3%. Should this materialize, it would tend to drive gold prices down since gold is a non-yielding asset. On the other hand, it may also make gold more attractive as a safe haven asset.

This past week, gold lost 3.81% of its value, from the previous week’s $1,811.43 to this week’s close at $1,742.48 per troy ounce. Silver descended 2.82% from $19.88 the week earlier to $19.32 per troy ounce this week. Platinum gained slightly from $892.74 to $894.76 per troy ounce for a week-on-week increase of 0.23%. Palladium rose substantially from its previous close at $1,959.58 to this past week’s end at $2,160.96 per troy ounce, a gain of 10.28%. The 3-mo prices of base metals were mixed. Copper began at $8,048.00 and closed the week at $7,805.50 per metric tonne, a loss of -3.01%. Zinc, which ended the previous week at $3,029.00, closed this week at $3,099.00 per metric tonne, for a gain of 2.31%. Aluminum began at $2,444.00 and closed at $2,436.50 per metric tonne, a loss of 0.31%. Tin, which closed a week ago at $26,650.00, closed this week at $25,364.00 per metric tonne, for a weekly loss of 4.83%.

Energy and Oil

The oil price collapse on Tuesday may be one of the oil industry’s most memorable developments of this tumultuous year. It was the third-largest daily loss since the onset of the oil exchanges. Furthermore, declining crude did not impact any changes along the futures curve. The implication is that the large drop in oil price was mainly due to widespread profit-taking. Primarily non-physical participants panicked at the thought of recession descending upon the markets sooner than anticipated. According to the balances, however, the markets are still contending with extremely tight supply. Although it might take some time, the physical side of the scale will likely push prices back soon.

Natural Gas

At most locations this report week, June 29 to July 6, natural gas spot prices fell. The Henry Hub spot price dropped from $6.67 per million British thermal units (MMBtu) at the beginning of the report week to $5.63/MMBtu by the week’s end. International spot prices for natural gas increased, however. The weekly average swap prices for liquefied natural gas (LNG) cargoes in East Asia ascended $1.56 to a weekly average of $38.43/MMBtu. The prices at the Title Transfer Facility (TTF) in the Netherlands, which is Europe’s most liquid natural gas spot market, the day-ahead price increased by $7.62 to a weekly average of $47.99/MMBtu. In the corresponding week last year, (week ended July 7, 2021), the prices in East Asia and at TTF were $13.17/MMBtu and $12.27/MMBtu, respectively. The weekly average premium of TTF prices to East Asia this report week was $9.56/MMBtu, the highest such premium since the second week of March, following Russia’s full-scale invasion of Ukraine.

In the domestic market, prices in the Midwest fell with the national average while prices along the Gulf Coast fell with moderate temperatures. Prices across the West fell as temperatures along the West Coast and across the Rocky Mountains remained moderate. In the Northeast, prices declined ahead of lower temperatures and ample pipeline capacity. The U.S. natural gas supply increased slightly week-over-week while natural gas demand rose as a result of temperature swings across the country. U.S. LNG exports increased by one vessel this week from last week.

World Markets

European shares rallied in the first week of July following three straight months of losses. The gains appear to be restrained, however, by the reimposition of some coronavirus restrictions by China apparently to restrain any further spread of the virus. There were also ongoing worries that further energy shortages may cause a recession in Europe. The pan-European STOXX Europe 600 Index closed the week 2.45% higher in local currency terms. Italy’s FTSE MIB Index gained 1.96%, France’s CAC 40 Index climbed 1.72%, and Germany’s Xetra DAX Index ascended 1.58%. The UK’s FTSE 100 Index added 0.38%. Core eurozone sovereign yields did not change substantially. German bund yields, however, began to climb after better-than-expected employment figures were released in the U.S. on Friday morning. UK gilt rates significantly rose this week.

Japan’s stock markets charted gains during this week. The Nikkei 225 Index rose 2.24% while the broader TOPIX Index gained 2.30%. Regarding the fixed income markets, the yield on the 10-year Japanese government bond (JGB) climbed to 0.24% from 0.23% at the end of the week before. In June, the Bank of Japan (BoJ) established a monthly record in its JGB purchases as it attempted to slow the rise in long-term yields above the 0.25% cap it has set under its policy of yield curve control. The dovish stance of the central bank has created pressure on the yen, which weakened to approximately JPY 135.90 against the U.S. dollar, from FPY 135.22 the prior week, still languishing at its lowest levels in 24 years. The firm commitment of the BoJ to its policy of monetary easing contrasts significantly with the tightening stance of other central banks in the world in their attempts to stem inflation. Although consumer prices have trended upward in Japan, inflation remains low compared with other developed countries.

Chinese stocks pulled back slightly due to concerns about rising coronavirus cases and rising geopolitical tensions. Both the broad, capitalization-weighted Shanghai Composite Index and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, lost 1% of their value. China’s coronavirus caseload went up to 478 on Thursday from Wednesday’s 409 count, mostly detected in the eastern province of Anhui. The population of this province that is in lockdown is more than 1 million people located in small towns. In Jiangsu and other provinces, dozens of new cases are also appearing. Shanghai, which just ended a two-months-long lockdown, faces a “relatively high” risk of elevated community COVID-19 transmission, according to health officials on Friday, In geopolitics, Sino-U.S. tensions increased after a senior Chinese military officer warned his U.S. counterpart that any “arbitrary provocations” would be met with a “firm counterstrike” by China. The yuan currency remained steady at CNY 6.70 per U.S. dollar. The 10-year Chinese government bond yield rose slightly to 2.858% from 2.847% one week prior.

The Week Ahead

The CPI index, the PPI index, and initial and continuing jobless claims are among the important economic data expected to be released in the coming week.

Key Topics to Watch

• 3-year inflation expectations
• New York Fed President John Williams discusses move away from LIBOR
• NFIB small business index
• Richmond Fed President Tom Barkin speaks
• Consumer price index (monthly)
• Core CPI (monthly)
• CPI (year-over-year)
• Core CPI (year-over-year)
• Beige book
• Federal budget (comparison vs. year-ago)
• Producer price index final demand (monthly)
• Initial jobless claims
• Continuing jobless claims
• Fed Gov. Chris Waller speaks
• Retail sales
• Retail sales excluding vehicles
• Import price index
• Empire State manufacturing index
• Atlanta Fed President Raphael Bostic speaks
• Industrial production index
• Capacity utilization
• UMich consumer sentiment index (preliminary)
• UMich 5-year inflation expectations
• Business inventories

Markets Index Wrap Up

Stock Markets

Over the week just concluded, the stock markets showed took a further dip ahead of a long holiday weekend. The Dow Jones Industrial Average (DJIA) closed 1.28% lower week-on-week with all sectors down except for the utility sector which managed to average 4.09% up. The S&P 500 Index closed 2.21% down, while the Nasdaq stock market composite also slid 4.13%. The New York Stock Exchange (NYSE) Composite lost 1.18% for the week. The slight pullback may be seen as a correction following the strong gains over the preceding week. It may also be attributed to worries that the Federal Reserve’s aggressive attempts to control inflation may push the economy into a full recession. The S&P 500 suffered its worst first semester since 1970, with the decline being highlighted by the index ascending to its all-time high on January 3 this year. Those segments within the index regarded as typically defensive, namely utilities and consumer staples, were most resilient, while information technology and consumer discretionary shares were the weakest. The market will remain closed on Monday in celebration of the Fourth of July, Independence Day. Inflation worries remain front and center for investors, but the financial sector seems to be looking ahead to a potential economic slowdown or likely recession.

U.S. Economy

A survey of the four financial markets – equities, bonds, commodities, and currencies – appears to be signaling a slowdown in economic growth ahead, although this may be part of a bottoming process. Market reactions are forward-looking and tend to be leading indicators, with market corrections followed by slowing economic data and a downward revision in earnings data. There are already signs of economic fundamentals softening in the form of a simultaneous descent in consumer confidence, PMIs, and retail-sales data. In the months ahead, earnings forecasts are likely to be adjusted downwards, resulting in the formation of a more rounded U-shaped bottom, rather than a sharp V-shaped curve.

In the meantime, most of the economic data released during the week fell short of consensus expectations. The week’s sell-down began on Tuesday just as the Conference Board’s index of consumer confidence registered much lower than expected. Also, manufacturing activity metrics in the mid-Atlantic region plummeted to levels not seen since the peak of the pandemic.  Data on May personal consumption expenditures (PCE) were released on Wednesday, also indicating that consumers were also retreating. May purchases fell 4.0% when adjusted for inflation, the first time this important indicator declines in 2022. The move was driven by a 1.6% decline in good purchases, and while purchases of services rose a marginal 0.3%, much of the increase was propelled by spending on housing and health care. Inflation-adjusted disposable income reported on Thursday saw a decrease of 0.1% over the month.

There were still some welcome developments, however. Much of the week’s data pointed towards a lowing but continued expansion. May durable goods orders were better than expected when controlling for defense (0.6% versus approximately -0.5%). Measures of current factory activity pointed to continued expansion, albeit at the slowest rate since summer 2020. Weekly jobless claims aligned roughly with expectations at 231,000, as the indicators continued within the narrow band between 231,000 to 232,000 that had been maintained for four consecutive weeks. Claims hit their lowest at 181,000 for the week ended April 24. The silver lining that greeted investors, however, was a downside surprise in inflation signals. The inflation gauge preferred by the Fed is the core PCE price index (discounting food and energy), which came in at 4.7% for the 12 months ending May, slightly below expectations and the lowest level since November. Together with the sluggish economic data, this yelped push the 10-year U.S. Treasury Note benchmark yield to as low as 2.79% on Friday, its lowest level in a month, resulting in higher bond prices.

Metals and Mining

The gold market continued to tread above its strong support at $1,800 per ounce, but only barely after a sharp selloff early on Friday. Recession fears continued unabated together with geopolitical instability, equity market volatility, and inflation pressures, prompting investors to hold gold as a safe haven asset. The market appears convinced, however, that interest rates are likely to proceed upward for the rest of the year, making gold unattractive because it promises no yield. More tough talk from Federal Reserve Jerome Powell convinced investors that he is willing to risk a recession in an attempt to control inflation by raising interest rates. A further downside in gold is indicated by Friday’s preliminary data showing the European Consumer Price Index rising to 8.6% in June, overshooting the 8.1% rise in May and higher than the expected 8.4%. This foreshadows growing pressure on the ECB to start increasing rates and the markets are pricing in a rate hike later this month.

Gold moved sideways from its previous close at $1,826.88 to this week’s $1,811.43 per troy ounce, down slightly by 0.85%. Silver came down 6.05%, from last week’s close at $21.16 to this week’s close at $19.88 per troy ounce. Platinum also went south from $911.08 to $892.74 per troy ounce, a downward correction of 2.01%. Palladium       bucked the trend for precious metals, beginning at $1,882.75 and closing the week at $1,959.58, up by 4.08%. Among 3-mo prices of base metals, copper, which previously closed at $8,381.00, went further down to $8,048.00 per metric tonne, losing 3.97%. Zinc came from $3,350.00 to end at $3,029.00 per metric tonne for the week, down by 9.58%. Aluminum closed the previous week at $2,456.00 and this week at $2,444.00 per metric tonne, only slightly down by 0.49%. Tin came from $24,590.00 to close this week at $26,650.00 per metric tonne, a week-on-week gain of 8.38%.

Energy and Oil

Uncertainty continues to build around OPEC+ supply capacity as demand continues to rise unabated despite speculations of demand destruction. OPEC+ in its recent summit greed to maintain a 648,000 barrel per day increase in its August production target. This has kept its commitment unchanged despite the increasing evidence that the oil group’s spare capacity has thinned to its lowest level in years. Oil markets are buoyed by bullish sentiments, driven further by an additional supply disruptor in the form of strikes. At France’s Fos Refinery, operations were halted by strikes. Norway’s offshore production was similarly heavily impacted. The oil market is seemingly under siege from all directions, including fundamental tightness, underinvestment, Ukraine ware disruptions, and now, work stoppages due to labor disputes.

Natural Gas

For this report week, June 22 to June 29, natural gas spot price movements were mixed. The Henry Hub spot price rose to $6.67 per million British thermal units (MMBtu) by the week’s end, from $6.59/MMBtu at the beginning of the week. Also increasing this report week are international spot prices, with the weekly average swap prices for liquefied natural gas (LNG) cargoes in East Asia increasing by $4.58 to a weekly average of $36.87/MMBtu. In the Netherlands at the Title Transfer Facility (TTF), Europe’s most liquid natural gas spot market, the day-ahead price increased by $3.29 to a weekly average of $40.37/MMBtu. The price for the same week last year (week ending June 30, 2021) in East Asia was $12.75/MMBtu and $11.57/MMBtu at TTF.

In the U.S., prices rose slightly along the Gulf Coast even as temperatures moderated. In the Midwest, prices remained essentially unchanged while temperatures fluctuated. Prices across the West are mixed, with above-normal temperatures across the Rocky Mountains and along the coast. Along with temperatures and demand for natural gas, Northeast prices increased. U.S. natural gas supply increased slightly week over week, while the country’s natural gas demand remained unchanged, as changes in demand across consumption sectors offset each other. U.S. LNG exports decreased by one vessel this week from last week.

World Markets

European stock markets lost ground on continuing fears that inflation will continue to rise unabated, with the resultant increase in interest rates hitting earnings and tipping economies into a recession. The pan-European STOXX Europe 600 Index closed the week 1.40% lower in local currency terms. Italy’s FTSE MIB plunged 3.46%, France’s CAC 40 dropped 2.34%, and Germany’s DAX Index lost 2.33%. The UK’s FTSE 100 Index dipped 0.56%, supported by a softer British pound against the U.S. dollar. When the pound falls, UK stocks tend to perform comparably well since many companies that form part of the FTSE 100 Index are multinational companies reaping revenues from overseas markets, rendering their earnings more resilient. Core eurozone bond yields decreased in reaction to speeches by central bank officials at the European Central Bank (ECB) annual meeting, reversing their initial increase. Lower-than-expected German inflation figures calmed investors’ fears, leading yields lower overall. UK government and peripheral eurozone bond yields tracked core markets in general.

Japan’s stock markets followed the direction of other international bourses this week, The Nikkei 225 Index lost 2.10% and the broader TOPIX Index fell 1.16%. The slump was due to the escalating risk of a global recession resulting from the aggressive rate hikes by the world’s major central banks in a bid to control inflation.  Japan’s large manufacturers are growing increasingly pessimistic and a bigger-than-expected drop in industrial production further weighed down investor sentiment. In the meantime, the Japanese government warns of power shortages and possibly a renewed reliance on nuclear reactors for energy supply. In light of this, the yield on the 10-year Japanese government bond ended the week broadly unchanged at 0.23%. The yen still hovers close to a 24-year low against the U.S. dollar, a weakness that may be attributed to the divergent monetary policies of the Bank of Japan and the U.S. Federal Reserve. The exchange rate ended the week at the low end of the JPY 135 range. Factory output falls sharply as sentiment among large manufacturers worsens.

China’s stock markets charted gains, prompted by strong factory data and easing coronavirus restrictions for travelers. The broad, capitalization-weighted Shanghai Composite Index rose 1.3%. The blue-chip CSI 300 Index, which monitors the largest listed companies in Shanghai and Shenzhen, climbed 1.6%. On Tuesday, China reduced by half the quarantine times for inbound travelers. The new policy requires travelers to spend seven days in a quarantine facility after which their health should be monitored at home for three days. This is a vast improvement over the 14 days previously required for hotel quarantine in many parts of the country, and as many as 21 days of solation in the past. The current pandemic strategy, according to China’s President Xi Jinping, was “correct and effective and must be upheld unwaveringly.” The yuan currency depreciated to CNY 6.70 against the U.S. dollar late Friday, from CNY 6.69 the week before. The 10-year Chinese government bond yield rose slightly from 2.816% to 2.847% week-on-week as issuance increased. The sale of Chinese local government bonds for June is expected to reach a single-month record high of CNY 1.93 trillion.

The Week Ahead

Unemployment, average hourly earnings, and consumer credit are among the important economic data to be released this week.

Key Topics to Watch

• Factory orders
• Core capital equipment orders revision
• S&P Global U.S. services PMI (final)
• ISM services index
• Job openings
• Quits
• FOMC minutes
• Initial jobless claims
• Continuing jobless claims
• Foreign trade balance
• Louis Fed President James Bullard speaks
• Fed Gov. Christopher Waller speaks at NABE conference
• Nonfarm payrolls (monthly change)
• Unemployment rate
• Average hourly earnings
• Labor force participation rate, ages 25-54
• Wholesale inventories revision
• Consumer credit

Markets Index Wrap Up

Stock Markets

Over the holiday-shortened trading week (markets were closed on Monday in observance of Juneteenth), investors were encouraged by signs that inflation might be moderating, cooling the overheating economy. The sentiment helped stocks regain lost ground and rally sharply. The Dow Jones Industrial Average (DJIA) gained 5.39% while the S&P 500 Index surged by 6.45%, lifting it out of bear market territory. The Nasdaq Composite, which tracks technology companies, rallied by 7.49%. The Russell 3000 index likewise gained 6.53%. Almost every sector registered strong gains, except for the energy sector as oil continued to retreat from its recent highs for most of the week.

Although stocks rallied across the board last week, they remain down almost 20% for the first six months of the year, the worst semi-annual performance of any year since 1970. This was due to a rapid adjustment in interest rates, valuations, and sentiment brought about by the aggressive central bank tightening, inflation concerns, and the combined effect of these two factors on economic growth. On the other hand, the year-to-date sell-off in stocks and bonds has significantly improved returns for long-term investors.

U.S. Economy

After the economy grew by 5.7% in 2021, the U.S. economy commenced the year from a position of strength. Pent-up consumer demand supported a positive outlook that prevailed after the pandemic headwinds gradually died down. Corporate and household finances were solid and the labor market was robust. Inflation pressures lingered, however, exacerbated by the invasion of Ukraine and the return to lockdowns in China. It started to eat into personal disposable income and savings, forcing the Federal Reserve to signal a shift towards a more aggressive rate-hike strategy. This resulted in an unexpected contraction in the first-quarter GDP, driven by a drag from exports and a decline in inventory spending. Consumer spending, accounting for almost 70% of U.S. GDP, continued to expand at an unrelenting pace. For the second quarter, the real-time estimate of GDP from the Atlanta Fed currently registers 0% growth. In case the second quarter shows a further GDP contraction, this will meet the technical definition of a recession. But an “official” recession is to be designated by the NBER Business Cycle Dating Committee, which at this point does not seem to be the case for the first half of the year, as there does not appear to be any sign of a widespread downturn in economic activity or the labor market.

Moving into the second semester, there will likely be a further deceleration in demand, due to reaction by consumers and businesses to the sharp rise in borrowing costs. The interest-rate-sensitive sectors such as housing and automobiles are already slowing in anticipation of the aggressive measures taken by the Fed, while the broader economy will tend to slow at a lag to the full impact of Fed policy. Mortgage applications are already in a downtrend, even as existing home sales have declined in the last four months, The tight labor market and household savings will continue to support growth. Applications for unemployment benefits (initial jobless claims) have, however, been slowly increasing over the last two months. Companies are also taking a more cautious approach towards hiring under this regime of higher costs and slowing demand. At present, job openings are still twice the number of unemployed workers, but in time this may change as the downside risks to inflation gradually increase. Although the factors driving inflation are beyond the Fed’s control, the sharp rise in rates will continue to impact demand, economic activity, and eventually, inflation.

Metals and Mining

Due to the Fed’s aggressive response to inflationary pressures, it appears as if the strategy is working and long-term expectations have slightly descended. The University of Michigan released the result of its revised consumer sentiment survey that indicated five-year expectations falling back to approximately its historical average of 3.1% from the previous estimate of 3.3%. This data point has become an important number to watch since apparently it caused the Fed to raise interest rates by 75 basis points during its meeting earlier this month. The inflationary push has appeared to somewhat ease, causing the U.S. central bank to slow future interest rate hikes.  All this activity has not caused any significant changes in the demand for gold and other precious metals. Although the price of gold continues to be well-supported at $1,800 per ounce, there does not appear to be any sense of urgency for investors to rush to buy gold as a safe-haven asset. With so much uncertainty in the economy, the gold market appears satisfied to hold within its present consolidation range, a sign that investors are waiting for the time to strike which, analysts say, may come at the end of the year.

This past week, the gold spot price moved from $1,839.39 to $1,826.88 per troy ounce, losing 0.68% in sideways trading. Silver shifted from $21.67 to $21.16 per troy ounce, a decline of 2.35%. Platinum lost 2.45% as it traded down from last week’s close at $933.98 to $911.08 per troy ounce this week. Palladium, which ended last week at $1,818.61, closed this week at $1,882.75, higher by 3.53%. The 3-month prices of base metals generally moved downwards. Copper began at $8,961.50 and ended the week at $8,381.00 per metric tonne, a downward adjustment of 6.48%. Zinc came down 4.92% from $3,523.50 to $3,350.00 per metric tonne. Aluminum descended from $2,498.00 to $2,456.00 per metric tonne, losing 1.68% for the week. Tin lost 21.15% week-on-week, from the previous week’s close at $31,184.00 to last week’s close at $24,590.00 per metric tonne.

Energy and Oil

Preliminary estimates of the oil data report by the Energy Information Administration (EIA) point to the largest crude stock build in the past four months, which the EIA still has to explain. The U.S. Federal Reserve’s focus on inflationary measures squeezed speculators out of the Brent and WTI futures contracts. As a result, despite backwardation being nearly as steep as it was in March, oil prices have barely moved this past week, leaving the ICE Brent around the $112 per barrel mark. In Europe, the EU leaders focused on the need to seek alternative supplies during this week’s meeting. The leaders were well aware that it is only a matter of time before Russia shuts down all gas shipments to Europe, thus the need to seek alternative supplies as the continent’s 40% dependence threatens the viability of its energy-hungry industry. Meantime, in the U.S., the EIA data shows that the country’s refinery capacity fell below the 18 million barrel-per-day mark at the start of 2022 (reading was 17.94 million b/d). This is the lowest level of operable downstream capacity since 2014.

Natural Gas

Natural gas spot prices descended at most locations for the report week June 15 to 22, 2022. The Henry Hub spot prices slid from $7.72 per million British thermal units (MMBtu) at the start of the week to $6.59/MMBtu by the week’s end. International natural gas spot prices increased during the same week, with the weekly average swap prices of liquefied natural gas (LNG) cargoes in East Asia increasing by $9.20 to a weekly average of $32.29/MMBtu. At the Title Transfer Facility in the Netherlands, the most liquid natural gas spot market in Europe, the day-ahead price increased by $9.38 to a weekly average of $37.07/MMBtu. By comparison, in the same week last year (week ending June 23, 2021), the prices in East Asia and the TTF were $11.88/MMBtu and $10.52/MMBtu, respectively.

In the U.S., prices along the Gulf Coast fell although temperatures remain above normal in the region. Prices in the Midwest fell in line with the national average as temperatures fluctuated. Across most of the West, prices declined as temperatures returned to near normal, while prices in Southern California remained at elevated levels. In the Northeast, prices decreased with the national average. U.S. natural gas supply decreased week-over-week as net imports from Canada fell. U.S. natural gas demand increased as high-consumption regions along the East and West coasts cooled to below normal, even as temperatures remain above normal across much of the central United States. U.S. LNG exports decreased by three vessels this past week compared to the week prior.

World Markets

European stock markets broke three consecutive weeks of losses. Signs that the economy is cooling have cast doubt on whether central banks would continue to raise interest rates aggressively, propping investor sentiment slightly. The pan-European STOXX Europe 600 Index surged 2.40% in local currency terms. Major stock indexes were mixed, with Italy’s FTSE MIB Index climbing 1.52%, France’s CAC 40 Index up by 3.24%, and Germany’s DAX Index little changed. The UK’s FTSE 100 Index gained 2.74%. Core eurozone government bond yields dipped on news that Purchasing Managers’ Index (PMI) readings were weaker than expected, triggering worries of an economic slowdown. This has caused the market to temper its expectations for policy tightening. Peripheral eurozone government bond yields broadly followed core markets, as well as did UK gilt yields. Fears about the economic outlook were intensified by record UK inflation and a fall in consumer confidence, causing yields to descend. Norway’s central bank raised interest rates by 50 basis points to 1.25%, which was larger than expected.

Japan’s bourses chalked up solid gains for the week. The Nikkei 225 Index rose 2.04% while the broader TOPIX Index climbed 1.68%. Investor sentiment was supported by continuing expectations that the Bank of Japan (BoJ) will keep its monetary policy ultra-loose, even though consumer prices continue to trend upward and the yen descends to fresh lows. The June PMI data indicated that business activity expanded robustly in the services sector, which also provided a boost to sentiment. However, there remained fears that the U.S Federal Reserve will pursue its monetary policy tightening aggressively, leading to global recession, and muting investor appetite. The yield on the 10-year Japanese government bond dipped to 0.23%, slightly below the previous week’s 0.24%. The yen continues to trek near its 24-year low against the U.S. dollar, closing the week at the upper end of the JPY 134 range.

China’s stock markets rose on hopes of a stimulus following a pledge by President Xi Jinping to roll out more measures to support the economy and reduce the impact of COVID-19. The broad, capitalization-weighted Shanghai Composite Index gained 1.0% while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shenzhen and Shanghai, ascended 1.97%. the yuan was relatively stable at CNY 6.69 per U.S. dollar, from CNY 6.70 the preceding week. The yield on the 10-year China government bond slid to 2.81% from 2.83% the week earlier as a result of the People’s Bank of China (PBOC) injecting CNY 60 billion worth of seven-day reverse repos into the financial system. To avoid further divergence in monetary policy from the strict tightening of other global central banks, the PBOC kept its benchmark lending rates unchanged. If Beijing reduces rates to support a slowing economy, it risks the depreciation of the yuan and acceleration of capital outflows.

The Week Ahead

In the coming week, important economic data to be released include personal consumption and expenditures, scheduled at 7:30 a.m. on Thursday.

Key Topics to Watch

• Durable goods orders
• Core capital goods orders
• Pending home sales index
• Trade in goods (advance)
• S&P Case-Shiller U.S. home price index (year-over-year)
• Consumer confidence index
• Gross domestic product revision (SAAR)
• Final domestic demand revision (SAAR)
• Gross domestic income revision (SAAR)
• PCE inflation (monthly)
• Core PCE inflation (monthly)
• PCE inflation (year-over-year)
• Core PCE inflation (year-over-year)
• Real disposable income
• Real consumer spending
• Nominal personal income
• Nominal consumer spending
• Initial jobless claims
• Continuing jobless claims
• Chicago PMI
• S&P Global U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending

Markets Index Wrap Up