Stock Markets

Stocks ended sharply lower for the second consecutive week on fears that the economy will experience a hard landing due to the Federal Reserve’s most aggressive rate hike since 1994. The week began with a sell-off that left every stock in the S&P 500 down at one point, a phenomenon that has not happened since 1996. Analysts attributed this to continuing inflation worries that were sparked the preceding Friday by a surprise increase in the May consumer inflation data. It was further worsened by a report on Monday by the Wall Street Journal that Fed officials were mulling an increase in interest rates by 75 basis points (or 0.75%) on the coming Wednesday meeting, something the market priced in the week earlier as having only a 2% chance of happening.

The Dow Jones Industrial Average (DJIA) lost 4.79% for the week while the S&P 500 came down by 5.79%. The Nasdaq composite also dropped 5.79%. The NYSE composite fell by 6.62%. Many investors are concerned that a recession is likely if businesses succumb to high-interest rates and a possible credit crunch. The S&P 500 underwent its worst weekly decline since March 2020 and officially entered a bear market as it closed the week almost 24% below its highest level in January. The percentage of S&P 500 stocks that were trading above their 50-day moving average plunged below 5% for the past week. This is the lowest level since the pandemic began in 2020.

U.S. Economy

Headline inflation remains unrelentingly high due to geopolitical shocks to oil and food prices as well as persistent bottlenecks in the supply chain. This has forced the Fed to further accelerate its rate-hiking strategy in an intensified effort to mitigate inflation expectations, increasing the risks of a Federal-induced recession. According to several reports, there is a possibility that Fed tightening and the surge in mortgage rates will have an impact on the housing sector. In May, building permits fell 7% to their lowest limit since September 2021. Housing starts dropped 14.4%, the biggest since the pandemic began. Weekly jobless claims were 229,000, higher than the expected 210,000.

Furthermore, there was a surprise contraction in Mid-Atlantic factory activity, the first since May 2020, mirroring a contraction and weaker-than-expected reading in the New York region that was reported earlier in the week. Overall retail sales fell 0.3% in May due to a sharp decline in auto purchases that reflected, in part, the higher rates on car loans. Even with the exclusion of autos, sales rose only 0.5% which was lower than the consensus expectation of 0.8%. Sales rose only 0.1% excluding gasoline. The data confirms that consumers were buying less in real terms in light of the higher year-over-year increase in consumer inflation (8.6%) than in non-inflation-adjusted retail sales (8.1%). By these indications, fears of an impending recession are materializing.

Metals and Mining

The gold market is expected to absorb a 2% loss for the week, although many investors in precious metals see the price movement as a positive development with gold standing up to the most aggressive Federal Reserve actions in almost three decades. With inflation at a fresh 40-year high last month, the Fed had no option but to raise interest rates by 75 basis points during the week. Simultaneously, the central bank also took further aggressive action since it anticipates that interest rates may potentially increase to 3.5% by the end of 2022 and possibly hit 4.0% in 2023. Markets are pricing in an additional 75 basis point increase next month as Federal Reserve Chair Powell proclaimed that inflation remains the biggest economic threat. Despite these concerns, gold prices maintain their ground just slightly below $1,850 per ounce. This is a psychological support level for investors during the past month. While gold prices ended negative week-on-week, by comparison, they still outperform equities.

Gold closed the week prior at $1,871.60 and ended this week at $1,839.39 per troy ounce, a small contraction of 1.72%.  Silver also fell marginally by 1.01%, from the previous week’s close of $21.89 to last week’s close of $21.67 per troy ounce. Platinum edged from $977.50 one week earlier to $933.98 per troy ounce this week for a drop of 4.45%.  Palladium began the week’s trading at $1,934.12 and ended at $1,818.61 per troy ounce for a 5.97% decline. The 3-mo trading prices of base metals tracked the same direction as precious metals. Copper ended the previous week at $9,615.00 and this week at $8,961.50 per metric tonne, a dive of 6.80%. Zinc began at $3,762.00 and closed the week at $3,523.50 per metric tonne for a price depreciation of 34%. Aluminum fell 9.53% from the earlier week’s close at $2,761.00 to this week’s close at $2,498.00 per metric tonne. Tin lost 15.12% week-on-week, from its previous close at $36,740.00 to this week’s close at $31,184.00 per metric tonne.

Energy and Oil

Due to the adoption of sanctions by the European Union, Russia appears to embark on retaliation by holding back its natural gas exports. There have been large reductions in Russian gas flows to Europe throughout this past week, with Germany, Italy, and France receiving less than half of their usual volumes. The Russian majority state-owned multinational energy company Gazprom blames the sanctions that hinder maintenance, while the European countries perceive the unexpected declines as a sign that the Kremlin is trying to get even for past sanctions by limiting the supply of gas. As a result, it is not only oil and oil products that are trading well above historical averages, but also natural gas. Oil prices fell on Friday morning due to heightened fears of an impending recession. In the U.S., the Biden Administration is looking into possibly capping fuel exports out of the U.S. as gasoline outflows rise to 750,000 barrels per day this year. This matter will likely be raised next week at a meeting between Energy Secretary Granholm and oil refiners. In the meantime, the OPEC+ admits its underproduction of oil, below its target in May by 2,695 barrels per day, and bringing total levels of deal compliance to 256%. Several African producers are stuck in force majeure events and Russian production declined in retaliation for sanctions against it.

Natural Gas

At all major locations this report week (June 8 to June 15, 2022), natural gas spot prices fell. The Henry Hub price dropped from $9.46 per million British thermal units (MMBtu) at the start of the week, to $7.72/MMBtu at the end of the week. International natural gas spot prices were mixed for the week. The weekly average swap prices for liquefied natural gas (LNG) cargoes in East Asia fell $0.68 to a weekly average of $23.09/MMBtu. At the Title Transfer Facility in the Netherlands, Europe’s most liquid natural gas spot market, the day-ahead spot price rose $3.21 to a weekly average of $27.70/MMBtu. Last year, during the same week (ending June 16, 2021), the price in East Asia was $10.92/MMBtu and at the TTF it was $10.01/MMBtu.

In the U.S. market, prices along the Gulf Coast dropped as the Freeport LNG outage was expected to last three months or more. Prices in the Midwest fell with the national average. In the meantime, prices across the West declined with the national average, even as temperatures resulted in increased demand for air conditioning across the Southwest. Prices in the Northeast fell from the high levels of a week ago. U.S. natural gas supply increased week-over-week, as higher net imports from Canada help to meet Midwest demand. U.S. natural gas demand increased as temperatures exceeded normal levels across much of the country. U.S. LNG exports decreased by one vessel this week from last week.

World Markets

European shares fell sharply on worries that economic growth may slow down after several banks announced rate increases. The pan-European STOXX Europe 600 Index ended the week 4.60% lower. Major indexes substantially declined, with France’s CAC 40 Index losing 4.92%, Germany’s DAX Index sliding 4.62%, and Italy’s FTSE MIB Index pulling back by 3.36%. the UK’s FTSE 100 Index lost 4.12% of its value. Fears of another eurozone debt crisis were stoked after a jump in borrowing costs for some heavily indebted member states, prompting an unscheduled meeting of the European Central Bank’s (ECB) Governing Council. After the ad hoc meeting, the ECB released a statement that it would take action to stem the widening yield spread between member states’ sovereign bonds. Such measures would include targeted adjustments in reinvesting the proceeds from maturing debt in the portfolio associated with the central bank’s emergency purchase program. Furthermore, the ECB will seek to develop a new tool to help ease the “fragmentation” in borrowing costs.

In Japan, the stock markets took a sharp dive last week. The Nikkei lost 6.69% and the broader TOPIX index dropped 5.52%. the U.S. Federal Reserve’s announcement of its steepest interest rate hike since 1994 sparked fears of a recession, coincidental with the move by other central banks to curb the surging inflation. The Bank of Japan (BoJ), contrary to the rest of the central banks, maintained its ultralow interest rates, The yield on the 10-year Japanese government bond (JGB) dipped slightly to 0.24% from 0.25% at the end of the week before. It breached the top of the BoJ’s 0.25% policy bank briefly early in the week, causing the central bank to announce an additional, unscheduled outright purchase of JGBs. The yen continued to hover around a 24-year low but it gained some strength over the week, treading at approximately JPY 134.3 against the U.S. dollar, from the earlier week’s JPY 134.4.

Contrary to the rest of the bourses in the West, China’s stock markets advanced with the anticipation that a pickup in fixed asset investments would put the economy back on track. The broad, capitalization-weighted Shanghai Composite Index gained 1.0% and the blue-chip CSI 300 Index, which keeps track of the largest-listed companies in Shanghai and Shenzhen, rose 1.4%, attaining its highest level in three months. The country’s state planner approved 10 fixed asset investments worth CNY 121 billion (USD 18.1 billion) in May, more than six times that of April. The jump in investor sentiment was also impacted by data showing the unexpected growth in May’s industrial production, and from hopes of increased policy support following weak housing market data. Relaxed coronavirus measures in Beijing further improved market sentiment. The yuan remained flat against the U.S. dollar and ended at 6.70 from 6.69 the week before.

The Week Ahead

In the coming week, expect important economic data to be released including the Markit PMI services composite and the Michigan consumer sentiment survey. Several Fed officials are scheduled to speak to give their take on the direction of monetary policy and the economy.

Key Topics to Watch

• Louis Fed President James Bullard speaks
• Chicago Fed national activity index
• Existing home sales (SAAR)
• Cleveland Fed President Loretta Mester speaks
• Richmond Fed President Tom Barkin speaks
• Fed Chair Jerome Powell testifies on monetary policy at Senate Banking Committee
• Chicago Fed President James Bullard speaks
• Initial jobless claims
• Continuing jobless claims
• Current account deficit
• S&P Global U.S. manufacturing PMI (flash)
• S&P Global U.S. services PMI (flash)
• Fed Chair Jerome Powell testifies on monetary policy at House Financial Services Committee
• Louis Fed President James Bullard speaks
• UMich consumer sentiment index (final)
• 5-year inflation expectations (final)
• New home sales (SAAR)
• San Francisco Fed President Mary Daly speaks

Markets Index Wrap Up

Stock Markets

Over the last five days of trading, stocks plunged sharply on further news of rising inflation rates. The Dow Jones Industrial Average (DJIA) dropped 1,506.91 points (4.58%) during the week, a full 880.00 points (2.73%) on Friday alone. The S&P 500 Index lost 207.68 points (5.05%) while the Nasdaq Composite Index pulled back by 672.71 points (5.60%). The NYSE Composite Index plummeted by 700.48 points (4.43%) over the week. The losses occurred from Thursday afternoon to Friday, despite early-week strength in the stock market. The sell-down was triggered by the release of May’s higher-than-expected consumer price index (CPI) data. Trading volumes were light and volatility was relatively low, as measured by the Chicago Board Options Exchange (CBOE) Volatility Index (VIX). Volatility, however, kicked up sharply at the end of the week.

Losses in the Nasdaq Composite, which tracks tech stocks, were worse than that of the broad market as higher interest rates reduce the attraction of companies whose earnings may not be realized until well into the future. Value stocks outperformed growth stocks. Furthermore, oil prices maintained their upward trek for most of the week although they did retrace somewhat on Friday. Major retailers were perceived to continue their struggle caused by mismatches in supply and demand, worsening their inventory problems.

U.S. Economy

The biggest market-moving data for the week was the release on Friday of the U.S. CPI reading for May. The reported year-over-year figure came out at 8.6%, hotter than the expected 8.2%. Core CPI, which excludes food and energy, registered 6.0% which is only slightly above the forecasted 5.9%. Analysts continue to reiterate that a recession is far from inevitable. While headline inflation continued to move substantially higher driven by rising oil and food prices, core inflation appears to be gradually easing.

This month, the widest differential between headline and core inflation has occurred than has been seen in the past ten years. While the Federal Reserve may try to moderate consumer-discretionary demand by raising interest rates, such measures generally do not influence global community prices or the demand for food, energy, and other consumer staples. The Fed remains focused on driving down core inflation, and its attempts appear to be taking effect. There was a modest decline in core inflation his month, from 6.2% to 6.0% year-over-year, in part due to better prices for medical care and transportation services.

As a result, impending higher mortgage rates may cool the housing market, which may, in time, temper the shelter/rent components of CPI. The early signs of layoffs in such areas as the technology sector may likewise begin to cool the upward pressure exerted by wage growth on inflation. Overall, it is foreseeable for inflation to moderate some time by the end of 2022, according to analysts’ base-case scenario – that is, driven by base effects evident as more favorable year-on-year comparisons, and better trends in core inflation. In the near term, however, the rising food and energy prices may still create a bear-case scenario for the economy.

Metals and Mining

The gold market came to life on Friday after a relatively quiet week. Investors reacted to the hotter-than-expected inflation announcement at the week’s end, despite economists’ expectations of a continued decline in consumer prices in May. Instead, the U.S. Labor Department announced that its CPI reading rose 8.6% for the month, establishing a new 40-year high. Analysts have begun to call into question the Federal Reserve’s credibility as investors became doubtful that the central bank can bring inflation down. Gold prices performed impressively on Friday, swinging $50 from the bottom of its range only slightly above $1,825 per ounce to test its significant resistance at $1,875 per ounce.

Gold gained 1.10% from its earlier week’s close at $1,851.19 to this Friday’s close at $1,871.60 per troy ounce. Silver, which ended the previous week at $21.93, closed this week at $21.89 per troy ounce, slightly lower by 0.18%. Platinum dipped 3.95% from its previous close at $1,017.73 to last Friday’s close at $977.50 per troy ounce. Palladium likewise shaved off 2.45% from its prior close at $1,982.74 to this week’s close at $1,934.12 per troy ounce. The 3-Mo base metal prices remained mostly unchanged. Copper rose 1.22% from the previous week’s close at $9,499.50 to this week’s close at $9,615.00 per metric tonne. Zinc, which ended one week ago at $3,864.50, closed this week at $3,762.00 per metric tonne, lower by 2.65%. Aluminum, which closed the prior week at $2,726.00, ended this week at $2,761.00 per metric tonne, gaining 1.28%. Tin began at $34,929.00 and ended at $36,740.00 per metric tonne, for a weekly gain of 5.18%

Energy and Oil

Just at a time when prospects appeared to improve with the gradual disappearance of COVID-19, the reimposition of lockdown restrictions in Shanghai and Beijing continued to apply pressure to the oil markets in the form of pandemic-related demand losses. China’s failure to quickly bound back from the coronavirus was the main diver for the downward force on oil prices in the past months. When it anticipated a quick return to normal levels in economic activity over June, China loaded up on oil and oil products in May, which now, in hindsight, may lead to lower imports. The failure of China’s expected demand surge to materialize is now weighing down oil prices, giving back the gains made earlier in the week and causing ICE Brent to fall back to $120 per barrel on Friday. In the meantime, anti-oil rhetoric from White House officials lambasted oil and gas companies for failing to subdue rising fuel prices. Officials admit, however, that the windfall tax is an option on the table, with U.S. firms expecting to generate $834 billion in free cash flow for 2022.

Natural Gas

For the report week from June 1 to June 8, 2022, natural gas spot prices rose at most locations. The Henry Hub spot price climbed from $8.42 per million British thermal units (MMBtu) at the beginning of the week to $9.46/MMBtu by the week’s end. These are the highest daily prices since February 2021, when a winter storm contributed to near record-high spot prices. International natural gas spot prices were mixed during the report week. The average weekly swap prices for liquefied natural gas (LNG) cargoes in East Asia remained unchanged week-over-week at $23.77/MMBtu. In the Netherlands, where the Title Transfer Facility remains the most liquid natural gas spot price in Europe, the day-ahead price fell $2.02/MMBtu to a weekly average of $24.49/MMBtu. Comparing this week’s prices to their counterparts last year, for the week ended June 9, 2021, the price in East Asia was $10.65/MMBtu while that at TTF was $9.58/MMBtu.

In the United States, prices along the Gulf Coast rose as higher temperatures resulted in increased demand for air conditioning. Across the West, prices rose as temperatures increased in California and the Desert Southwest. Prices were mixed in the Northeast due to differing fundamentals. U.S. natural gas supply remained unchanged week-over-week at 100.8 billion cubic feet per day (Bcf/d) while natural gas demand increased due to rising temperatures across the country. U.S. LNG exports decreased by one vessel this week compared to last week.

World Markets

European shares took a sharp dive upon the announcement by the European Central Bank (ECB) that it may increase interest rates faster than expected after July when it ends its ultra-accommodative monetary policy. The ECB signaled that it is planning to raise its key deposit rate, which currently remains at -0.5%, by a quarter-point in July to control the record inflation.  The bank also suggested that if the medium-term inflation outlook deteriorates further, a larger increase may be decided upon at the September meeting. The pan-European STOXX Europe 600 Index closed the week lower by 3.95% in local currency terms, and Italy’s FTSE MIB Index dropped 6.70% amid concerns that the country may not be able to manage its national debt load without central bank support. Germany’s DAX Index gave up 4.83% while France’s CAC 40 Index also slumped by 4.60%. The core eurozone bond yields jumped, mainly in reaction to the ECB policy meeting which investors perceived to be more hawkish than expected. Peripheral eurozone and UK government bond yields broadly followed the core markets.

Japan’s stock markets, on the other hand, registered moderate gains for this week. The Nikkei 225 Index rose 0.23% while the broader TOPIX Index move up 0.51%. The positive sentiment may be attributed to Cabinet Office data indicating Japan’s economy shrunk by an annualized 0.5% over the first quarter of 2022, lower than the expected 1.0% contraction. The better-than-anticipated economic performance was seen to be the result of the country’s reopening tourism industry. In the fixed income markets, the yield on the 10-year Japanese government bond rose to 0.25% from 0.23% at the end of the previous week. The yen continued to remain weak, providing a boost to Japanese exporters. The currency ended the week at approximately JPY 133.9 against the U.S. dollar, from the earlier week’s JPY 130.8. The exchange rate continues to remain close to its two-decade lows. The further weakening of the yen has senior officials from the Bank of Japan (BoJ) expressing their concerns. BoJ Governor Haruhiko Kuroda said that since Japan’s economy has not yet recovered to its pre-pandemic levels, the bank must continue to extend its support for economic activity by continuing with its current monetary easing.

In China, stock markets rallied on the hope of looser monetary policy and perceived signals from Beijing that it was easing its years-long crackdown on technology companies. The broad capitalization-weighted Shanghai Composite Index gained 2.7% while the blue-chip CSI 300 Index, which follows the largest-listed companies in Shanghai and Shenzhen, surged 3.7%, its biggest weekly gain since February 2021. Regulators are closing down their investigation into DiDi Global, the ride-hailing mobile app, and will restore it in domestic app stores. Authorities are reportedly in talks concerning the revival of the initial public offering for fintech company Ant Group which was halted in December 2020 after its founder, Jack Ma, made critical comments regarding China’s financial regulators. These two developments are perceived as a sign that Beijing is easing its regulatory clampdown on the tech sector that began at the end of 2020. A further indication of the government’s policy relaxation is the granting of publishing licenses by the country’s gaming regulator to 60 online games. This is the biggest approval of titles for computers and smartphones going back to July 2021. The yield on China’s 10-year government bond ended the week at 2.82%, roughly unchanged from a week ago.

The Week Ahead

Among the important economic data expected to be released in the coming week are the Fed fund target interest rate, business inventories, and producer price data.

Key Topics to Watch

• NY Fed 1-year inflation expectations
• NY Fed 3-year inflation expectations
• NFIB small-business index
• Producer price index final demand
• Retail sales
• Retail sales excluding vehicles
• Import price index
• Empire state manufacturing index
• NAHB home builders index
• Business inventories
• FOMC statement
• FOMC projections
• Fed Chair Jerome Powell news conference
• Initial jobless claims
• Continuing jobless claims
• Building permits (SAAR)
• Housing starts (SAAR)
• Philadelphia Fed manufacturing index
• Industrial production index
• Capacity utilization
• Leading economic indicators

Markets Index Wrap Up

Stock Markets

Part of the previous week’s strong gains was given up during this week’s trading, despite being only a four-day trade week due to Monday being Memorial Day. Investors continue to remain uncertain as to whether the Federal Reserve will be able to rein in inflation without pushing the economy into a full-blown recession. The industrial sector outperformed the rest of the market-driven by a rise in Boeing. Furthermore, gains in Amazon shares boosted consumer discretionary shares which also proved resilient. Volatility proceeded moderately as expected, although analysts expect the economy to become progressively destabilized by the rising interest rates and elevated commodity prices. On Friday, Elon Musk emailed his fellow executives that 10% of Tesla’s workforce may be laid off and that he had a “super bad feeling” about the global economy.

U.S. Economy

The economic news released during the week did not particularly signal that the economy would be headed towards a worsening employment situation marked by layoffs. A report issued by the Labor Department last Friday indicated that employers added 390,000 nonfarm jobs in May, exceeding consensus expectations of 320,000. Weekly jobless claims reported on Thursday were slightly lower than expected, even as April job openings registered 11.4 million, only slightly below record highs. The unemployment rate holds steady at 3.6%, the best rate since the pandemic began and just marginally above the lowest rate for the last half-century. That being said, the Conference Board’s index of consumer confidence slid lower in May, reflecting the lessening enthusiasm workers felt about their job prospects. Modestly more Americans said that jobs were “hard to get.”

While the economy appears to be slowing due to ongoing inflation, rising consumer prices, supply-chain bottlenecks, and tightening financial conditions, it is far teetering on the edges of a recession. The wage situation, in line with the jobs market and employment rate, shows that average hourly earnings were up 5.2% over the year before, suggesting that: (1) wage growth remains sufficiently robust and is expected to support household income and spending, which in turn will drive further economic expansion, and (2) wage growth will continue to support ongoing inflation, which the Fed is expected to meet with additional rate hikes. While the labor market situation is not exactly sounding the alarm, it appears that there is little room for further improvement from this point onwards. Economic and corporate-earnings growth may continue and market fundamentals still provide some impetus for gains, but until there is greater confidence in the market the prospects are still uncertain about a durable rebound in the near future.

Metals and Mining

The price of gold treaded a sideways path this week as prices varied little beyond the $1,850 per ounce range. There appears to be a swell building, however, as physical demand saw an extraordinary rise in May. According to the U.S. Mint, it sold 147,000 ounces of gold, its best May performance going back to 2010. Gold bullion is up 400% from its five-year average between 2015 and 2019, thus the sudden demand does not appear attributable to any covid-19 market disruptions. Analysts have also noted that there is a delinking between the physical demand and the paper market for gold. There is a distortion created by the capping of gold futures prices as a result of rising bond yields and the stronger U.S. dollar caused by the Federal Reserve’s aggressively raising interest rates. A better picture of investor sentiment and anxiety in the precious metals market is reflected in the physical gold market.

The spot price for gold rose from $1,853.72 to $1,851.19 per troy ounce during this trading week, a slight loss of 0.14%. Silver slid 0.81% down from the previous week’s $22.11 to this week’s close of $21.93 per troy ounce. Platinum rose from $958.13 to $1,017.73 per troy ounce for a week-on-week gain of 6.22%. Palladium dipped from the prior week’s ending price of $2,067.44 to this week’s close at $1,982.74 per troy ounce, a loss of 4.10%. The 3-mo prices of base metals likewise exhibited listless trading. Copper began at $9,459.00 and ended at $9,499.50 per metric tonne, inching upward by 0.43%. Zinc closed the previous week at $3,843.50 and closed this week at $3,864.50 per metric tonne for a gain of 0.55%. Aluminum lost 5.07% from the earlier week’s close at $2,871.50 to this week’s close at $2,726.00 per metric tonne. Tin gained 2.41% from the prior week’s price at $34,106.00 to this week’s ending price at $34,929.00 per metric tonne.

Energy and Oil

The oil markets went through a roller coaster ride this week as turmoil governed the major suppliers of fossil fuels. China is emerging from its three-month pandemic lockdown, creating a scenario for dramatically increasing demand. Reports also revealed that Saudi Arabia and the UAE are poised to accelerate the monthly increments of OPEC+. The oil group opted for 648,000 barred-per-day increases in July and August to bring the final unwinding of its production cuts forward by one month on fears that Russian production may be falling. The move sent hopes up that prices may indeed be on their way down closer to $110 per barrel.

Unfortunately for those looking forward to lower prices, the news was released that U.S. inventories were dropping at the same time the European Union (EU) decided to ban Russian oil imports. This arrested the downtrend and sent oil prices climbing once more. The EU finalized its prohibition of financing and financial assistance services for Russian oil cargoes after a wind-down period of six months. The measure effectively bans EU member states from providing insurance to Russian trade.

Natural Gas

The spot prices of natural gas fell at most locations during the report week May 25 to June 1. The Henry Hub spot prices dipped from $9.30 per million British thermal units (MMBtu) to $8.42/MMBtu week-on-week. On the other hand, international natural gas spot prices rose or the week. Liquefied natural gas (LNG) cargoes in East Asia ascended by $1.89/MMBtu to bring the weekly average of LNG prices to $23.77/MMBtu. In the Netherlands, at the Title Transfer Facility (TTF) which is Europe’s most liquid natural gas spot market, the day-ahead price increased by $0.59 to a weekly average of $26.51/MMBtu. By comparison, last year’s corresponding average prices for the week ending June 2, 2021, in East Asia and the TTF were $10.54/MMBtu and $9.12/MMBtu, respectively.

In the domestic market, prices along the Gulf coast fell as temperatures remained close to normal, consumption fell in all sectors, and LNG exports decreased. In the Midwest, prices decreased as temperatures increased and demand for natural gas declined. Prices across the Midwest fell in line with the national average, while Northeast prices decreased due to mild weather on average, resulting in lower consumption. U.S. natural gas supply increased week over week, while demand fell as temperatures moderated toward normal. This week from last week, U.S. LNG exports decreased by one vessel.

World Markets

Decline and thin volume marked trading in the European stock market during the week that the UK celebrated the platinum anniversary of Queen Elizabeth II’s ascendancy to the throne. Investors were reticent due to elevated inflation, the prospects of an economic slowdown, continued restrictive policies and monetary tightening by the central banks, and the ongoing war in Ukraine. The pan-European STOXX Europe 600 Index closed the week down by 0.87%. Major indexes were weaker across the board. Italy’s FTSE MIB fell by 1.91%, France’s CAC 40 lost 0.47%, and Germany’s Xetra DAX Index moved sideways. The UK’s FTSE 100 Index dipped by 0.69% through Wednesday, on shortened trading for the week due to the holiday celebrations. Eurozone inflation soars to a record high of 8.1% in May, with commodity prices accelerating in the 19 member states at a rate faster than expected. Several policymakers now agree that rates need to be raised to curb inflation although they disagree on the pace of tightening, with some calling for a 50-basis point increase in July. The European Central Bank has maintained a negative deposit rate since 2014, which is now at -0.5%.

Japan’s stock markets recorded a gain for the week, with the Nikkei 225 rising 3.66% and the broader TOPIX Index climbing 2.43%. Continued relaxation of Japan’s strict border controls and the decision by Chinese authorities to allow segments of the economy to reopen after the coronavirus lockdown restrictions helped boost investor sentiment. After a two-year ban on foreign tourism due to the coronavirus epidemic, Japan has adopted further measures toward a wider reopening of its borders. The yield on the 10-year Japanese government bond ended the week unchanged at 0.23%, as the yen weakened to approximately JPY 129.88 per U.S. dollar, from JPY 127.10 at the end of the preceding week. Japan has also reiterated its commitment to monetary easing.

In China, stocks rallied during the holiday-shortened week in response to Beijing’s unveiling of support measures to cushion an impending economic slowdown. The slowdown was the anticipated result of the country’s zero-tolerance approach to the Covid-19 spread. During the trading week that ended Thursday, the broad, capitalization-weighted Shanghai Composite Index rose by approximately 2.1%, and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, gained 2.2%. Trading was closed on Friday in celebration of the Dragon Boat Festival. The government unveiled an additional 33 measures of its stimulus programs which it announced the previous week, covering fiscal, financial, investment, and industrial policies.

The Week Ahead

Among the important economic data to be released this week are the foreign trade balance, consumer price index, and hourly earnings growth.

Key Topics to Watch

• Foreign trade balance
• Consumer credit
• Wholesale inventories revision
• Initial jobless claims
• Continuing jobless claims
• Real household net worth (SAAR)
• Real domestic nonfinancial debt (SAAR)
• Consumer price index (monthly)
• Core CPI (monthly)
• CPI (year-over-year)
• Core CPI (year-over-year)
• UMich consumer sentiment index (preliminary)
• 5-year inflation expectations (preliminary)
• Federal budget balance

Markets Index Wrap Up

Stock Markets

Stock markets gained ground this week after seven straight weeks of losses. Every sector of the large-cap S&P 500 advanced, led by consumer discretionary and energy stocks which surged the most. Underperforming the rest was the health care sector. Even the tech-heavy Nasdaq Composite Index exhibited solid gains. The cross-sector strength seems to have materialized from the positive perception that the hitherto rising inflation may have already reached its peak. Several developments provided an impetus for the S&P 500 to rally from its lowest level in more than a year. These include selling exhaustion, positive retail earnings reports, and signs of flexibility in the Fed policy. The result is that the S&P 500 has successfully averted a plunge into bear territory that was widely anticipated last week when it descended 20% from its peak, a technical bear indication. Bond returns have improved, with fixed-income investments becoming more attractive and investors pricing in slower economic growth into the future.

U.S. Economy

The most recent economic and earnings reports appear to send mixed signals which, in turn, challenge the prevailing sentiment that a recession is imminent. Economic growth is still positive although slowing down, and several signals still point to the possibility of continued expansion. Although inflation is still of major concern, consumer spending remains robust and overall demand is resilient. Missed target earnings among some retailers were mostly due to rising costs rather than weakened consumer spending. Consumption increased in April at the fastest rate in three months when adjusted for inflation. This is further buoyed by stable job growth and accumulated savings.

Regarding the Fed’s tightening policy that many fear will cause a recession, the policymakers appear to be more flexible than originally thought after the possible large rate hikes in June and July. Moreover, high inflation, which is feared to be sustained for the rest of the year, appears to be slowing down. Even as the 40-year-high inflation rate keeps the Fed on the lookout for runaway increases in consumer prices, the annual rate of price increases appears to have peaked between March and April, Inflation expectations derived from the bond market have noticeably dropped over the past month. Inflation will likely maintain a path of gradual moderation until the end of 2022 as the rise in borrowing costs slows the housing market, demand for goods eases, and supply concerns are resolved.

Metals and Mining

Prices of precious metals are still impacted by inflationary pressures, but on Friday, good news from the U.S. Department of Commerce alleviated some of the market jitters. The agency announced that the Federal Reserve’s preferred measure of inflation, the core Personal Consumption Expenditures Index, rose 4.9% on an annual basis for the month of April. This is down from 5.2% seen last March. This is an indication that inflation has dropped for the last two months from its peak of 5.3% last February. The prospect of a recession is growing more distant and the economy appears poised for continued expansion, although at a slower pace. Gold will continue to face challenging headwinds due to rising interest rates that tend to draw investor attention away from non-yielding assets like gold. Nevertheless, because of the continuing threat of inflation, the role of gold as a safe-haven asset and a hedge against inflation continues to remain highly relevant in portfolio composition.

Gold moved sideways this week, gaining a modest 0.39% from the previous week’s close at $1,846.50 to end this week at $1,853.72 per troy ounce. Silver added 1.52% to its value, rising from $21.78 the week before to this week’s $22.11 per troy ounce.  Platinum also inched up slightly from $957.17 the week earlier to this week’s $958.13 per troy ounce, an appreciation of 0.10%. Palladium began at $1,964.92 and closed the week at $2,067.44 per troy ounce, for a gain of 5.22%. The three-month prices for base metals also went through listless trading for the week. Copper, which ended at $9,422.00 one week earlier, closed this week at $9,459.00 per metric tonne for a gain of 39%. Zinc added on 3.68% from its week-ago price of $3,707.00 to this week’s close at $3,843.50 per metric tonne. Aluminum lost marginally by 2.53% from last week’s $2,946.00 to this week’s $2,871.50 per metric tonne. Tin also lost by 1.61% from its week-ago close at $34,665.00 to this week’s close at $34,106.00 per metric tonne.

Energy and Oil

Oil prices inched higher in light of the improving demand signals due to the further easing of pandemic lockdowns and restrictions. The lack of supply options in the global oil market has been further underscored, however, particularly if there materializes a drastic squeeze in Russian oil production. The European Union is feared to be approaching an outright ban on the importation of Russian oil, a step which it appears to be reluctant to take but does not rule out. The EU may reach a deal on Russian oil sanctions in the coming week’s leader summit scheduled for May 30-31.

U.S. gasoline and crude inventories are continuing in their decline; also, the possibility of a JCPOA breakthrough becomes more remote as the United States and Iran move further apart due to recent altercations between them. The antagonism between the two countries was further heightened when U.S. authorities seized two laden oil tankers in the Mediterranean, anchored in the territorial waters of Croatia and Greece. The cargoes allegedly consisted of smuggled oil for Iran’s Revolutionary Guard Corps. Analysts are not eliminating the possibility of another surge in oil prices to the $130-140 per barrel range this summer.

Natural Gas

Spot prices of natural gas increased at most locations this report week, May 18 to May 25. The Henry Hub spot price ascended to $9.30 per million British thermal units (MMBtu) from $8.45/MMBtu throughout the week. International natural gas spot prices took the opposite direction for the week, as the swap prices for liquefied natural gas (LNG) descended by $1.64/MMBtu to a weekly average of $21.88/MMBtu in East Asia. At the Title Transfer Facility (TTF) in the Netherlands, the day-ahead price fell by $2,20/MMBtu to a weekly average of $25.92/MMBtu. By comparison, the corresponding prices in East Asia and the TTF were $10.05/MMBtu and $9.04/MMBtu, respectively, for the same week last year (week ending May 26, 2021).

Domestic prices for natural gas along the Gulf Coast rose as demand growth in the Southeast and Texas outpaces supply growth. In the Midwest, prices increased with the national average as temperatures fluctuated. Prices across the West rose as the natural gas share of electricity generation increased in California. In the Northeast, natural gas prices increased as consumption increased across all sectors. U.S. natural gas supply decreased slightly week over week. Natural gas demand in the country rose slightly with mixed temperatures. The U.S. LNG exports increased by five vessels this past week compared to the week before.

World Markets

In Europe, equities took a break from inflation fears as shares rose and confidence returned. Investors’ sentiments took into account that inflation may be reaching its peak and that central banks will embark on a more gradual interest rate increase. Due to the holidays, market volumes were light, and the rebound may seek confirmation in the coming week’s resumption of trading. The pan-European STOXX Europe 600 Index closed the week higher by 2.98% over last week. The main market indexes likewise gained, with Italy’s FTSE MIB Index rising 2.25%, Germany’s DAX Index climbing 3.44%, and France’s CAC 40 Index advancing 3.67%. The UK’s FTSE 100 Index surged 2.65%. The core eurozone bonds were volatile but ended higher. After European Central Bank (ECB) President Christine Lagarde signaled the possibility of positive rates by the year’s end, yields moved up briefly. They retreated somewhat, however, upon the release of weaker-than-expected eurozone PMI data. Peripheral eurozone bonds yields fell while UK gilt yields broadly tracked core markets.

The Japanese stock markets began the week on a positive note but quickly turned southwards with three consecutive session losses. The market quickly reversed again by late Friday trading, however, making up for the losses but even ending higher to register week-on-week gains. The Nikkei 225 ended with a 0.16% gain in local currency terms, and the broader TOPIX registered 0.53% higher for the week. The late rally was sparked by Japanese equities taking their cue from Wall Street, which itself closed sharply higher overnight. As the Nikkei 225 neared the 27,000 resistance level, however, investors took profits and ultimately capped market gains. The yield on the 10-year Japanese government bond dipped as the yen strengthened against the U.S. dollar.

In China, the markets dipped on concerns that the economy is slowing down, weighed by the country’s zero-tolerance approach to fighting the coronavirus. The broad Shanghai Composite Index pulled back 0.5% while the blue-chip CSI 300 Index, which keeps track of the largest-listed companies in Shanghai and Shenzhen, lost 1.9%. Information released revealed that profits at China’s industrial firms receded at their fastest rate in two years in April, causing investor sentiment to wane. The yield on China’s 10-year government bond fell marginally to 2.756% from the previous week’s 2.836% due to expectations of policy support. The yuan weakened against the dollar, from CNY 6.68 per USD the week earlier to CNY 6.71 per USD this week. The trade-weighted currency descended below 100 for the first time in seven months. This is a reflection of expectations for further capital outflows from China since the Fed’s mounting interest rate increases in the U.S. has diminished the relative attractiveness of China’s assets to investors.

The Week Ahead

Productivity, unit labor costs, and unemployment figures are among the important economic data to be released this week.

Key Topics to Watch

• S&P Case-Shiller national home price index (year-over-year)
• FHFA national home price index (year-over-year)
• Chicago PMI
• Consumer confidence index
• S&P Global U.S. manufacturing PMI (final)
• ISM manufacturing index
• Job openings
• Quits
• Construction spending
• Beige book
• Motor vehicle sales (SAAR)
• ADP employment report
• Initial jobless claims
• Continuing jobless claims
• Productivity revision (SAAR)
• Unit labor costs revision (SAAR)
• Factory orders
• Core capital goods orders revision
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor force participation, ages 25-54
• S&P Global U.S. services PMI (final)
• ISM services index

Markets Index Wrap Up

Stock Markets

U.S. stock markets are now down for the seventh consecutive week. On Wednesday, equities saw the biggest one-day decline in the history of the S&P 500 index since June 2020. The S&P 500 fell 20.9% from its intraday high last January. Thereby exceeded the technical 20% pullback indicative of a bear market, but barely recovered to close the week down approximately 18% year-to-date. Despite the sell-down, trading was remarkably subdued with volumes more than 10% below recent 20-day averages as well as below every day of the preceding week. The cause for the continued downward pressure was disappointing earnings and revenue results from many of the country’s major retailers which contributed to the broader market pessimism. Most notable was the 25% loss in Target shares after the announcement that the company’s earnings missed estimates by almost a third. The company attributed its underperformance to a combination of reduced sales of discretionary items such as televisions, and higher costs. Also falling short of expectations were earnings results from Lowe’s, Walmart, and Home Depot. Costco shares also suffered a sell-off partly due to rumors that it was increasing the price of its popular café hot dog. Investors also appeared to be concerned that major retailers may be compelled to pass on to their consumers more of their higher input costs in the coming months, maintaining inflation at elevated levels.

U.S. Economy

Although the markets appear to have priced in about a 75% chance that a recession will take place, this does not appear to be a base-case scenario over the next 12 months. Solid economic fundamentals continue to underlie this economy, particularly healthy consumer appetite, a tight labor market with low unemployment, rising wages, and continued corporate earnings growth although the latter will likely remain in the mid-single digits. April retail sales figures released during the past week exceeded expectations, together with industrial production that also expanded at a monthly rate of 1.1%, well above the forecasted 0.4%.

Analysts point to the likelihood that the current pullback is a non-recessionary market correction. Recovery may take some time, however, because of the continuing elevated inflation and increasingly restrictive policies being adopted by the Federal Reserve. On Wednesday, Fed Chair Jerome Powell remarked in an interview that policy formulators will not hesitate to raise rates as much as necessary due to the “unconditional need” to tame inflation, even if it may be viewed as painful by some market players.

Economic data released this past week provided mixed signals concerning an imminent recession, On Tuesday, investors viewed with optimism the news that retail sales, excluding auto sales, rose more than expected in April (0.6% against 0,4%), and March’s gain was revised upward to 2.1%. Also surprisingly exceeding expectations are reports for industrial production, manufacturing production, and capacity utilization.

Metals and Mining

The Federal Reserve is walking a tightrope between ensuring economic growth and controlling inflation. Despite the nervousness among investors, the gold market continues to hold steady in a volatile market. Reports indicate that investors are fleeing equities, as may be seen in the deep dives of stock prices in the past week. In contrast, the gold market is maintaining a neutral stance for the year so far, making it the outperforming asset to date. Federal Reserve Chair Powell points to rocky weeks ahead as he expressed his commitment to bringing inflation down to the extent of adopting more aggressive measures such as increasing interest rates. In light of current developments, the strong U.S. dollar poses greater challenges for the gold market. This past week, however, the price of gold bounced below $1,800 per ounce, indicating that this level provides strong support for the precious metal and that it is again perceived by investors as a safe-haven asset.

Precious metals spot prices strengthened this week with modest gains. Gold prices moved from last week’s close of $1,811.79 to this week’s $1,846.50 per ounce, a gain of 1.92%. Silver, which previously ended at $21.11, landed at this week’s close of $21.78 per ounce, an increase of 3.17%.  Platinum also gained, this time by 1.15% from the previous week’s close of $946.30 to this week’s $957.17 per ounce. Palladium rose slightly by 0.96% from the preceding week’s $1,946.30 to the recent close at $1,964.92 per ounce. The 3-month base metal prices also followed precious metals. Copper moved from $9,159.00 to $9,422.00 per metric tonne, an increase of 2.87%. Zinc moved within the week from $3,489.50 to its close at $3,707.00 per metric tonne for a 6.23% appreciation. Aluminum went up from the preceding week’s $2,788.00 close to last week’s $2,946.00 per metric tonne for a 5.67% gain. Tin ascended by 3.88% from $33,370.00 the week before to the recent week’s close at $34,665.00 per metric tonne.

Energy and Oil

During the past weeks, India had been the strongest purchaser of Russian crude oil whose continued transactions gave the markets some reason to believe that Russia may comprehensively pivot towards Asia. This past week, however, China emerged as the country which may give Russia a stronger foothold in the Asian market. Beijing launched direct government-to-government talks concerning the purchase of discounted crude to replenish its strategic stocks. Despite the prospect of an impending Chinese reopening, this news added some downward pressure to oil prices as ICE Brent moved around $112 per barrel by Friday. Concurrently, the European Union launched its $220 billion plan to terminate its reliance on Russian fossil fuels by 2027. The plan calls for investing $120 billion in new renewable energy projects, $30 billion in power grids, and $59 billion in energy savings and heating pumps. In the meantime, the United Nations Secretary-General Antonio Guterres called for all governments to end fossil fuel subsidies, which have risen to $500 billion worldwide. The move was intended to exert pressure on polluting nations ahead of the COP27 climate conference in Egypt that is slated for November of this year.

Natural Gas

This report week, May 11 to May 18, natural gas spot prices rose at most locations. The Henry Hub spot price ascended to $8.45 per million British thermal units (MMBtu) from $7.51/MMBtu. This is the highest daily price since a winter storm accounts for the close to record-high spot prices last seen in February 2021. International spot prices were mixed as LNG cargoes in Asia fell by $0.11/MMBtu to an average of $23.51/MMBtu for the week. At the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas spot market in Europe, the day-ahead price rose by $0.10/MMBtu to average at $28.11/MMBtu for the week. By comparison, in the same week last year, the average prices in the TTF and in East Asia were $9.17/MMBtu and $9.48/MMBtu, respectively.

Along the Gulf Coast, prices rose as temperatures remained warmer than normal. Prices in the Midwest increased with the national average as temperatures also rose above normal. As temperature remained moderate, prices across the West followed major hub prices higher. In the Northeast, warmer temperatures moved into the region and cooling demand increased, nudging prices higher. The U.S. natural gas supply decreased slightly week over week, and U.S. natural gas demand fell as temperatures rose across many major metropolitan areas. This week from last week, U.S. LNG exports decreased by two vessels.

World Markets

Amid growing concerns of slowing economic growth and accelerated interest rate increases, shares in Europe pulled back for the week. The pan-European STOXX Europe 600 Index dipped 0.55% in local currency terms. France’s CAC 40 Index gave up 1.22% while Germany’s Xetra DAX slid 0.33%. Italy’s FTSE MIB Index bucked the trend and advance modestly. UK’s FTSE 100 Index absorbed a loss of 0.24%. Core eurozone government bond yields were volatile, ending roughly sideways. Several officials of the European Central Bank (ECB) made some hawkish pronouncements, such as the possibility of a 50-basis point interest rate hike in July, that caused yields to rise early in the week. Subsequently, yields pulled back in light of the weak retail earnings in the U.S. that intensified concerns of an economic slowdown. Peripheral eurozone yields broadly tracked core markets over the week and ended slightly higher. UK gilt yields ascended on the prospect of inflation reaching its highest level in four decades, better-than-expected employment data, and hawkish pronouncements from the Bank of England economist Huw Pill.

Japan’s stock market realized positive returns for the week. The Nikkei 225 Index gained 1.18% while the broader TOPIX Index rose 0.71%. Positive regional sentiment due to China’s action to support its property sector gave investors some buying motivation in the latest of a series of monetary easing measures intended to boost the coronavirus-locked down economy. Also providing some support was the announcement by Japan’s government that its strict border control measures would be further eased. In light of these developments, the yield on the 10-year Japanese government bond descended to 0.23% from the previous week’s 0.24%. The yen gained ground against the U.S. dollar to JPY 127.98 from JPY 129.27 one week earlier. Japan’s economy contracted in the first quarter and consumer price inflation exceeded the Bank of Japan’s 2% target in April.

Chinese stocks climbed higher in response to the interest rate cut announced by the central bank in support of its property sector. The slight gain in equities was welcome despite negative economic data weighing on investors’ sentiment. The broad, capitalization-weighted Shanghai Composite Index gained 2.0% while the blue-chip CSI 300 Index which tracks the largest listed companies in Shanghai and Shenzhen also gained 2.2%. Earlier, the People’s Bank of China (PBOC) reduced the five-year loan prime rate (LPR) by a significantly sizeable 15 basis points to 4.45%. The rate cut followed the move by the PBOC to cut the lower limit of mortgage rates for first-time homebuyers. The rate cuts were a response by the central bank to data indicating that home sales in April plunged. The reduction in the five-year LPR sends the signal that the government seeks to encourage homebuying demand. In the meantime, economic data released during the week points to slowing growth amid pandemic lockdowns. The yield on China’s 10-year government bond moved higher to 2.836% from 2.834% a week earlier. The yuan firmed to 6.68 from 6.80 per U.S. dollar.

The Week Ahead

Economic data expected in the week ahead include the PMI composite, consumer expenditures, and real gross domestic income.

Key Topics to Watch

• S&P Global U.S. manufacturing PMI (flash)
• S&P Global U.S. services PMI (flash)
• New home sales (SAAR)
• Durable goods orders
• Core capital equipment orders
• FOMC minutes
• Initial jobless claims
• Continuing jobless claims
• Real gross domestic product revision (SAAR)
• Real final sales to domestic purchasers revision (SAAR)
• Real gross domestic income (SAAR)
• Pending home sales index
• PCE inflation
• Core PCE inflation
• PCE inflation (year-over-year)
• Core PCE inflation (year-over-year)
• Real disposable income
• Real consumer spending
• Nominal personal income
• Nominal consumer spending
• Advance trade in goods
• UMich consumer sentiment index (final)
• 5-year inflation expectations (final)

Markets Index Wrap Up

Stock Markets

Since the markets hit an all-time high on the first trading day of the year, the benchmark indexes have been on a steady decline and hit a new one-year low in the past week. The financial markets around the world are contending with an environment defined by rising inflation, tightening monetary policies, and growing political risks. Investors locally are growing increasingly doubtful that the Federal Reserve will be able to tame inflation without causing a recession and thereby achieve a “soft landing” for the economy. The Cboe Volatility Index, which is an indicator of the market’s expectation of higher forward-looking returns, remains elevated but below its May 2 intraday high. Exchange-traded funds achieved higher volumes, indicating higher hedging activity levels. Investors are growing increasingly risk-averse, and the strong risk-off environment is evident in the plunge in the value of many cryptocurrencies.

Last week marked the sixth consecutive weekly decline for both the Nasdaq Composite and the S&P 500 Index and the seventh for the Dow Jones Industrial Average (DJIA). The S&P 500 descended to almost 18% off of its peak at its low point on Thursday. This level confirms that the market is well into correction, and is only 2% above the performance threshold of a bear market (i.e., -20%). The benchmark indexes recovered somewhat their losses by Friday, on the back of a rally in Tesla shares when CEO Elon Musk announced that his deal to buy Twitter was “on hold.” This purchase is going to be partly funded by a sale of a portion of Musk’s considerable stake in the electric car manufacturer.

U.S. Economy

Inflationary pressures continue to remain one of the fundamental concerns that moved this week’s markets, and it is possible but still uncertain that inflation has peaked. The Fed is currently hiking interest rates at the fastest pace in twenty years, to soften the landing. The central bank is intent on raising borrowing costs sufficiently to slow growth to tame inflation, but not to push the economy into a recession. There may be a need to encounter several months of moderating inflation before the monetary policy may comfortably ease restrictions. Protracted periods of moderating inflation may be the principal catalyst to stabilize bond yields and rally equities.

The present economic data shows that there is a chance for slowing but continued economic growth. If this resiliency can be maintained, then economic contraction in the form of a recession may be averted. Currently, several indicators are showing this. The manufacturing and services Purchasing Managers’ Indexes (PMIs) have shown that they are still expanding, there is still positive momentum in the labor market, and despite the sharply tightening financial conditions, credit continues to flow to the real economy. Corporate profit margins have likely peaked, but the benchmark S&P 500 earnings are still expected to expand by 9% over the 50% increase last year. As the economy slows, these estimates can be expected to be revised lower, earnings growth can still be expected to remain positive for 2022 and 2023.

Metals and Mining

The price of gold has dropped by 4% this past week, the worst selloff experienced for this precious metal in the last year. Gold is now at its lowest level in three months after four consecutive weekly losses, and with the continued pessimism in the market, it may struggle to hold its price above the $1,800 per ounce support level. The price of precious metals is not responding as it normally does to the disappointing economic news: U.S. consumer price index (CPI) shows annual inflation rose by 8.3% in April, gasoline prices are hitting record highs, consumer sentiment is at its lowest in 11 years, and equities are sinking. These indicators would have traditionally sent gold higher as a flight-to-safety asset; instead, gold continues to descend. The explanation may be traced to the rising U.S. dollar and bond yields due to the restrictive policies adopted by the Fed. Attractive bond yields attract investor interest away from non-yielding assets such as precious metals.

In the past week, gold lost 3.92% from its previous close at $1,883.81 to its recent close at $1,811.79 per troy ounce. Silver, which began the week at $22.36 and ended at $21.11 per troy ounce, descended by 5.59%. Platinum ended the week before at $962.24 and this week at $946.30 per troy ounce, shedding off 1.66%. Palladium, which previously ended at $2,051.92 and closed this week at $1,946.30 per troy ounce, lost 5.15%. Even the 3-month price of base metals followed the direction of the precious metals. Copper went from $9,414.50 to $9,159.00 per metric tonne for the week, down by 2.71%. Zinc slid from $3,772.00 to $3,489.50, per metric tonne for a loss of 7.49% of its value. Aluminum, which previously closed at $2,842.00, ended the week at $2,788.00 per metric tonne, down slightly by 1.90%. Tin lost 15.18% week-on-week, from $39,340.00 to this week’s $33,370.00 per metric tonne.

Energy and Oil

The news of the week for oil markets is the falling demand as several reports indicate slashing demand forecasts for the remainder of 2022. The key factors driving this prediction are the soaring inflationary pressures and supply chain disruptions which are expected to take their toll. Most notable of the revised forecasts are those released by the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC). There have been no further developments regarding the European Union’s (EU’s) oil ban on Russia nor China’s Covid lockdown measures which are projected to significantly impact supply-demand scenarios if ever they materialize. While these uncertainties continue, volatility in oil prices is expected to prevail. Meanwhile, chances for a successful Iran Nuclear Deal are fading as the U.S. Congress expresses strong opposition to the idea of lifting sanctions on the Iran Revolutionary Guard (IRGC).

Natural Gas

At most locations this report week (May 4 to May 11), natural gas spot prices fell. The Henry Hub spot price slid from $8.30 per million British thermal units (MMBtu) to $7.51/MMBtu within the week. International spot prices for natural gas also fell for the week, for both the Title Transfer Facility (TTF), the most liquid natural gas spot market in Europe, and the East Asia market. In the U.S. domestic market, prices along the Gulf Coast fell despite the rise in both temperatures and demand for air conditioning. Prices in the Midwest followed the same direction, as well as prices along the West which were consistent with the national average. In the Northeast, prices declined due to less heating demand. The U.S. natural gas supply increased week-over-week and demand for natural gas fell in line with moderate temperatures across many major metropolitan areas. Exports of U.S. LNG decreased by four vessels this week from the week before.

World Markets

European shares exhibited early weakness but later rebounded to end the week higher, even though inflationary pressures, increasingly restrictive monetary policies, and an increasingly pessimistic economic outlook continued to prevail. The pan-European STOXX Europe 600 Index closed 0.83% higher in local currency terms. The major stock indexes followed this lead, with Germany’s Xetra DAX Index advancing 2.59%, Italy’s FTSE MIB Index adding 2.44%, and France’s CAC 40 Index climbing 1.67%. The UK’s FTSE 100 Index gained 0.41%. Core eurozone government bond yields decreased amid a broad developed market bond rally led by U.S. Treasuries. Peripheral eurozone and UK government bond yields followed the lead of yields in core markets. The European Central Bank (ECB) has announced the end of its bond-buying program by early in the third quarter, to be followed by a rate increase soon after. In the UK, the gross domestic product contracted 0.1% in March contrary to expectations, after it stagnated in February. The contraction was attributed mainly to a decline in service sector activity.

In Japan, stock markets fell in weekly trading due to the U.S. Fed’s adoption of restrictive monetary policies, worries of a slowdown in global economic growth, and concerns about the repercussions of the Russia-Ukraine hostilities. Some support was provided by broad positive earnings reports and renewed expansion in the service sector business activity. The Nikkei 225 Index dropped by 2.13% while the broader TOPIX Index also descended by 2.70%. The yield on the 10-year Japanese government bond ended the week hardly changed at 0.24%. On the other hand, the yen rose against the U.S. dollar, ending at around JPY 128.12 per USD from its previous level at JPY 130.41; still, the currency remained at depressed levels.

Chinese equities rallied on the back of improved investor sentiment due to falling coronavirus cases and positive comments from the securities regulator. The broad, capitalization-weighted Shanghai Composite Index gained 2.7% while the blue-chip CSI 300 Index, which is comprised of the largest listed companies in Shenzhen and Shanghai, rose by 2.1%. The China Securities Regulatory Commission indicated that it shall increase the participation of institutional investors in the country’s equities markets. It also aims to expand the investible universe of the exchange link with Hong Kong. The yield on the 10-year Chinese government bond slid to 2.834% from 2.848%, in reaction to reassurances from the People’s Bank of China (PBOC) that it will maintain reasonably sufficient liquidity and stable credit growth in its first-quarter monetary policy report. The yuan weakened against the U.S. dollar, to CNY 6.80 per USD from CNY 6.67 the week earlier. This marks a 5% slide against the U.S. currency in the last three weeks. The principal factors driving the yuan’s slump are the rising U.S. interest rates, the Russia-Ukraine war, and slowing domestic growth.

The Week Ahead

Retail sales, manufacturing production, and jobless claims are among the important economic data being released this week.

Key Topics to Watch

• Empire state manufacturing index
• Retail sales
• Retail sales excluding vehicles
• Industrial production index
• Capacity utilization
• NAHB home builders’ index
• Business inventories (revision)
• Building permits (SAAR)
• Housing starts (SAAR)
• Philadelphia Fed manufacturing index
• Initial jobless claims
• Continuing jobless claims
• Existing home sales (SAAR)
• Advance services report

Markets Index Wrap Up

Stock Markets

Amid extreme volatility, benchmark indexes absorbed their fifth straight week of losses, borne down by the twin concerns of rising inflation and interest rates. Growth stocks in particular took the brunt of the price declines. The Dow Jones Industrial Average (DJIA) was temporarily dragged into correction territory, roughly 10% below its recent peak where it joined the S&P 500 and S&P MidCap 400 indexes. Faring worse were the Nasdaq Composite and the small-cap Russell 2000 Index which closed the trading week down by more than 25% and well into the bear markets. Although the Cboe Volatility Index (VIX) continued to stay well below the intraday levels it briefly reached in late January, the markets were unusually volatile late this week. Investors exited their leverage positions and caused record flows of exchange-traded funds. Despite the apparent rush of activity, Wall Street had anticipated the Federal Reserve’s announcement of a 50-basis-point (0.50 percentage point) increase in the Federal fund’s target rate to a range of 0.75% to 1.00%. This is the largest Fed rate hike in 22 years.

U.S. Economy

Coming into the past week, it appeared as if inflation may continue to rise unabated. After the week’s events, however, it is likely that inflation, though still heated, may already be reaching its peak and can be expected to head lower in the future. The Fed remains at the early stage of its tightening campaign that is aimed at curbing the rising inflation. This week’s 0.50% interest rate hike may be only the first of several such outsized escalations, but the policy authorities are not likely to impose larger hikes (e.g., 0.75% or higher), nor it is likely to pursue an even more aggressive pace of monetary tightening.

Despite these developments, the economic foundation remains sound in light of the historically tight labor market and robust consumer finances. Headwinds remain in the form of the ongoing supply disruptions primarily caused by the lockdowns in China and elevated consumer prices due to the high cost of oil. Nevertheless, conditions in the employment arena support a positive outlook for consumers. The rising-cost environment remains a challenge for corporate earnings, but profits continue to remain resilient. Furthermore, while the markets appear to be pricing in a possible recession, analysts are still hopeful that an impending recession is hardly certain The labor market, which historically is the most powerful driver of economic activity, continues as a source of optimism.

Metals and Mining

Another week of lackluster performance transpired for gold as its price hit but did not penetrate the $1,900 per ounce resistance level. Selling pressure mounted as the U.S. dollar approached its highest level in two decades as a result of the Federal Reserve’s aggressive move to raise interest rates. Although gold lost its momentum for the moment, analysts remain optimistic that the precious metal continues to remain healthy and appears merely to go through a consolidation phase following its strong performance in the year’s first quarter. Continued rate increases are unlikely to push gold further down as there is a limit to how far the Fed can raise its rates.

Gold began the week at $1,896.93 and ended at $1,883.81 per troy ounce, lower slightly by 0.69%. Silver slid by 1.84% week-on-week, from the previous close at $22.78 to its recent close at $22.36 per troy ounce. Platinum ended one week ago at $939.32 and closed this week at $962.24 per troy ounce for a marginal gain of 2.44%. Palladium closed the prior week at $2,326.92 but ended this week at $2,051.92 per troy ounce, falling by 11.82%.  Three-month prices of base metals likewise sustained losses. Copper, which closed the week before at $9,769.50, ended this week at $9,414.50 per metric tonne, declining by 3.63%.  Zinc came from $4,107.00 and ended at $3,772.00 per metric tonne for a drop of 8.16%.  Aluminum began the week at $3,052.50 and closed at $2,842.00 per metric tonne, falling by 6.90%. Tin, which previously closed at $40,259.00, ended the week lower by 2.28%, at $39,340.00 per metric tonne

Energy and Oil

The past week, the European Union remained unable to reach an agreement regarding a comprehensive Russia crude oil embargo, as the member states continue to be plagued with internal differences on the timeline of the phasing out. If the draft is adopted, this may result in another supply shortage as the OPEC+ has already expressed its preference for consistency rather than abrupt changes. The willingness of the oil consortium to meet global demand may fall even further if the United States proceeds with its NOPEC bill.

In the meantime, during its meeting that lasted for a mere 30 minutes, the OPEC+ countries concurred to increase their June 2022 production target by 432,000 barrels per day. They had foregone any discussion about sanctions on Russia, indicating that the global oil supply-demand situation is more or less balanced. In the U.S., a Senate committee passed the NOPEC bill with bipartisan support. This potentially revokes the sovereign immunity protecting OPEC countries and Middle Eastern National Oil Companies (NOCs) from lawsuits.

Natural Gas

At most locations this report week, April 27 to May 4, natural gas spot prices rose, with the Henry Hub spot price ascending from $6.94 per million British thermal units (MMBtu) at the start of the week, to $8.30/MMBtu by the week’s end. The price is at its highest level since February 2021 when a winter storm nudged natural gas to its highest spot price on record. International spot prices, on the other hand, descended during this report week.

In the country, prices along the Gulf Coast climbed consistently with the higher temperatures and increased demand for air conditioning. In the Midwest, prices ended higher, but during the week they fluctuated with the weather even as production from North Dakota continued to increase. Across the West, prices rose in line with the national average as temperatures remained normal. In the Northeast, prices were mixed this week. The U.S. natural gas supply remained largely unchanged from the previous week to this week, and demand by sector is mixed. U.S. LNG exports increased by two vessels from last week to this week.

World Markets

European equities markets plummeted amid concerns that central banks may need to adopt more stringent policies to respond to inflationary pressures, in the course of which economic growth may be compromised. The spread of the coronavirus in China and the lockdowns the Chinese government has imposed to curb the spread of the virus, coupled with the Ukrainian conflict, have further exacerbated the economic uncertainties. The pan-European STOXX Europe 600 Index lost 4.55% in local currency terms. Germany’s DAX Index dropped 3.00%, Italy’s FTSE MIB Index gave up 3.20%, and France’s CAC 40 Index lost 4.22%. The UK’s FTSE 100 Index lost 2.08%, less than the other three country indexes. The core eurozone bond yields followed the lead of U.S. Treasury yields, rising after the Fed’s 50-basis point increase was announced. The peripheral eurozone government bond yields largely tracked the core market yields. After the Bank of England (BoE) raised rates, UK gilt yields fell; however, the BoE also lowered its economic growth forecast and issued a warning that a recession may be imminent.

In Japan, trading was truncated in light of the holiday-shortened week (markets were closed from May 3 to 5), but nevertheless, there was a modest rise in Japanese equities. The Nikkei 225 Index inched higher by 0.58%, while the broader TOPIX Index gained 0.86%, even though the U.S. Federal Reserve’s decision to hike interest rates by 50 basis points (the first such hike since 2000) triggered strong volatility in markets domestically and globally. The yield on the 10-year Japanese government bond rose to 0.24%, up from the previous week’s close at 0.21%, in tandem with the move in U.S. Treasuries. The yen weakened slightly to around JPY 130.51 against the U.S. dollar, from approximately JPY 129.76 the week earlier. The latest level is still hovering at the lows of the past two decades. The weakness in the Japanese currency, however, triggered optimism among exporters as it boosted the value of their overseas earnings.

Chinese markets slumped in response to the signs that Beijing shall continue to pursue its zero-tolerance assault on the coronavirus. This raised worries among investors about the toll the economy is taking with the continuous lockdowns. The broad, capitalization-weighted Shanghai Composite Index slid 1.5% while the blue-chip CSI 300 Index sank 2.7%, the latter tracking the largest listed companies in Shanghai. In a statement issued by the Chinese Communist Party’s policy-making arm, the Politburo, any effort that relaxes virus prevention and control measures is perceived to lead to large-scale infections, serious illnesses, and deaths. The recent pronouncements made no mention of reconciling virus control measures with economic growth or reducing the damage to the economy, unlike previous statements. Although the city appears to relax restrictions and the rate of infections has declined, most of Shanghai’s 25 million residents are still under various degrees of lockdown. Beijing, on the other hand, announced mass testing and increased restrictions given a growing outbreak. As a result, domestic consumer spending over China’s five-day Labor Day holiday plunged 43% from that of the past year.

The Week Ahead

Inflation, hourly earnings growth, and jobless claims are among the important economic data expected to be released in the week to come.

Key Topics to Watch

• Wholesale inventories (revision)
• Consumer 1-year inflation expectations
• Consumer 3-year inflation expectations
• NFIB small-business index
• Real household debt (SAAR)
• Consumer price index
• Core CPI
• CPI (year-over-year)
• Core CPI (year-over-year)
• Federal budget
• Initial jobless claims
• Continuing jobless claims
• Producer price index (final demand)
• Import price index
• UMich consumer sentiment index (preliminary)
• UMich 5-year inflation expectations

Markets Index Wrap Up

Stock Markets

Concerns about inflation that dominated much of April were generally ignored in the past week while the focus shifted to announcements of corporate earnings and what is generally seen as a deterioration of the global growth for the rest of the year. The ongoing war in Ukraine remains to be the overriding threat to European economic activity. In China, the pandemic continues to impact the country’s growth rate, while in the U.S. the key worry revolves around the slowdown in economic momentum. Due to these uncertainties, stocks treaded lower this week to revisit their lowest levels in the year’s trading range.

The S&P 500 is down 14% from its recent peak. Meanwhile, the technology-heavy Nasdaq Composite and the small-cap Russell 2000 Index succumbed to bear markets, both of which are down approximately 24% from their highs. This was the indexes’ fourth consecutive weekly loss. Disappointing earnings reports from Amazon.com weighed down most of the indexes. Earnings reports from Microsoft and Alphabet, Google’s parent company, offset each other for the most part during Wednesday’s trading, as positive guidance from Microsoft helped to compensate for the poor earnings report from Alphabet.

During Friday’s trading, a similar situation developed between Amazon and Apple. Weak online sales caused Amazon shares to dive 14% due to the company’s first quarterly loss since 2015. Apple stock initially rose on the news of record first-quarter revenues, but cautious guidance for the second quarter regarding supply chain problems dampened the fledgling rally somewhat.  Within the S&P 500, the energy sector outperformed, gaining strength after Russia announced that it was banning gas exports to Bulgaria and Poland.

U.S. Economy

The economic data that emerged during the week appeared to draw the prospect of a possible “stagflation,” but there is sufficient information to support the easing of inflationary pressures in the coming months. Topping the list of surprising economic data was the advance estimate of the Commerce Department that indicated that the economy contracted at an annualized rate of 1.4% for the first quarter. This fell way below the 1% economic expansion analysts expected for 2022 Q1. Mostly to blame for this underperformance were falling inventory investment and a record trade deficit. Optimism was supported, however, by what economists saw as solid consumer spending (higher by 2.7%) and an increase in business investment by 7.3%, which was well above expectations. It is therefore premature to conclude that the economic data are signaling the start of a recession, which is technically defined as an economic contraction for two consecutive quarters.

Other reports point to continued expansion. Personal spending rose 1.1%, higher than expected by 0.7%, while core capital goods orders (excluding defense and aircraft) increased by 1.0% in March, which is double the consensus expectation. The increase in the core personal consumption expenditures (PCE) price index, which is the preferred inflation gauge of the Federal Reserve, slid to 5.2% year-over-year. The year-over-year headline PCE measure surged to 6.6%, a 40-year high, but it also missed estimates. The employment cost index rose 1.4% in the first quarter, above analysts’ expectations and reflective of the tight labor market.

Metals and Mining

The week was disappointing for the gold market since spot prices fell below the $1,900-per-ounce support level. After it was unable to break above $2,000 an ounce, gold fell roughly 5%. There still appears to be some buying momentum among the gold bulls as the market continues to challenge the $1,900 during the end of trading for the week. The selling pressure exerted upon gold is a result of the strength in the U.S. dollar, which pushed it to almost a 20-year high. The unusually bullish momentum of the greenback is a result of traders and investors preparing for the Federal Reserve’s monetary policy meeting in the first week of May. The U.S. central bank will likely raise interest rates aggressively, which markets expect will amount to three 50-basis point hikes in the next three meetings. Interest rates are expected to end the year above 3%, with some betting that this may be an overestimation.

Gold, which ended the previous week at $1,931.60, closed this past week at $1,896.93 per troy ounce, for a slide of 1.79%.  Silver went from $24.14 to $22.78 per troy ounce last week, falling by 5.63%.  Platinum gained slightly from the earlier week’s close at $931.38 to last week’s $939.32 per troy ounce, inching up by 0.85%.  Palladium moved from the previous week’s $2,378.75 to last week’s $2,326.92 per troy ounce, losing 2.18%. The three-month base metal prices did not do much better. Copper, which used to be $10,110.00 in the week prior, ended at $9,769.50 per metric tonne in the week just concluded, a loss of 3.37%. Zinc began at $4,434.50 and dropped by 7.39% to close last week at $4,107.00 per metric tonne. Aluminum also lost 5.95%, from $3,245.50 to $3,052.50 per metric tonne. Tin, formerly at $42,165.00, lost 4.52% week-on-week when it ended at $40,259.00 per metric tonne last week.

Energy and Oil

The OPEC+ meeting scheduled for next week has raised the question among investors and market players whether it remains necessary to formally “rubber stamp” the OPEC+ members’ monthly production quotas. Russia’s production is now down by almost one million barrels per day (b/d) compared to its levels in February, and Libya is constantly plagued by supply disruptions against which it is constantly contending. Against this backdrop, the oil group’s compliance rate is only going to increase. Although the demand from China has significantly dropped, the price of oil is headed towards a fifth consecutive monthly gain, with ICE Brent hovering at approximately $110 per barrel. OPEC+ is expected to greenlight another 432,000 b/d monthly increase for June when they once more meet on June 5, even as Russia and Kazakhstan further reduce their oil production, and the OPEC+ is on its second year of supply discipline.

Natural Gas

Spot prices of natural gas increased at most locations during the report week beginning April 20 and ending April 27. From the beginning to the end of the week, the Henry Hub spot price fell from $7.04 per million British thermal units (MMBtu) to $6.94/MMBtu. International gas prices were mixed for this report week. In East Asia, the swap prices for liquefied natural gas (LNG) cargoes fell by $4.43/MMBtu to a weekly average of $25.39/MMBtu. The day-ahead prices at the Title Transfer Facility (TTF), the most liquid natural gas spot market in Europe, increased by $0.50 to average $30.94/MMBtu for the week. This is the second week in a row that the TTF price average higher than the East Asia price, which is notable since historically, the natural gas prices in East Asia average higher than the natural gas prices in Europe. At about the corresponding time last year, for the week ending April 28, 2021, the prices at the TTF and in East Asia were $7.48/MMBtu and $8.58/MMBtu, respectively.

Domestically, the prices along the Gulf Coast rose due to forecasts of higher temperatures and rising air conditioning demand. In the Midwest, prices increased as temperatures shifted from above-normal to below-normal during the report week. Prices rose across the West as mid-continent production fell. In New England, prices increased in tandem with the lingering lower-than-normal temperatures in the region, and as pipelines experienced outages and maintenance. U.S. natural gas supply decreased slightly and natural gas consumption decreased in all sectors this report week. U.S. LNG exports decreased by three vessels this week from the previous week.

World Markets

In Europe this past week, shares pulled back due to worries that economic growth will slow down while high inflation and tightening monetary policy will prevail. Moderating this dire outlook were the encouraging quarterly earnings reports which somewhat offset the losses. The pan-European STOXX Europe 600 Index ended the week lower by 0.64% while major market indexes were mixed. Italy’s FTSE MIB Index moved sideways while France’s CAC 40 Index lost 0.72% and Germany’s DAX Index slid by 0.31%. The FTSE 100 Index, on the other hand, gained 0.30%. Core eurozone bond yields dipped as concerns grew about inflationary pressures and weakening economic growth caused demand for high-quality government bonds to increase. UK government bond yields followed the trend of core markets and peripheral bond yields rose in general.

Over the week, stocks fell in Japan. The Nikkei 225 Index lost 0.95% while the broader TOPIX Index slid 0.29%. The Bank of Japan (BoJ) continued with its accommodative policies at its April monetary policy meeting, causing interest rates to remain unchanged at near-zero levels and maintaining the current scale of its asset purchases. The BoJ remained committed to its easing stance by declaring that it will carry out fixed-rate bond-buying every business day rather than on an ad hoc basis. This pushed the 10-year Japanese government bond yields downward, falling to 0.21% from 0.24% at which level it closed during the previous week. The central bank’s pronouncement signaled that it will continue its divergence from the other major central banks’ monetary tightening, thus sharply weakening the yen, from the prior week’s JPY 128.47 to this week’s JPY 130.39 per U.S. dollar. This is the lowest level the currency has seen in 20 years. With these developments, the BoJ revised its inflation estimate to rise by a median of 1.9% from 1,1% in its consumer price index (CPI) for the year 2022. It revised its downward forecast for economic growth from 3.8% to 2.9% year-on-year. The factors cited were the coronavirus resurgence, rising prices of commodities, and the slowdown in economies overseas.

China’s stock markets ended mixed on reports that the country’s Politburo pledged to boost economic stimulus and called for its technology sector to undergo a “healthy development.” The broad Shanghai Composite Index dipped 1.3% while the blue-chip CSI 300 Index that tracked Shanghai’s and Shenzhen’s largest listed companies ended mostly unchanged. The markets appeared to recover their earlier losses that were caused by the zero-tolerance approach of the government to the coronavirus. The Politburo meeting did not elaborate further on how China will support its economy, although it was consistent with recent reports regarding infrastructure, consumption support, and tax cuts. China’s government bonds firmed on expectations of easing liquidity. The yield on the 10-year Chinese government bond declined to 2.854% from the previous week’s 2.88%. The yuan weakened to 6.6143 per U.S dollar, compared to 6.47 one week earlier. In April, the yuan fell approximately 4.2% against the dollar, its biggest monthly drop on record, as a result of foreign investors selling Chinese assets in favor of higher-yielding U.S. bonds.

The Week Ahead

Important data scheduled for release in the coming week include the unemployment rate, hourly earnings growth, and the manufacturing index.

Key Topics to Watch

• S&P Global U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Job openings
• Quits
• Factory orders
• Core capital goods orders (revision)
• Motor vehicle sales (SAAR)
• ADP employment report
• International trade balance
• S&P Global U.S. services PMI (final)
• ISM services index
• FOMC statement
• Fed Chair Jerome Powell news conference
• Initial jobless claims
• Continuing jobless claims
• Productivity (SAAR)
• Unit labor costs (SAAR)
• Nonfarm payrolls
• Employment rates
• Average hourly earnings
• Labor force participation rate, 25-54
• Consumer credit

Markets Index Wrap Up

Stock Markets

At the forefront of investors’ attention in recent weeks is the volatility in the equities market particularly with the S&P being subjected to its first 10% correction in two years in March. The uncertainty continues to ward off buying interest as the major U.S. stock indexes plunged lower during the week. Growth stocks underperformed their value counterparts as evidenced by the drop in the Russell 1000 Growth Index. Furthermore, the large-cap S&P 500 Index registered greater losses than the S&P SmallCap 600 Index and the S&P Midcap 400 Index. The communication services sector declined more steeply than the other stocks within the S&P 500. Netflix succumbed by more than 35% during the week in response to the dismal report of its quarterly performance underscored by the massive shrinkage of its global subscriber list. Of all the sectors, only the consumer staples sector realized gains.

U.S. Economy

Growth in business activity appeared to have slowed in April but remains robust, as may be gleaned from the preliminary data for the S&P Global US. Composite PMI Output Index, the indicator that tracks the manufacturing and services sectors. The widely tracked Purchasing managers’ indexes (PMI) registered 55.1 compared to 57.7 in March, which is not too discouraging given that PMI readings north of 50 still signify an expansion in business activity. The April S&P Global Services PMI dropped to 54.7 which is lower than its corresponding level in March, while the counterpart indicator for manufacturing activity expanded. This suggested that as the coronavirus pandemic restrictions were relaxed, new orders for the manufacturing and services businesses increased, and demand strengthened. Both segments of the economy appeared, however, to struggle with the increasing labor and input costs by registering the steepest uptick in output charges ever recorded.

The economy will likely continue to expand despite the pending increase in interest rates, albeit at a slower rate within the 2%-3% range for this year compared to last year’s 6%. Approximately $2 trillion in accumulated savings still backs consumer purchasing power, even as wage growth is still running above 5%.  Household consumption, which accounts for 70% of GDP, is not completely dependent on borrowing. Household debt-servicing costs as a percentage of disposable income continues to remain close to 9%, its historic low in comparison with the mid-1980s (12%) and mid-2000s (13%).

Metals and Mining

Gold has shown resilience in recent weeks as investors appear to retain an interest in the precious metal despite the market treading a consolidation pattern. The past week showed much promise as the price of the yellow metal tested the $2,000 per-ounce resistance level. It immediately became evident, however, that the precious metal did not have the momentum to break out of this resistance, faced with rising bond yields and a strengthening U.S. dollar. After touching its peak late Monday, gold hit a selling wall and receded 1.7% for the week. All is not lost for gold, however, since it still holds critical support as the U.S. dollar reaches a two-year high. Analysts remain optimistic that gold will continue above the $1,900 level and may test the year-end target price range of $2,000-$2,100 per ounce. As for base metals, copper suffered a significant decline this week from concerns of rising inventories as China’s protracted COVID lockdowns and U.S. monetary tightening threaten to hinder demand.

During the past week, gold slid from its previous weekly close of $1,978.25 to end at $1,931.60 per troy ounce, a drop of 2.36%. Silver began at $25.55 and closed at $24.14 per troy ounce for a weekly decline of 5.52%. Platinum lost 6.20% when it dipped from $992.89 to $931.38 per troy ounce for the week. Palladium, which ended at $2,372.95 the previous week, closed this week at $2,378.75 per troy ounce for a slight appreciation of 0.24%. Base metals’ three-month prices were also generally lower. Copper ended the week at $10,110.00 per metric tonne from the earlier week’s close at $10,315.00, losing 1.99%. Zinc registered a slight gain of 0.51%, beginning at $4,412.00 and ending at $4,434.50 per metric tonne. Aluminum went from $3,285.50 to $3,245.50 per metric tonne for the week, a dip of 1.22%. Tin, which closed the week prior at $43,043.00, ended this week at $42,165.00 per metric tonne, a drop of 2.04%.

Energy and Oil

Supply risks still abound that could propel oil prices higher, nevertheless, some bearish sentiment has permeated the oil markets in the past week as a result of falling demand in China and the likelihood of a global economic slowdown. A slowing economy worldwide is a reason for negative sentiment to weigh crude prices down due to the prospect that the demand for fossil fuel energy may not be sustained. The U.S. Federal Reserve suggested that they may raise interest rates by half a point in the May policy meeting, while Shanghai announced a new round of lockdowns that will extend China’s more recent COVID restrictions. On the other hand, the effect of these headwinds may be offset to some degree by recent moves by the European Union to possibly impose oil sanctions against Russia and Libya. In the meantime, U.S. refiners receive their last Russian cargoes as the April 22 wind-down deadline to halt the purchase of Russian crude and product comes into effect.

Natural Gas

Spot prices for natural gas climbed at most locations this report week, April 14 to April 20. The Henry Hub spot price ascended to $7.04 per million British thermal units (MMBtu) from $6.70/MMBtu. Going in the opposite direction were the international natural gas spot prices, with prices at the LNG spot market in Europe falling $2.39 to a weekly average of $30.45/MMBtu at the Title Transfer Facility (TTF) in the Netherlands. Swap prices for LNG cargoes in East Asia likewise declined $3.39/MMBtu to average the week at $29.83/MMBtu. On the domestic front, prices along the Gulf Coast rose with the national average, while prices in the Midwest were volatile during the week. In the West, prices rose with mixed weather along the coast, while prices in the Northeast rose due to increased demand resulting from a late-season winter storm and colder-than-normal temperatures. The U.S. supply of natural gas remained unchanged for the week while total consumption increased. U.S. LNG exports increased by six vessels week-on-week.

World Markets

European equities fell over the week due to worries concerning the war between Russia and Ukraine and the growing tendency of central banks towards more restrictive monetary policies. The pan-European STOXX Europe Index closed 1.42% down in local currency terms while main market indexes were mixed. Italy’s FTSE MIB Index fell 2.34% while France’s CAC 40 Index and Germany’s DAX Index moved sideways. The UK’s FTSE 100 Index retreated 1.24%. The core eurozone bond yields moved higher, driven by policymakers’ hawkish comments at key central banks. A massive sell-off in high-quality bonds ensued. Peripheral eurozone and UK government bond yields mostly followed the lead of core markets. European Central Bank (ECB) President Christine Lagarde once more emphasized that the ECB’s asset purchase program will end in the third quarter, and interest rate moves will be determined by the incoming data.

In Japan, the stock markets experienced moderate gains for the week. The Nikkei 225 Index slipped 0.04% while the broader TOPIX Index climbed 0.47%. Japan’s consumer price inflation is still lower than other major developed economies since the core consumer price index was up by only 0.8% year-on-year in March. This is the main reason in support of the Bank of Japan’s (BoJ’s) continuation of its ultra-loose monetary policy. Meantime, the yen remained close to a two-decade low against the U.S. dollar. According to the BoJ’s Governor, Haruhiko Kuroda, the adverse effects of a weak currency and the greater difficulty in companies’ business planning need to be accounted for. The yen closed at around JPY 128.49 per USD for the week, compared to JPY 126.44 one week earlier. To defend the upper limit of its interest rate target range, the BoJ bought Japanese government bonds, and it thereafter announced further plans to buy bonds. The yield on the 10-year JGB ended the period unchanged at 0.24%.

Chinese markets lost ground due to investor concerns regarding the economic pullback resulting from the coronavirus lockdowns. Government officials announced the continued imposition of tougher restrictions. The CSI 300 Index fell 4.2% this week. This indicator tracks the largest listed companies in Shanghai and Shenzhen, and this week, it experienced its worst five-day performance since mid-March. The yield on the 10-year Chinese government bond went up to 2.88% from 2.818% the week before. The yuan fell to 6.47 versus the US dollar, the currency’s seven-month low, and down by 1.8% week-on-week. When the Federal Reserve meets in May to announce its expected half-point U.S. rate hike, added pressure is expected to weigh on China’s bonds and currency.

The Week Ahead

Housing Starts, the Markit PMI Index, and Real Gross Domestic Product are among the important economic data to be released in the coming week.

Key Topics to Watch

• Durable goods orders
• Core capital equipment orders
• S&P Case-Shiller U.S. home price index (year-over-year)
• FHFA U.S. home price index (year-over-year)
• Consumer confidence index
• New Home sales (SAAR)
• Advance report on international trade in goods
• Pending home sales index
• Home ownership rate (NSA)
• Initial jobless claims
• Continuing jobless claims
• Real gross domestic product (SAAR) (first estimate)
• Employment cost index
• PCE price index
• Core PCE price index
• PCE price index (year-over-year)
• Core PCE price index (year-over-year)
• Nominal personal income
• Nominal consumer spending
• Real disposable incomes
• Real consumer spending
• Chicago PMI
• UMich consumer sentiment index (final)
• UMich 5-year inflation expectations

Markets Index Wrap Up

Stock Markets

Over the holiday-shortened week, the benchmark indexes closed mixed, with the first corporate earnings reports of 2022 being released. Growth stocks continue to be outperformed by their value counterparts, although the small-caps recovered territory lost during the previous week to large-caps. Within the S&P Index financials fell behind, weighed down by JP Morgan Chase which missed the targets set for it by Wall Street. On the other hand, energy shares outperformed the market during the truncated four-day trading week. Markets were closed on Friday as the world observed Good Friday. Investors’ attention was likely drawn to their holiday plans as the markets saw below-average trading volumes for the entire week.

One factor that may be dragging investor sentiment down is the expectation that earnings growth for most of the larger counters may experience a sharp deceleration. Compared to the preceding quarters, analysts’ projections regarding earnings growth and expected profits for the S&P 500 have been adjusted downward. On average, year-on-year earnings growth figures have been adjusted to mid-single-digit percentages, which measure up to the slowest pace since late 2020. Typically, companies exceed analyst estimates by a slight margin, but this might not materialize for this year’s first quarter.

U.S. Economy

Two important inflation readings for March were announced during the week just ended, namely the U.S. consumer price index or CPI, and the producer price index or PPI. Both indexes showed highs going back decades. The CPI year-over-year reading was 8.5% which is in pace with expectations and at a 40-year high, while the core CPI, which excludes food and energy, was 6.5%, slightly short of the 6.6% forecasted by analysts. On the other hand, the PPI, which indicates the prices paid by domestic producers, registered 11.2% year-over-year, a record high. While these indicators tread highs going back decades, it is possible that early signals that inflation is reaching its peak in the coming weeks. For one, the upward pressure on energy and commodity prices that have largely driven inflation appears to be lessening even though the Ukrainian crisis is still ongoing. Noticeably, the average price of WTI crude oil price in April so far appears to have settled at $99 although the same was $108 in March.

It appears that headline inflation may further moderate in the weeks or months to come, but the other key component of inflation, core inflation, progresses more slowly. The shelter component of inflation, in particular, accounts for approximately a third of the CPI basket. Currently, this component remains stubbornly high since rents and home prices have increased in the U.S. While demand for housing remains steady, housing supply continues to remain low. As mortgage rates rise, however, demand may soften to provide some reprieve in shelter pricing. It may take some time, though, for this effect to become evident in inflation rate figures.

Metals and Mining

Prices showed some recovery during a holiday week. The gold-to-silver ratio has returned to conservative territory while platinum has retraced back closer to the psychological $1000/oz level from its recent lows of $951.50/oz. Gold ended the week at $1,978.25 per troy ounce, up by 1.58% from the previous week’s $1,947.54. Silver also gained by 3.15%, from the earlier $24.77 to the recent close at $25.55 per troy ounce. Platinum settled at $992.89 per troy ounce at week’s end, up by 1.40% from the prior week’s close at $979.16. Palladium lost ground from $2,431.46 to $2,372.95 per troy ounce, down by 2.41%. For the three-month prices of basic metals, closing prices were mixed. Copper moved largely sideways from $10,323.50 to $10,315.00 per metric tonne, shaved by 0.08%.  Zinc, which previously closed at $4,254.50, this week ended at $4,412.00 per metric tonne for a gain of 3.70%.  Aluminum lost 2.64%, from the previous close of $3,374.50 to this week’s $3,285.50 per metric tonne. Tin  began at $43,710.00 and closed at $43,043.00 per metric tonne, down by 1.53%.

Energy and Oil

The rise of COVID cases in China caused an unexpected return to pandemic lockdowns, triggering a large-scale oil demand roadblock, the first in 2022. Some 45 cities succumbed to some form of mobility curtailment, affecting 40% of the country’s economic output. Since the start of the pandemic in early 2020, Chinese refiners have cut refinery runs by 900,000 barrels per day in April. This is equivalent to 6% of domestic demand.

The European Union, on the other hand, continues to consider banning Russian oil imports. This has caused the Brent complex higher compared to other regional benchmarks. ICE Brent front-month futures have ended the week slightly north of $110 per barrel, In the meantime, uncertainties about the demand and supply of oil will continue to keep prices volatile.

Natural Gas

For this report week, April 6 to April 13, natural gas spot prices rose at most locations, with the Henry Hub spot price rising from $6.25 per million British thermal units (MMBtu) at the start of the week to $6.70/MMBtu at the end of the week. International natural gas spot prices decline for the week but continue at elevated levels since February 24, the date Russia invaded Ukraine. In the United States, the prices of gas increased along the Gulf Coast with increasing temperatures. In the West, prices increased with mixed weather along the coast. Prices in the Northeast were mixed during the week but remain elevated. The total supply of natural gas in the U.S. declined slightly this week while consumption went down across most sectors. U.S. LNG exports decreased by four vessels this week compared to last week.

World Markets

Equities in the European markets ascended amid improved sentiment that the European Central Bank did not adopt a more aggressive monetary policy at its weekly meeting. During the holiday-shortened trading week, the pan-European STOXX Europe 600 Index ended 1.09% higher in local currency terms. Italy’s FTSE MIB rose 2.66%, France’s CAC 40 advanced 2.11%, and Germany’s DAX Index inched up 0.62%. The UK’s FTSE 100 dipped by 0.79% on weakness among the energy stocks while the UK pound strengthened vis-à-vis the U.S. dollar. When the pound appreciates against the dollar, the stock index moves down because many of the listed companies are multinationals that earn revenues overseas, thus their earnings soften when converted to pounds. The core eurozone bond yields experienced greater volatility but ended higher in light of speculation around the ECB policy meeting. The UK and peripheral eurozone bond yields followed the direction of the core markets.

Japan’s equities markets gained during the four-day trading week. The Nikkei rose 0.69% while the broader TOPIX Index climbed 0.62%. The country was assured by Bank of Japan (BoJ) Governor Haruhiko Kuroda of the continued recovery of the national economy even in the face of surging commodity prices, although he emphasized the need for the central bank to maintain its massive monetary stimulus to support the still struggling post-pandemic recovery. The ultra-accommodative policy stance of the BoJ, when viewed in contrast to the increasingly hawkish monetary tightening adopted by the central banks of other countries, is the cause of Japan’s currency weakness. The yen is teetering around its lowest levels against the U.S. dollar in the last two decades. It ended Thursday at JPY 125.36 to the dollar from JPY 124.30 at the close of the previous week. The yield on the 10-year Japanese government bond remained unchanged at 0.23%.

The Chinese stock markets pulled back during the four-day trading week in reaction to the fresh coronavirus surge in Shanghai, further fueling concerns that supply chains are likely to be disrupted once more. The broad capitalization-weighted Shanghai Composite Index slid 0.8%, while the blue-chip CSI 300 Index which tracks the largest listed companies in Shanghai and Shenzhen declined by 0.92%. More than 27,000 coronavirus cases were reported in Shanghai on Thursday. This sets the record as the worst outbreak in the city since the Wuhan episode first came to light in 2019. Since March 28, the city’s 26 million residents have been under lockdown. China’s manufacturing sector is gripped by supply chain paralysis as more and more Chinese cities reimposed pandemic restrictions to eradicate the virus. Among the companies that suspended production are Tesla, Volkswagen, Bosch, and domestic auto manufacturers Nio and SAIC Motors. Also suspending production in eastern China are more than 30 Taiwanese companies, many of which are electronics parts manufacturers.

The Week Ahead

Important economic data expected to be released in the coming week include Housing Starts, Initial and Continuing job claims, and the Markit PMI Index for manufacturing and services.

Key Topics to Watch

• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Existing home sales (SAAR)
• Federal Reserve releases Beige Book
• Initial jobless claims
• Continuing jobless claims
• Leading economic indicators
• S&P (Markit) manufacturing PMI (flash)
• S&P (Markit services PMI (flash)

Markets Index Wrap Up