Stock Markets

Small-caps and growth stocks led the markets considerably downwards as the manor indexes ended lower week-over-week. Within the S&P 500 Index, sector performance varied widely. Solid gains were charted by the historically defensive consumer staples and health care sectors, while steep losses in information technology, communication services, and consumer discretionary shares. For most of the week, volume was thin, possibly indicating that many investors were sidelined in anticipation of the start of the first-quarter earnings report season. One notable exception was the 27% jump in Twitter shares on Monday following the announcement that Elon Musk had acquired a 9.2% stake in the social media company. Other big stories that moved the markets involved the Federal Reserve policy and the evolving situation in Ukraine. On Tuesday morning stocks suddenly plunged after Fed Governor Lael Brainard announced that the Fed will rapidly reduce its balance sheet during its meeting in May. Brainard is considered one of the policymakers with the most accommodative stance, thus his statement weighed heavily on investors’ sentiments. The Fed’s mid-March policy meeting revealed that the central bank’s balance sheet is likely to be reduced by as much as $95 billion per month, considerably higher than the $80 billion that comprised the consensus estimate. Officials were also prepared to raise rates by 50 basis points or 0.50% in May.

U.S. Economy

The U.S. faces aggressive tightening monetary policy in the near future, suggesting that the economy will likely slow down as the impact of the withdrawal of Fed support and the rising borrowing costs kick in. Despite these developments, the fundamentals appear to remain resilient. The most optimistic indicator that the economy will remain durable comes from the labor market. In previous economic cycles, recessions were preceded by a rise in unemployment. Currently, however, the ratio of job openings to unemployed people remains at record-highs, and last week a drop in jobless claims to the lowest level since 1968 was announced. These comprise sufficient evidence that suggests consumer incomes will remain well-supported for the remainder of 2022. It is unlikely that the labor market will reverse anytime soon.

There has been a dent in consumer confidence due to high energy prices and widening inflation trends, posing a credible threat to the above-average economic growth for the year. However, savings remains elevated and debt is low. Spending remains robust despite the months-long slide in consumer confidence. Concerning the business side, the manufacturing Purchasing Managers’ Index (PMI) is presently signaling ongoing economic expansion. The PMI is a leading indicator of economic activity, and while its persistence at higher levels remains intact, the March reading fell to its lowest point since September 2020, and new orders and production noticeably slowed, an indication of weakening demand. The weakening of corporate activity may result in slower corporate earnings growth. The growth remains positive nonetheless as analysts’ forecasts remain strong despite the expectation of rising interest rates and the continued geopolitical uncertainty.

Metals and Mining

Precious metals continue to be impacted by rising bond yields, a trend that has been developing over the past weeks. This week, as 10-year yields surged to a three-year high above 2.6%, gold ends the week with a 1% gain and at the top of its range, near $1,950. The yield breakout suggests that this the possibly the start of the biggest bear market in bonds in 37 years. Traditionally, when bond yields rise, this is a negative indicator for gold since it raises the opportunity costs of holding gold, a nonyielding asset. The yields are trending upwards in anticipation of the Feds launching an aggressive tightening cycle. The hawkish stance adopted by the Fed this week would have traditionally sent gold prices lower, but such a move failed to materialize. Gold prices may move higher as more investors turn to this precious metal as an inflation hedge and safe-haven asset.

The spot price for gold closed this week at $1,947.54 per troy ounce, 1.14% higher than the previous week’s close of $1,925.68. Silver closed the week earlier at $24.63 but ended this week at $24.77 per troy ounce for a modest gain of 0.57%. Platinum closed this week at      $979.16 per troy ounce from last week’s $989.57, a correction of 1.05%.  Palladium proceeded from $2,276.50 last week to close this week at $2,431.46 per troy ounce for a gain of 6.81%. the three-month prices for the base metals were mostly down. Copper dipped from $10,353.50 the week earlier to close this week at $10,323.50 per metric tonne, dropping by 0.29%. Zinc closed this week at $4,254.50 per metric tonne, down by 1.95% from the earlier week’s close at $4,339.00. Aluminum ended last week at $3,450.00 and closed this week at $3,374.50 per metric tonne, a week-on-week loss of 2.19%. Tin closed this week at $43,710.00 per metric tonne which, compared to the previous week’s close of $44,767.00, is down by 2.36%.

Energy and Oil

There was relative stability in the oil prices this past week. ICE Brent remained constant above the $100 per barrel mark absent any impetus for volatility. Fears of Russian supply disruptions were allayed as a result of the substantial IEA-coordinated inventory release that effectively flattened the futures curves of all three of the major crude benchmarks. The bearish movement was also aided by the extensions of pandemic lockdowns in China, particularly in Shanghai. There remain concerns about the instability that continued disruption may bring to the oil market. The IEA is scheduled to release 60 million barrels of strategic stocks above and beyond the 180-million-barrel stock draw by the US. The IEA countries agreed to this release over the next six months. Japan pledged to release 15 million barrels and thereby takes a principal role in light of the diffident commitments of the other members.

Natural Gas

The spot price of natural gas climbed at most locations during the report week from March 30 to April 6, 2022. The Henry Hub spot price rose to $6.25 per million British thermal units (MMBtu) at the end of the week, from where it began at $5.34/MMBtu the previous Wednesday. International spot prices were mixed. Swap prices for LNG cargoes in East Asia fell $0.36/MMBtu for a weekly average of $34.05/MMBtu. In the Netherlands at the Title Transfer Facility (TTF), Europe’s most liquid natural gas spot market, the day ahead prices increased by $1.50 to a weekly average of $36.17/MMBtu.

Along the Gulf Coast, prices increased as temperatures rose. Prices in the Midwest rose together with the general price trend across the U.S. In the West, prices also rose in response to maintenance and warmer temperatures moving into the region. On the other hand, prices in the Northeast increased despite normal temperatures and lower local demand. The supply of natural gas in the U.S. rose slightly during the week as the demand for natural gas is down in almost all sectors. U.S. exports of LNG decreased by two vessels this week compared to last week.

World Markets

European equities registered modest gains amid concerns about central bank tightening, rising inflation, and the Ukrainian invasion by Russia. The pan-European STOXX Europe 600 Index gained 0.57% in local currency terms. The main continental stock indexes were marginally lower. France’s CAC 40 Index dropped b 2.04% due to election uncertainty, as polls showed that the gap between President Emmanuel Macron’s lead over the contender for the far-right opposition, Marine Le Pen, significantly narrowed.  Italy’s FTSE MIB Index lost 1.37% and Germany’s DAX slid by 1.13%. Trending in the opposite direction, however, is UK’s FTSE 100 Index which climbed 1.75%. Core eurozone bond yields rose in line with U.S. Treasury yields. A sell-off in core bonds was sparked by the imposition of additional sanctions on Russia, and in anticipation of U.S. Fed monetary tightening shortly. Yields were pushed even higher by the minutes of the meeting of the European Central Bank which likewise suggested greater hawkishness. The core markets were broadly tracked by peripheral eurozone and UK government bond yields.

Japan’s key equities benchmarks registered losses during the week. The Nikkei 225 Index dipped by 2.46% and the broader TOPIX Index declined by 2.44%. Although border restrictions were further eased, it failed to moderate the negative sentiment brought by inflationary pressures, the Russian-Ukrainian war, and the hawkish U.S. Federal Reserve. China’s market weakness also weighed on the markets. The yield on the 10-year Japanese government bond increased to 0.23% from 0.21% the previous week. The yen weakened from the prior week’s JPY 122.51 to approximately JPY 124.05 against the U.S. dollar, its lowest point in two years. The IMF downgraded its projection for the 2022 economic growth of Japan from 3.3% year-over-year to 2.4%.

The Chinese equities markets eased somewhat due to the coronavirus lockdown in Shanghai and fears of aggressive monetary tightening by the U.S. Federal Reserve. The broad benchmark Shanghai Composite Index slid 0.94% while the blue-chip CSI 300 Index, which tracks the Shanghai and Shenzhen large-caps, declined by 1.08%. Shanghai’s city-wide, two-stage lockdown that commenced on March 28 was a measure intended to stop or slow the spread of the coronavirus. About 23 Chinese cities are currently under total and partial lockdown, affecting an estimated 193 million people and accounting for 13.5% of the economy of China. The yield on the 10-year Chinese government bond descended this week and ended at 2.806% compared to 2.825% during the preceding week. The yuan depreciated to 6.3625 against the U.S. dollar from 6.3476 one week earlier as the yield gap between the Chinese government bonds and U.S. Treasuries narrowed to a record low.

The Week Ahead

Core inflation, the Federal budget deficit, and retail sales are among the important economic data to be released this week.

Key Topics to Watch

• NY Fed median 1-year expected inflation
• NY Fed median 3-year expected inflation
• Chicago Fed President Charles Evans speaks
• NFIB small-business index
• Consumer price index (monthly)
• Core CPI (monthly)
• CPI (year-over-year)
• Core CPI (year-over-year)
• Fed Gov. Lael Brainard speaks at WSJ event
• Federal budget deficit
• Richmond Fed President Tom Barkin speaks to Money Marketeers
• Producer price index final demand
• Initial jobless claims
• Continuing jobless claims
• Retail sales
• Retail sales excluding motor vehicles
• Real retail sales
• Import price index
• UMich consumer sentiment index (preliminary)
• UMich 5-year inflation expectations (preliminary)
• Business inventories
• Cleveland Fed President Loretta Mester speaks on jobs
• Philadelphia Fed President Patrick Harker speaks
• Empire state manufacturing index
• Industrial production index
• Capacity utilization

Markets Index Wrap Up

Stock Markets

The major stock indexes closed mixed for the week. Despite the S&P 500 Index ending its best month since December, it has nevertheless closed its worst quarter since 2020 at a loss of 5%. It is optimistic, however, that the U.S. markets have recovered by 10% off their lows, despite numerous unresolved problems including high inflationary pressures, possibly increasingly aggressive monetary policy from the Fed, and the hostilities between Russia and Ukraine. Cyclically sensitive stocks registered their worst performance signaling investors’ expectations of a slowdown in growth stocks, particularly those in the financial services and industrial sectors. Concerns about interest rates moving higher in the future are reflected in the underperformance of the information technology sector. On the other hand, outperforming in the market were the usually defensive sectors such as consumer staples and utilities.

The past week’s volatility in stock prices was largely attributed to the fast-changing events in the Russian-Ukrainian war. Market performance was strong early in the week in response to reports that Russia was amenable to allowing Ukraine to join the European Union in return for a promise to stay out of NATO and the continuance of ceasefire talks. The four consecutive days of gains in the S&P 500 were only broken midweek when a Russian official stated no breakthroughs were foreseen in the talks with Ukraine and that Russia was regrouping its forces to complete the takeover of the eastern Donbas region. Sentiments turned more negative by Thursday when Ukrainian President Volodomyr Zelenskyy announced that Ukrainian forces are preparing for renewed Russian offensives.

U.S. Economy

During the week, reports were released tracking several closely-watched economic indicators. The economic developments were generally in line with consensus expectations. Foremost among these economic indicators was the March nonfarm payrolls that indicated that while the 431,000 newly created non-agricultural jobs fell below the expected 490,000 figure, the unemployment rate fell to 3.6%, a post-pandemic low, which is slightly more than expected. The monthly growth in average hourly earnings of 0.4% largely met forecasts, as did consumer income gains which were reported at 0.5%. Thursday’s personal spending report showed that consumer spending rose only by 0.2%, a lower-than-expected performance, although it may be taken to mean the increasing unwillingness to pay higher prices. The February job openings indicator was mostly unchanged and remained close to record highs. The labor force participation rate continues its upward trend and is now at 62.4%, indicative of the return to the workforce by the largely pandemic-sidelined labor supply. This signals a return to normality as the pandemic situation is seen to improve and the fiscal stimulus continues to wane.

Another noteworthy development is the resiliency seen in corporate balance sheets and earnings growth this year. Pending the first-quarter earnings season which will begin by mid-April, analysts continue to see earnings revisions for 2022 moving higher. In light of the headwinds posed by more restrictive monetary policy and the possible hike in interest rates, there have been no commensurate downward revisions in earnings growth that typically accompany such hawkish expectations. Instead, earnings are expected to rise above expectations, with the S&P 500 earnings growth now pegged at 9.1% rather than the 7.0% predicted on December 31 based on average historical growth rates. Although there may be some downward revision to these forecasts in the event of a deterioration of consumption patterns, positive earnings growth for the year is expected, which in turn will support market performance.

Metals and Mining

The global destabilization that the Russian invasion of Ukraine has created continues without mitigation and is beginning to have a significant impact on the global economy. Some economists have been so bold as to predict the impending end of globalization. Even if the conflict in Eastern Europe were to end soon, the lines between allies and opponents will not likely be easily undone. In this new environment, gold is seen to play an important role in the current weaponization of currencies and commodities. There appears to be a growing threat that Russia may weaponize its commodity markets as it demands “unfriendly nations” to pay for their energy in rubles. Russia has also indicated that it may accept gold and bitcoin as payment for its oil and gas. Should Russia decide to withhold its supply, Europe may inevitably fall into a full-blown recession. These developments, together with the implications of the geopolitical situation on the U.S. dollar, have made gold the most attractive asset at present because it is seen as a store of value without counter-party risk.

Over the past trading week, gold has corrected from its recent highs, closing at $1.925.68 per troy ounce from where it ended the previous week at $1,958.29, a dip of 1.67%. Silver followed the trend, moving down by 3.53% from $25.53 to the recent close at $24.63 per troy ounce. Platinum began at its previous close of $1,005.41 and recently ended at $989.57 per troy ounce, reflecting a price drop of 1.58%. Palladium also corrected by 2.18%, from $2,327.14 to $2,276.50. Base metals were somewhat more resilient. The three-month copper price previously at $10,267.00 gained slightly by 0.84% to close at $10,353.50 per metric tonne. Zinc, which previously ended at $4,066.50, closed this past week at $4,339.00 per metric tonne for a gain of 6.70%. Aluminum that traded the week earlier at $3,605.00 closed this past week at $3,450.00 per metric tonne, descending by 4.30%. Tin started the week at $42,283.00 and closed on Friday at $44,767.00 per metric tonne, for a week-on-week gain of 5.87%

Energy and Oil

During the past trading week, OPEC+ was seen implementing its latest production increases and the U.S. announced that it would undertake an unprecedented Strategic Petroleum Reserve (SPR) release, As expected, oil prices saw their most substantial weekly decline in more than two years in response to OPEC+ countries agreeing to add 432,000 barrels per day of production in May 2022. The OPEC+ decision was of course somewhat expected, given the circumstance, but few the effect of the Biden administration’s actions in trying to put runaway prices under control, which previously pushed Brent futures nearer the $100 per barrel level. Biden’s recent move, though large in scope and ambition, may not effectively keep the WTI (West Texas Intermediate) benchmark under $100 per barrel, as such a move cannot offset the sheer volume of potentially sanctioning Russian supply. The likely specter of Russia’s 3 million barrels per day seaborne flow being subject to sanction is still looms over the global oil markets. In the meantime, the Biden administration is contemplating the temporary removal of restriction on summer sales of higher-ethanol gasoline in attempting to temper fuel costs nationwide, This reverses a previous decision by the administration to ban E15 because it tends to contribute to smog during hot weather.

Natural Gas

For this report week, March 23 to March 30, natural gas spot prices ascended at most locations. The Henry Hub spot price increased from $5.26 per million British thermal units (MMBtu) on Wednesday, March 23, to $5.34/MMBtu by last Wednesday, March 30. In the international LNG market, Title Transfer Facility (TTF) prices averaged higher than East Asia spot prices for the first time since early March, as concerns about natural gas imports from Russia resulted in higher prices to attract flexible LNG cargoes. In the U.S., prices along the Gulf Coast rose in reaction to warming weather. The reverse appears to be taking place in the Midwest where prices rose in response to colder-than-normal temperatures. Prices in the West meanwhile increased in line with the general price trend across the U.S.A. The average gas supply over the country rose from all supply sources in the past week, and total consumption of natural gas likewise increased substantially over the U.S.A. The country’s exports increased by two vessels this recent week compared to the week before.

World Markets

European share prices rose in a volatile trading week as investors overcame concerns about the macroeconomic outlook among strong inflation concerns and uncertainties over the Russian-Ukraine hostilities. The pan-European STOXX Europe 600 Index gained 1.06% in local currency terms. Germany’s DAX Index ascended 0.98%, France’s CAC 49 Index gained 1.99%, and Italy’s FTSE MIB Index climbed 2.46%. In the same fashion, the UK’s FTSE 100 Index moved up 0.73%. Core eurozone bond yields fluctuated over the week but ended hardly changed from the week before. Expectations for even higher interest rate increases were boosted by the higher-than-expected inflation data, further driving yields higher. The trend reversed, however, when hopes for an early resolution to the East European conflict faded and European Central Bank (ECB) chief economist Philip Lane observed that the ECB should be prepared to revise its policy on the occasion that the macroeconomic conditions significantly worsen. Peripheral eurozone government bond yields broadly followed core markets. The UK gilt yields aligned with U.S. Treasuries, which declined due to geopolitical tensions and worries about a future recession.

In Japan, the stock markets fell week-on-week. The Nikkei 225 Index slipped downwards by 1.72% while the broader TOPIX Index lost 1.88%. Increasing pessimism about the peace talks between Ukraine and Russia compounded by concerns about the rising global inflation and likelihood of interest rate increases weighed down investor risk appetite. Big Japanese manufacturers registered declining sentiment in the first quarter for the first time since the pandemic began, as reflected by the Bank of Japan’s (BoJ’s)Tankan survey of business confidence. The yield on the 10-year Japanese government bond (JGB) dipped to 0.21% this past week from 0.24% the week before, as bond purchase operations by the BoJ pushed yields downward. The yen fell to its lowest level in more than six years, from JPY 122.08 the week earlier to JPY 122.66 versus the U.S. dollar in the week just concluded. The cause for the currency weakness was expectations of divergent monetary policy between the BoJ and other major central banks.

China’s stock markets gained over the past week as a result of investors anticipating that Beijing may intervene to support the country’s markets and economy. The broad, capitalization-weighted Shanghai Composite Index increased by 2.2%, and the CSI 300 Index climbed 2.4%, tracking the largest listed companies in Shanghai and Shenzhen. Technology stocks continued to be plagued by delisting concerns. Investors remain worried about the risk of dual-listed Chinese firms being forcibly removed from the U.S. stock exchanges. The U.S. Securities and Exchange Commission (SEC) on Wednesday announced the addition of five U.S.-listed Chinese internet companies to the growing list of companies facing possible delisting. The move is a result of China’s refusal to allow U.S. regulators to inspect their audits. Among those added to the list for possible delisting were China’s leading search engine Baidu and its video streaming unit iQiyi. These companies’ failure to comply with the audit requirements of the Holding Foreign Companies Accountability Act (HFCAA) for three straight years may render them liable for delisting from the U.S. exchanges.

The Week Ahead

Look forward to consumer credit, factory orders, and the foreign trade deficit being included among the important economic data to be released this week.

Key Topics to Watch

• Factory orders
• Core capital equipment orders
• Foreign trade deficit
• S&P Global (Markit) services PMI (final)
• ISM services index
• FOMC minutes
• Initial jobless claims
• Continuing jobless claims
• Consumer credit
• Wholesale inventories

Markets Index Wrap Up

Stock Markets
The benchmark stock indexes ended mostly positively, most notably the large-cap S&P 500 Index which reached its highest level since February 10 at the week’s end. The market rally was led by information technology stocks as Apple surged on news that analysts expect iPhone13 to bring in stronger sales. Many commodity prices continued to rise, helping the energy and materials sectors outperform. On the other extreme, health care shares underperformed, pulled down by a decline in the stock prices of big pharmaceutical Pfizer. Market activity was generally passive, although there was a perceived buy-on-the-close strategy taking place through most of the trading week, suggesting a gradual accumulation of fundamentally sound stocks. According to a report by Bloomberg, the S&P 500 experienced a gain of 0.33% during the last trading hour for five straight days. This is significant because it represented the longest streak in 20 years.
The sentiment of stock investors appeared to be weighed down early in the week by concerns that the Federal Reserve may take a hawkish turn in its policy ahead of expectations. The same worries also caused a sell-off in the bond market as Fed Chair Jerome Powell announced on Wednesday the possibility that the central bank may raise rates by more than 25 basis points (0.25 percentage points) in future meetings if it became necessary to control inflation. A contrary signal was sounded off by Atlanta Fed President Raphael Bostic earlier in the day when he announced that “elevated levels of uncertainty” has modified his previous stance that “an extremely aggressive rate path” is the proper step for the Fed to take. Investors likewise were cautious of the uncertainty about how the Russian war into Ukraine was developing.
U.S. Economy
Despite the continued uncertainties brought by the Russian-Ukraine conflict and the toll it would take on both warring countries, the economic data released in the U.S. shows an underlying resiliency with some of the indicators seemingly improving. IHS Markit’s gauge of manufacturing activity climbed much higher than expected, to its highest level since September 2020. Its service gauge also showed the most activity since July 2021. Weekly jobless claims also dropped significantly more than anticipated and descended to levels last encountered in September 1969. Nevertheless, there were also negative signals among the data. Durable goods orders fell 2,2% in February. This is the first time the measure fell in the last five months, and by a magnitude significantly exceeding the consensus drop of approximately 0.5%. New home sales declined 2.0% despite inventories rising to levels not seen since 2008. February pending home sales that were reported on Friday declined by 4.1%, a far cry from expectations that the indicator will rise by about 1%.
Probably impacting the housing industry is the jump in mortgage rates, now amounting to a full 1% since 2022 began. This may not necessarily sink the robust housing market, but it may curb the current level of price appreciation. The housing market may even do well to encounter a healthy breather for the meantime, as the S&P CoreLogic Case Shiller index points to housing prices rising at 18-20% year-over-year based on its recent pace, exceeding the increase from 2004-2006. There is still no sign of a bubble since current housing inventories for sale are still the lowest they have been in the last three decades, and below 20% of the inventory levels preceding the financial crisis. Thus, while mortgage costs are rising, leading housing indicators such as the anticipated new home sales surveys and building permits continue to be elevated and suggesting that the housing market continues to remain strong.
Metals and Mining
Gold prices are ending the week just slightly north of $1,950 per ounce, higher than the 1% gain from the previous Friday. Enticing as the market is, investors must look beyond the raw numbers and the kind of environment in which gold is being traded. As the U.S. dollar index is maintained at a level near its two-year high, gold prices are expected to tread a new range above $1,900. It is also remarkable that gold prices remain firm even as bond yields continue to move higher. Last Friday, the yield on 10-year notes surged to its highest level in three years at 2.5%. Even as bond yields have room to move higher, the gold market is not taking heed of these threats. It appears that in addition to monetary policy, another force driving the gold demand is the Russian war in Ukraine which, if it continues to be prolonged, will continue to support safe-haven demand.
Precious metals were mixed, as gold spot price began the week at $1,921.62 and ended at $1,958.29 per troy ounce for a gain of 1.91% for the week. Silver began at $24.96 and closed the week at $25.53 per troy ounce, a rise of 2.28%. Platinum price began the week at $1,026.97 and ended at $1,005.41 per troy ounce, a decline of 2.10%. Palladium started at $2,496.71 and descended to close at $2,327.14 per troy ounce, a loss in value of 6.79%. Among basic metals, 3-month prices were also mixed. Copper began at $10,331.00 and closed at $10,267.00 per metric tonne, representing a correction of 0.62%. Zinc started the week at $3,826.00 and ended at $4,066.50 per metric tonne, gaining 6.29% for the week. Aluminum commenced at $3,381.00 and ended at $3,605.00 per metric tonne for a weekly gain of 6.63%. Finally, tin slid from $42,305.00 to $42,283.00 per metric tonne at the week’s end, losing 0.05% of its value.
Energy and Oil
The past week proved the unpredictability of the oil market, quickly responding to stories that develop during the trading week. The week’s major development was that storms damaged export facilities of Kazakhstan’s flagship 1.2 million barrel-per-day CPC grade, which was expected to weigh down on oil prices by Friday as reloading began. The natural expectation is for the price of oil to move lower, but rather than Brent moving down from $120 per barrel, an oil storage facility presumably took a missile hit in Jeddah from Yemen’s Houthi militias, and the possibility of a disruption in the Saudi supply again loomed large. Other issues that continued to cloud the market were the dormant Iranian nuclear deal and the continued lack of consensus in Europe about how Russia should be sanctioned, as apparently the countries could not even agree on a coal embargo. The movement of global oil prices has become more difficult to forecast.
Natural Gas
At most locations, natural gas spot prices went up this report week March 16 to March 23. The Henry Hub spot price rose to $5.26 per million British thermal units (MMBtu) from $4.67/MMBtu. On the contrary, the international natural gas spot prices came down during the same report week, but remain elevated since the start of Russia’s further invasion into Ukraine on February 24. The mixed signals have increased the uncertainty surrounding the European natural gas markets.
In the United States, prices along the Gulf Coast rose as weather rapidly cooled. In the Midwest, prices rose together with the Henry Hub. So did prices in the West, which reflected the overall trend of prices for natural gas across the United States. The same uptrend was seen in the Northeast ahead of below-normal temperatures as the weekend approached. A decrease in imports from Canada offset the increase in U.S. natural gas production. The residential and commercial sectors led the decline in U.S. natural gas consumption. LNG exports from the U.S. increased by one vessel during the recent week compared to the week before.
World Markets
Share prices in Europe during the past week receded in response to the continued conflict between Russia and Ukraine, with the prospect of tighter monetary policy becoming more likely. The pan-European STOXX Europe 600 Index closed 0.23% lower over the past week, while the main market indexes ended mixed. France’s CAC 40 Index declined by 1.01% and Germany’s Xetra DAX Index slid by 0.74%, while Italy’s FTSE MIB Index climbed 1.39% and the UK’s FTSE 100 Index gained 1.06%. Core eurozone bond yields followed U.S. Treasuries higher after the Federal Reserve announced the possibility of more aggressive rate hikes. Yields were pressured higher by stronger-than-expected eurozone purchasing managers’ surveys. The yield on the German 10-year bund increased to its highest level since 2018. The UK gilt yields also ended higher as it tracked U.S. Treasuries, although this trend was mitigated by news of a lower gilt supply for the next fiscal year.
Stocks in Japan were elevated for the week as the Nikkei 225 Index gained 4.93% and the broader TOPIX Index climbed 3.78%. Expectations of further economic stimulus as well as reassurances from the Bank of Japan that it will maintain accommodative monetary policies provided heightened investor sentiment in the markets. The yield on the 10-year Japanese government bond ascended to 0.24% which exceeded its six-year highs, compared to 0.21%, the yield over the previous week. This occurred in the midst of a global bond sell-off triggered by the increase in interest rates by major central banks. Regarding currencies, the yen lost ground and plummeted to levels beyond six-year lows, to JPY 121.58 per U.S. dollar from the earlier week’s JPY 119.23. due mainly to the divergent monetary policy outlooks of the U.S. and Japan.
In China, shares fell amid speculation that U.S.-listed Chinese companies may delist, as a result of continued bilateral disagreements concerning auditing standards. During the week, the large-cap CSI 300 Index dropped 2.1% and the Shanghai Composite Index lost 1.2%. Worries about the fate of dual-listed Chinese stocks have continued to cause jitters among investors. According to reports, Chinese regulators have instructed the U.S.-listed Chinese companies to prepare audit documents for financial year 2021. Among the companies involved are China’s top search engine Baidu, e-commerce platforms Alibaba and JD.com, and social media company Weibo. Rumors of these developments appear to suggest some willingness on the part of Beijing to agree to Washington’s demands to resolve once and for all the long-standing discrepancy over auditing standards.
The Week Ahead
Inflation, hourly earnings growth, and unemployment are among the important economic data expected to be released in the coming week.
Key Topics to Watch
• Trade in goods advance report
• Case-Shiller national house price index (year-on-year)
• FHFA national house prices index (year-on-year)
• Consumer confidence index
• Job openings
• Quits
• ADP employment report
• GDP revision (SAAR)
• Gross domestic income (SAAR)
• Corporate profits (year-on-year)
• Initial jobless claims
• Continuing jobless claims
• Nominal personal income
• Nominal consumer spending
• PCE price index
• Core PCE price index
• PCE price index (year-on-year)
• Core PCE price index (year-on-year)
• Real disposable income
• Real consumer spending
• Chicago PMI
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor-force participation rate ages 25-54
• Markit manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Motor vehicle sales
Markets Index Wrap Up

Stock Markets

After a two-week losing streak, stocks, at last, surged for the week to recover much of the ground lost over the last month. Multiple factors accounted for the rally, among which are falling oil prices, news that Russia avoided default and instead made good on its sovereign debt, and an optimistic outcome of the monetary policy meeting conducted by the Federal Reserve. Investor sentiment was also lifted during the week, despite continued fighting in Ukraine, due to continued efforts at negotiations aimed at ending the conflict. The tech-heavy Nasdaq Composite exhibited the most robust gains even as positive results were widespread across all the major indexes.

At its March meeting, the Fed raised its short-term lending rate by 25 basis points, in line with the expectations of investors. This moves the fed funds target rate from almost zero to a range of 0.25% to 0.50%. The adjustment was the first interest rate hike taken by the Fed since 2018, signaling a departure from the ultra-accommodative monetary policy instituted by the central bank at the onset of the pandemic. In line with the shift, policymakers updated their economic forecast moving forward. According to the median projection, they expect to raise rates seven times in 2022; they also downgraded their economic growth forecast while revising inflation projections upward. The updated inflation predictions indicate that policymakers expect price pressures to expand beyond the pandemic-related disruptions that triggered the initial price spikes. The Fed intends to shift its monetary policy stance from accommodative to neutral, and from neutral to slightly restrictive before the end of 2023. It suggests that monetary policies will shift sooner and more aggressively to address inflation, an approach that the equity markets look favorably upon, prompting the rally after the Fed meeting.

U.S. Economy

With its initial rate hike in years, the Federal Reserve has embarked on a monetary tightening plan that expects to raise interest rates as high as 2.8%, although this is not on a fixed course. Rate hike expectations will fluctuate in tandem with the trajectory of inflation and economic growth. The present escalation of commodity prices has been exacerbated by the Ukraine crisis. It will act as a tax on the consumer, reducing purchasing power, and in all probability will temper spending in the coming months. Nonetheless, the economy will, from all indications, continue on its above-average growth rate for the remainder of 2022. The year-end GDP as forecasted by Fed officials will likely grow by 2.8%, a lower level than the estimate reached three months ago, but still higher than the 2% at which economic growth averaged over the last decade.

Even with the increase in interest rates, fundamentals suggest that the economic activity will not be dampened, given the low unemployment rate of 3.8% and job openings are exceeding the number of unemployed by the widest margin in two decades. Both indicators suggest a tight labor market and strengthening employment that supports consumer income. Although February’s retail sales were disappointing, January figures were revised upwards and continuing unemployment claims have fallen to their lowest level in 52 years. As a sign that inflation may be reaching its peak, the headline producer price index decelerated during February while the increase in core prices remained unchanged with January’s pace.

Metals and Mining

There is no sign that the war between Russia and Ukraine will be ending any time soon, and the humanitarian crisis continues to build. At this point, however, it appears that gold’s geopolitical safe haven premium is beginning to erode, as analysts conjecture that the conflict will be contained within Ukraine. Despite the waning of gold’s margin, there are still many reasons for investors to invest in gold. If the geopolitical order should shift with energy trade, supply chains will be reconfigured and payment networks become fragmented, raising risks of economic uncertainties. Analysts continue to point to the rising inflation rate as the biggest reason for retaining gold in one’s investment portfolio, suggesting an overweight position in gold in the range of 10% to 15%.

During the past week, the price of gold corrected by 3.36%, from the previous week’s close at $1,988.46 to this week’s close of $1,921.62 per troy ounce. Silver began at the prior close of $25.87 to end this week at $24.96 per troy ounce, or a loss of 3.52%. Platinum followed the same trend, dropping 5.09% from the earlier week’s close at $1,082.08 to Friday’s close at $1,026.97 per troy ounce.  Palladium slumped from $2,807.77 to $2,496.71 per troy ounce, a decline of 11.08%. While most precious metals fell, 3-mo base metal prices ended mixed.  Copper closed this week at $10,331,00 per metric tonne, down up by 1.45% from the previous week’s close at $10,183.50.  Zinc gained 0.29% from the prior close at $3,815.00 to the recent close at $3,826.00 per metric tonne. Aluminum lost 2.93%, from the previous week’s $3,483.00 to last week’s $3,381.00 per metric tonne. Tin began at $44,100.00 and ended at $42,305.00 per metric tonne for a decline of -4.07%.

Energy and Oil

Oil prices were sent back to above $100 per barrel when hopes began to dim about Russia and Ukraine agreeing to end hostilities any time soon. In the meantime, the International Energy Agency (IEA) announced that the developing energy crisis may grow more tumultuous in the coming weeks. The likely scenario is that consumers will have to absorb a three-million barrel-per-day supply shortfall if Russia does not desist from its invasion into Ukraine. If sanctions against Russia continue to remain in place, this will likely force the beleaguered country to cut three million barrels per day of oil production – 1.5 million barrels per day accounted for by shrinking marketing opportunities for crude and another 1 million barrels per day from falling product exports. The IEA suggested that consumers will need to adopt measures to mitigate the crunch by staying at home, avoiding air travel, and possibly even reducing speed limits until the dire situation would have been abated. The present volatility in oil prices is likely to prevail for longer than originally anticipated. Furthermore, at the OPEC+ front, a widening discrepancy between production targets and the actual output from the oil consortium’s members rose to a new high in February as participating states underperformed their quota by 136%, amounting to almost 1 million barrels per day.

Natural Gas

Over the report week, March 9 to March 16, 2022, natural gas spot prices fell at most locations. The Henry Hub spot price climbed from its price on March 9 at $4.56 per million British thermal units (MMBtu) to its close on March 16 at $4.67/MMBtu. At major hubs, the prices moved within a band of $1.26/MMBtu at the end of the report week. The price range moved from a low of $3.88/MMBtu in New York to a high of $5.14/MMBtu at PG&E Citygate in California, as per data from Natural Gas Intelligence. Of the major pricing hubs, the Henry Hub price was the second-highest. By comparison, the international natural gas spot prices declined over the report week, although they remained elevated since the commencement of hostilities between Russia and Ukraine on February 24. The average total natural gas supply in the U.S. fells this week by 0.9% compared with the previous week. The country’s natural gas consumption increased this week across all sectors, while U.S. LNG exports decreased by one vessel this report week compared to the week before.

World Markets

European equities climbed for the second straight week as investors became cautiously optimistic that Russia and Ukraine will enter into productive negotiations that will end the conflict. Sentiments were also boosted by announcements from China that it is ready to adopt measures to support the global economy and financial markets. The pan-European STOXX Europe 600 Index rose 5.43% in local currency terms. Germany’s Xetra DAX Index gained 5.76%, France’s CAC 40 Index rose 5.75%, and Italy’s FTSE MIB Index ascended 5.13% week-on-week. The UK’s FTSE 100 Index moved in the same direction, rising 5.13% week-on-week.

The core eurozone bond yields climbed slightly higher. Hopes for an improved geopolitical situation and the anticipation that the central banks will adopt more aggressive monetary policies to address inflation caused the benchmark German 10-year bund yield to climb higher. The yields slowed after it became evident that ceasefire negotiations will be further stymied. Peripheral eurozone bond prices firmed up support during the week. While the price of the Italian government debt and other sovereign issues were buoyed by news that the European Union (EU) was contemplating fresh joint issuances to fund energy and defense spending. Although the Bank of England raised interest rates, UK gilt yields fell. The markets noted that a more accommodative tone overshadowed policymakers’ comments, causing expectations for more rate hikes to be scaled back.

Japan’s equity markets rose for five successive days. The Nikkei 225 Index ended the week higher by 6.62% from the previous week, while the broader TOPIX Index climbed 6.10%. Sentiment remained positive as the Bank of Japan remained committed to its accommodative stance despite the prevailing global transition to a tighter monetary policy. The government also announced that it was prepared to lift all remaining quasi-states of emergency as daily coronavirus infections trended downwards. Export volumes recovered, experiencing double-digit growth in February after declining slightly in January. Backed by these positive developments, the yield on the 10-year Japanese government bond rose to 0.21% from 0.18% one week earlier. The yen fell slightly against the US dollar, from JPY 117.29 the previous week to JPY 118.90 in the week just ended.

Chinese stocks weakened during the trading week as the broad-cap Shanghai Composite Index declined by 1.8% and the blue-chip CSI 300 Index descended by 0.8%. Despite the soft trading, the sentiment was more positive at the week’s end when policymakers announced their commitment towards greater economic support. Government officials promised to introduce market-friendly policies and to maintain smooth operations in the capital market at a meeting attended by Vice Premier Liu He, the economic czar of President Xi Jinping. In reports broadcast over state media, the top Chinese financial policymaking body vowed to stabilize the capital markets, support overseas stock listings, address risks pertaining to property developers, and complete a crackdown on Big Tech at the soonest possible time. The 10-year government bond yield closed the week at 2.82%, down from 2.836% during the week before. The yuan lost some ground ahead of a meeting between U.S. President Joe Biden and Chinese President Xi Jinping. During the meeting, it is expected that President Biden will issue a warning to Beijing against providing support to Russia. On the positive side, there was some optimism that Beijing may make some concessions on issues surrounding the U.S.-China audit dispute.

The Week Ahead

The PMI index and building permits as well as jobless claims are among the economic data that will be released in the coming week.

Key Topics to Watch

• Atlanta Fed President Raphael Bostic speaks
• Chicago Fed national activity index
• Fed Chair Jerome Powell speaks at NABE conference
• New home sales (SAAR)
• Initial jobless claims
• Continuing jobless claims
• Durable goods orders
• Core capital goods orders
• Current account deficit
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• UMich consumer sentiment index (final)
• 5-year inflation expectations (final)
• Pending home sales index

Markets Index Wrap Up

Stock Markets

The equities market showed weakness over the past week marked by extreme volatility influenced by Russia’s invasion of neighboring Ukraine. On Tuesday, the intraday low saw the Nasdaq Composite fall to a depth almost 22% from its recent peak. This is more than the 20% threshold that signaled entry into bear market territory. The S&P 500 was approximately 14% off its peak when it descended to its low for the week, which is still within correction territory and therefore not as severe as the Nasdaq reaction. The sector that noticeably underperformed was consumer staples stocks. Coca-Cola, PepsiCo, and other food and consumer goods producers experienced a sell-off after announcing that they were suspending business in Russia in protest of Russian military aggression in Ukraine. Monday’s sell-down was marked by heavy volume trading with over 19 billion shares traded in the U.S. bourses, the most since the GameStop short squeeze in January 2021. Other technical factors worked to magnify the sell-off, including the rush to cover short positions and meet margin calls.

U.S. Economy

Dominating weekly economic developments was a surge in commodity prices, partly due to the continued inflationary pressures exacerbated by the Russian-Ukraine conflict. Consumers in oil products felt the sting of the sudden rise in oil as crude surged to USD 139 per barrel, its highest level in 14 years. The was the reaction of international markets to the Biden administration’s contemplation of a possible embargo of Russian crude. The U.S. president announced on Tuesday that imports of Russian oil and gas shall be cut off and that American consumers were to prepare for higher gas prices. European nations decided to adopt less stringent measures as they were more reliant on Russian energy imports. By midweek, an official of the United Arab Emirates announced that the UAE was willing to substantially increase oil production, but subsequently, the country’s energy minister appeared to walk back the earlier statement by affirming that the UAE will abide by the existing OPEC production plans.

Most of the economic data released during the week were in line with expectations. The consumer price index rose 0.9% in February and 7.9% over the previous two months, matching market expectations. Weekly job claims registered 227,000 was slightly above expectations but remained at low levels. January job openings exceeded consensus estimates, coming in at 11.26 million; despite drops in the accommodation and food services due to the omicron variant of the coronavirus, the deficit was offset by job openings in other areas. While the data appeared positive, the sentiments of the American consumers remained pessimistic concerning their financial prospects. The preliminary gauge of consumer sentiment tracked by the University of Michigan fell more than expected to a new decade low of 59.7. Principal causes are inflation worries weighed further down by the Russian-Ukraine geopolitical conflict. Amid the continued inflation concerns, the U.S. Treasury yields increased, with supply factors also weighing in such as heavier corporate borrowing and a likely increased debt-issuance by the European Union for energy and defense spending.

Hopefully, if any sign of a de-escalation of the Russian-Ukraine war should be evident, as this remains a fluid situation, it will be highly possible that some of the energy, food, and commodity prices may reverse, and the primary overhand on global markets may be lifted.

Metals and Mining

The Russian-Ukrainian hostilities are about to enter their third week, further escalating the humanitarian crisis. Continued fear and uncertainty have pushed gold prices to new all-time intraday highs, north of $2,000 per ounce. Gold remains at a strong uptrend for the near future, although realistically prices should be expected to consolidate at current levels. Gold continues to serve as a good hedging asset, but the high-risk situation that is pushing gold prices higher – the Russian invasion into Ukraine and the high inflation rates – are not idyllic nor sustainable, and will eventually find a solution that will cause gold prices to contract, therefore care should be taken in using gold as a safe-haven investment.

In the past week, gold ended marginally higher by 0,90%, from $1,970.70 the previous week to $1,988.46 per troy ounce. Silver also inched up by 0.66%, beginning at $25.70 and ending the week at $25.87. Platinum corrected by 4.08% from the close of the prior week at $1,128.07 to the recent close at $1,082.08 per troy ounce. Palladium also followed platinum, ending that past week at $2,807.77 per troy ounce, down by 6.77% from the previous week’s $3,011.50. the 3-month prices for base metals also saw corrections. Copper moved 4.6% down at last Friday’s close of $10,183.50 per metric tonne from the week-earlier close at $10,674.00. Zinc succumbed to a weekly loss of 5.83%, from the prior week’s close of $4,051.00 to this past week’s close of  $3,815.00 per metric tonne. Aluminum moved down from $3,849.00 a week ago to this week’s close of $3,483.00 per metric tonne, for a loss of 9.51%.  Finally, tin receded from the prior week’s closing price at $47,540.00 to the past week’s $44,100.00 per metric tonne, a drop of 7.24%.

Energy and Oil

With the recent surge in oil prices resulting from the Russian-Ukraine war, oil will likely be headed towards its biggest weekly decline dating back to November 2021 as the governments explore solutions to the speculated supply shortage. U.S. officials have commenced initiatives to secure more oil supply from Venezuela in the future, with the hope of easing the oil hike domestically. The recent U.S. Strategic Petroleum Reserves (SPR) release is also aimed at easing the current supply tightness, with 30 million barrels scheduled to be released over April and May. It is further expected that Russia will supply the needs of Asian buyers even without letters of credit and instead resort to direct telegraphic transfers. The markets will continue to remain constrained in the near future, but there is a general sentiment that the worst-case scenarios will be alleviated.

In the meantime, members of the European Union are discussing the mechanics of an eventual phase-out of Russian fossil fuels. A two-day summit will be held for this purpose in Versailles. In 2021, the EU imported 40% of its gas and 27% of its oil from Russia. The EU intends to be fully independent of Russian gas, oil, and coal, by 2027 at the soonest or 2030 at the latest. In the U.S., top officials of the Biden administration are meeting with Venezuelan President Nicolas Maduro for the first time in years, intending to negotiate a deal to ease sanctions on Petróleos de Venezuela, S.A., the Venezuelan state-owned oil and natural gas company. This is part of the Biden administration’s attempt to condition the easing of sanctions on the PDVSA’s direct oil supply to refiners in the U.S.A.

Natural Gas

For this report week (March 2 to March 9), natural gas spot price movements were mixed. The Henry Hub spot price declined from $4.65 per million British thermal units (MMBtu) at the start of the week, to $4.56/MMBtu at the week’s end. At major hubs this week, prices traded within a narrow band of $1.06/MMBtu. According to data from Natural Gas Intelligence, the price range fell within a high of $5.31/MMBtu at PG&E Citygate in California, and a low of $4.25/MMBtu in New York. Internationally, natural gas spot prices rose again this week due to the unresolved war between Russia and Ukraine, as well as the increasing uncertainty in the European natural gas markets.

In the U.S., prices on the Gulf Coast fell due to warmer temperatures while they remained unchanged in the Midwest with temperatures also remaining warmer than normal. Natural gas prices in the West are mixed with the cooling temperatures. Prices, on the other hand, declined in the Northeast due to warmer-than-normal temperatures and declining natural gas demand. The average supply of U.S. natural gas remains unchanged compared to last week, while average natural gas consumption has dropped across most demand sectors over the past report week. The U.S. LNG exports decreased by one vessel this week compared to the week before.

World Markets

In Europe, share prices rebounded from the declines of the preceding week although trading remained volatile amid inflation fears and geopolitical uncertainties. The gain realized by the week’s end in all likelihood reflects the optimism that a diplomatic resolution may be arrived at by Russia and Ukraine. The pan-European STOXX Europe 600 Index ended 2.23% higher in local currency terms. Germany’s DAX Index rallied 4.07% higher, while France’s CAC 40 Index advanced 3.28%. Italy’s FTSE MIB Index briefly descended into bear market territory during the early part of the week, but later recovered and ended 2.57% higher week-on-week. The UK’s FTSE 100 Index climbed 2.41%. The core eurozone bond yields rose after inflation expectations firmed up. Adding to this is the announcement by the European Central Bank (ECB) that it may wind up its bond-buying program sooner than expected, surprising market participants. The yields of Eurozone periphery bonds shot up, as they were among those that gained the greatest benefits of the ECB’s monetary stimulus, UK gilt yields likewise ascended on the back of rising inflation expectations.

Japan’s bourses receded over the past week, reflecting risk concerns on the continued Russia-Ukraine situation. Global commodity prices surged while central banks began to adopt a more cautious outlook. The Nikkei 225 Index slid by 3.17% while the broader TOPIX Index likewise fell by 2.46%. The yield on the 10-year Japanese government bond increased from the previous week’s 0.15% to this week’s 0.18%. The yen weakened to its lowest level in five years, ending this week at about JPY 115.97 against the U.S. dollar, from JPY 114.82 the previous week. The cause of the devaluation was attributed to policy divergence as the Bank of Japan (BoJ) affirmed its earlier commitment to maintaining a liberal monetary policy. BoJ Governor Haruhiko Kuroda stated the BoJ’s stance against tightening monetary policy and stimulus withdrawal, despite the rising fuel costs and the upward pressure this is exerting on the price of goods traded between companies. The BoJ aims to achieve its 2% inflationary target together with rising wages and corporate profits.

Chinese equities also recorded a loss for the week due to a resurgence in coronavirus cases and the war in Ukraine. Inflationary pressure was felt in the prices of industrial metals and agricultural commodities. The large-cap Shanghai Composite Index fell 3.98% while the blue-chip CSI 300 Index slid by 4.21%. Another rift that weighed on Chinese markets was the possibility that five Chinese companies identified by the U.S. Securities and Exchange Commission would be subject to delisting due to failure to comply with audit requirements. It was late on Friday night when talks reportedly went smoothly between Chinese and U.S. regulators regarding cooperation on audit and regulation that risk markets recovered. The yield on the 10-year Chinese government bond rose to 2.881%, the highest level it has reached in months, before descending to close at 2.836%. The closing price was lower than the previous week’s close at 2.861%, due to fears of inflation and tightening monetary policy. The yuan currency ended unchanged.

The Week Ahead

Inflation, import price, and retail sales data are among the vital economic data to be released in the coming week.

Key Topics to Watch

• Producer price index, final demand
• Empire State manufacturing index
• Retail sales
• Retail sales excluding motor vehicles
• Import price index
• Import price index excluding fuels
• NAHB home builders’ index
• Business inventories (revision)
• FOMC announcement on fed funds rate
• Fed Chair Jerome Powell news conference
• Initial jobless claims
• Continuing jobless claims
• Building permits (SAAR)
• Housing starts (SAAR)
• Philadelphia Fed manufacturing survey
• Industrial production index
• Capacity utilization rate
• Existing home sales (SAAR)
• Index of leading economic indicators

Markets Index Wrap Up

Stock Markets

Markets continued to exhibit unusual volatility over the past week but showed some resiliency due to the positive impact of optimistic economic news on otherwise dire geopolitical events. The Russian invasion of Ukraine is having a greater effect on certain areas of the market, particularly interest rates, inflation, and commodity prices. Overall, stocks ended lower for the week. The S&P 500 Index was weighed down by the technology, consumer services, financial, and consumer discretionary sectors, while other segments gained ground. Not surprisingly, the energy sector outperformed as international oil prices surged, trading at almost USD 120 per barrel on Thursday. It was only when news of a possible Iran nuclear deal emerged that oil prices corrected slightly. Although trading volumes were not pronounced, the Cboe Volatility Index (VIX) reached its highest level in more than a year.

Several developments related to the Ukraine crisis affected stock trading as the week progressed. First, the U.S., the U.K., and the European Union agreed to exclude several Russian lenders from the SWIFT (Society for Worldwide Interbank Financial Telecommunication) international banking network. Second, Western powers imposed more sanctions against Russia. The MSCI announced on Wednesday that Russian securities will be removed from its indices, even as the U.S. authorities put further restrictions on Russian imports. President Joe Biden on Thursday announced additional penalties focused on Russian oligarchs closely associated with President Vladimir Putin. Third, news on Thursday evening that Europe’s largest nuclear power station had been attacked pushed futures prices lower, although stocks appeared to stabilize when it was announced that no radiation had been released. Fourth, the ruble plunged to an all-time low despite the Russian Central Bank’s move to raise the policy rate from 9.5% to 20%. Market declines were cushioned, however, when Ukraine and Russia announced they would enter into another second round of negotiations.

U.S. Economy

In light of the recent geopolitical developments, it is expected that the economy will not remain insulated and that some negative impacts will be sustained. Commodity-price shocks and some monetary policy tightening are almost certain to threaten the continued U.S. bull market, but it is unlikely that these threats will end the continued economic expansion altogether. The economy continues to deal with adverse developments from a position of strength, and despite the greater volatility ahead, stable underlying fundamentals will continue to provide the markets more resilience. So far, in 2022, interest rates have risen in tandem with a stubbornly elevated inflation and, therefore, a series of Fed rate hikes remains certain. There has, however, been a series of interest rate pullbacks in recent days due to a flight to safe-haven assets in response to the Ukrainian crisis. The purchase of U.S. Treasury bonds has therefore increased, pushing bond prices higher and bond yields lower. Some analysts anticipate a possible Fed-induced recession, but this is not likely as the markets have already priced in much of the pessimism and the broader bull market shows continued strength.

Metals and Mining

As Russia’s war on Ukraine enters its second week, a flight to safety by investors is only to be expected. Safe-haven investments currently consist of the U.S. dollar and precious metals, gold in particular. The war is wreaking a devastating impact on the two contending nations. A humanitarian crisis is developing as more than one million Ukrainian refugees have fled to adjacent European nations. Russia is also facing an economic crisis as other countries sever ties with the aggressor nation, further crippling its businesses. Oil supply disruptions have pushed crude prices to their highest level in 14 years and intensifying global inflationary pressures. The risk uncertainty in most financial markets is driving investors to seek safe assets where they could park their wealth until the crisis is resolved. Gold and precious metals are reaping the benefits of this flight to safety, with analysts speculating that the yellow metals will soon penetrate the $2,000 per ounce level.

Gold ended the week 4.31% higher than the week previous, surging from $1,889.34 to $1,970.70 per troy ounce. Silver ended the week at $25.70 per troy ounce, up by 5.89% from the previous week’s $24.27. Platinum rose from $1,059.35 the week earlier to this week’s $1,128.07 per troy ounce for a gain of 6.49%. Palladium gained an impressive 27.14% price increase, from the initial $2,368.72 to $3,011.50 per troy ounce. The 3mo base metal prices have also registered impressive gains. Copper, which closed a week earlier at $9,873.00, ended this week at $10,674.00 per metric tonne, rising by 8.11%. Zinc realized a surge of 11.86%, starting at $3,621.50 and ending at $4,051.00 per metric tonne for this week. Aluminum ended one week ago at $3,357.50 but closed this week at $3,849.00 per metric tonne for a gain of 14.64%. Finally, tin surged from $44,470.00 to end the week at $47,540.00 per metric tonne for an increase of 6.90%.

Energy and Oil

The Russian invasion of Ukraine set off the most volatile oil trading in recent memory. Wild trading not seen in 33 years, since Saddam Hussein attacked Kuwait, dominated over the past week. The prospects that Russia’s oil supply will likely be banned in international markets have sent crude prices northward of $100 per barrel to its highest level since 2008. On Thursday, WTI touched $116 per barrel while ICE Brent came within striking distance of $120 per barrel. U.S. President Joe Biden announced a fresh round of sanctions targeted at Russia’s refining sector, banning the export of specific refining technologies to Russia and its ally Belarus and hampering efforts by these two countries to modernize their downstream assets. Rumors of an imminent nuclear deal with Iran have somewhat tempered the wild swings, but the supply uncertainties are far from resolved, and speculative trading could be expected to continue for some time. The wild price fluctuations may find further impetus from the renewed riots and force majeure developments in Libya which may trigger another civil war. These geopolitical threats may very well send oil prices above the $120 per barrel mark in the weeks to come.

Natural Gas

With the ongoing disruptions over the report week beginning February 23 and ending March 2, the spot price movements of natural gas were mixed. The Henry Hub spot price increased to $4.65 per million British thermal units (MMBtu) at the end of the week, from $4.57/MMBtu where it ended the week prior. International natural gas spot prices surged during the week. At the Title Transfer Facility (TTF) in the Netherlands, which is Europe’s most liquid natural gas spot market, the day ahead prices rose $15.34 to a weekly average of $41.06/MMBtu in light of the Russian-Ukraine hostilities that has caused uncertainty in the European natural gas markets.

In the meantime, prices on the Gulf Coast were slightly elevated due to cooler temperatures. In the Midwest, prices fell slightly with warmer temperatures, as they did in the West. In the Northeast, prices increased due to higher natural gas consumption. The U.S. natural gas supply decreased from all sources this week, coinciding with an increase in U.S. natural gas demand in every consuming sector. U.S. LNG exports increased by six vessels this week compared to the week previous.

World Markets

In Europe, shares plummeted as investors were caught in the uncertain implications of the ongoing Russian invasion into Ukraine. The pan-European STOXX Europe 600 Index lost 7% of its value in local currency terms even as the major indexes fell sharply. Italy’s FTSE MIB Index plunged by more than 12% while Germany’s DAX Index and France’s CAC 40 Index declined by more than 10%. The UK’s FTSE 100 Index lost 6.7%. Core eurozone bond yields likewise fell overall as volatile trading prevailed over the week. They contracted sharply when Russia and Ukraine failed to successfully pursue ceasefire talks and the hostilities intensified. Peripheral eurozone and UK gilt yields broadly followed the trend set by core markets. The EU, the UK, and the US agreed to impose sanctions on Russia for its intrusion into Ukraine. Russian access to their capital markets and financial systems was curtailed, and some Russian banks were excluded from the SWIFT payments messaging system. The EU shut down its airspace to Russia, tightened export controls on high-end technology, and adopted measures to freeze the financial assets of several prominent Russians among whom are Russian President Vladimir Putin and Foreign Minister Sergei Lavrov.

In Japan, equities registered losses also in reaction o the geopolitical and economic uncertainty emanating from Europe due to the Russian-Ukrainian conflict, not a minor part of which is the escalating global oil prices. The Nikkei 225 Index fell 1.85% while the broader TOPIX Index lost 1.67%. Also weighing in on investor sentiment is the possibility of aggressive monetary policy tightening by the U.S. Federal Reserve. As a consequence of the heightened risk, safe-haven demand pushed the yield on the 10-year Japanese government bond to decrease to 0.15% from 0.20% at the close of the week previous. The yen remained relatively unchanged at JPY 115.6 versus the USD despite the heightened intraweek trading volatility. Japan imposed more sanctions against Russia in coordination with the other Western nations, including freezing the assets of Russian oligarchs and blocking seven Russian banks from the SWIFT international payment system. Japan also intends to tighten exports of semiconductors and other technology products to Russia.

 

Also, in reaction to the Russia-Ukraine situation and negative economic pronouncements domestically, China’s markets retreated as investors’ risk appetite dampened. The Shanghai Composite Index slid 0.1% while the blue-chip CSI 300 Index lost 1.7%. The tightening sanctions against Russia and anticipation of pessimistic news during the coming weeklong annual meeting of China’s parliament beginning on Saturday diminished trading activity. Expectations are that China will announce that its official GDP target for 2022 will be within the range of 5.0% to 5.5%. This is possibly the first time since 1991 that the country’s annual economic growth target will fall short of 6%. Investors are keen to spot other signs of greater economic stimulus. Short-term interest rates may be cut further by the People’s Bank of China to stave off the likelihood of an economic slowdown. On the other hand, analysts expect a relatively unremarkable parliamentary meeting ahead of the meeting of the Communist Party in the fall. The meeting is held only twice every decade, underscoring the importance of maintaining a politically stable environment leading to the event. The yield on the 10-year Chinese government bond rose 2.861% from the prior week’s 2.806%, a reflection of tight onshore liquidity conditions. The Yuan currency remained unchanged at 6.3190 per USD.

The Week Ahead

In the coming week, important economic data expected to be released include inflation data, the Michigan Sentiment gauge, and jobless claims.

Key Topics to Watch

• Consumer credit
• NFIB small business index
• Foreign trade deficit
• Wholesale inventories (revision)
• Job openings
• Quits
• Initial jobless claims
• Continuing jobless claims
• Consumer price index
• Core CPI
• CPI (year over year)
• Core CPI (year over year)
• Real domestic nonfinancial debt (SAAR)
• Real household wealth (SAAR)
• Federal budget deficit
• UMich consumer sentiment index (preliminary)
• Five-year inflation expectations (preliminary)

Markets Index Wrap Up

Stock Markets

Despite the holiday-shortened trading week that passed, volatility reached a two-year high due to Russia’s invasion of Ukraine towards the week’s end, followed by Western countries imposing sanctions on the aggressor. Heightened geopolitical risk combined with the continuing inflationary pressures and increasing restriction in central bank policy weighed on equities. Stocks descended further into correction territory as indexes declined by 12% compared to their January 3 peaks, later to rebound and recover some lost ground. The major indexes still closed the week mostly higher from the previous week, mostly due to gains early in the week. On Thursday, the Nasdaq Composite Index swung by 6.8%, its largest intraday range since the start of the Covid pandemic in March 2020. Within the S&P 500, the consumer discretionary sector underperformed overall due to travel-related shares responding to the European turmoil. Communication services, on the other hand, exhibited resiliency due to support from the Internet counters such as Google parent Alphabet and Facebook parent Meta Platforms. Health care shares also outperformed.\

Commodities and traditional safe-havens, including bonds and the U.S. dollar, rallied as news of the attacks on Kyiv, the Ukrainian capital, sent stocks and fixed income markets lower. Investors rushed to assets that are perceived to remain stable during periods of uncertainty and high risk. As a result, longer-term U.S. Treasury yields moved lower and the U.S. currency moved higher in particular against the Russian ruble and other emerging market currencies. At the end of the week, after the Russian government representatives stated they were ready for negotiations with Ukraine and a delegation will be sent to the Belarus capital, Minsk, bond yields recovered and stocks rallied sharply. It also appeared to investors that sanctions against Russia, particularly in the energy sector, will not be as severe as first anticipated.

U.S. Economy

Despite the recent shocks to the markets resulting from geopolitical struggles and the pandemic situation, the underlying fundamentals continue to remain favorable and the present setback is only temporary. The broader economy remains on solid footing and the current volatilities only work to influence the markets to gravitate to more sustainable drivers of returns. There will continue to be challenges to investors’ confidence in the markets, however, particularly the inflationary and monetary-policy uncertainties. It is a given that the Feds are certain to embark on a series of rate hikes simultaneously with shrinking its balance sheet, which is important to factor in long-term investment strategies since the market recovery will be protracted. Currently, the S&P 500 is approaching the average non-recessionary drawdown and most asset valuations are returning to their five-year historical averages, the ideal response would be to move towards quality investments and to seek opportunities in attractive prices as they present themselves. Investors should resist the impulse to succumb to fear and panic, instead move towards rebalancing strategies and dollar-cost averaging during price swings. It is also wise to take advantage of short-term dips to diversify one’s portfolio.

Metals and Mining

Expectations of price appreciation among precious metals have once again been disappointed last week, particularly in the nearly $100 intraday swing in gold prices seen Thursday. Russia’s foray into Ukraine sent gold prices to a session high of $1,976.50 per ounce, the peak it has seen in the last 1.5 years. However, placing a bet on geopolitical uncertainties has shown its risky side when the Russian-Ukraine encounter failed to escalate and the parties instead made moves towards diplomatic negotiations. Betting on safe-haven strategies is unsustainable because the risky situation upon which it is premised is also unsustainable, and when the conflict is resolved, gold prices plummet to even lower levels than they were at previously. Gold remains an effective safe-haven asset, but it should not be chased upwards during geopolitical conflicts.

In the week just ended, gold fell week-on-week by 0.48%, from $1,898.43 to $1,889.34 per troy ounce. Silver rose 1.46%, from $23.92 to $24.27 per troy ounce. Platinum corrected from the previous week’s close of $1,072.33 to the close this week of $1,059.35 per troy ounce, losing 1.21%. Palladium gained marginally by 0.76% for the week, from $2,350.75 to $2,368.72 per troy ounce. Base metals (3mo) were also mixed for the week. Copper, which closed the previous week at $9,956.00, ended this week at $9,873.00 per metric tonne for a loss of 0.83%. Zinc fared better, closing this week at $3,621.50 per metric tonne from the previous week’s close at $3,575.50, gaining 1.29%. Aluminum began at $3,262.50 and ended at $3,357.50 per metric tonne for an increase of 2.91%. Finally, tin moved up from the earlier week’s close at $44,140.00 to this week’s $44,470.00 per metric tonne, a gain of 0.75%.

Energy and Oil

The much anticipated, and feared, Russian incursion into Ukraine materialized this week, but instead of the string response expected from the international community, European leaders largely hesitated and argued among themselves. Oil prices rose slightly above the $100-per-barrel level on Friday, and gas prices surged to $50 per million British thermal units (mmBtu), a development which may have given rise to the benign response to the Russian invasion. It is well speculated that any severe sanction to be placed on the aggressor will send oil prices to much higher levels which none of the players dependent on Russian oil want. Fossil fuel flows from Russia are too important to the international markets for the Western countries to gamble on compromising. The lack of any serious sanctions on Russia’s energy exports are the principal reason that the sudden spike in oil prices largely recovered by the week’s end.

Natural Gas

Not surprisingly, in light of the uncertainties in geopolitical affairs, spot prices for natural gas rose at most locations during this report week, February 16 to February 23. Hub spot prices increased from $4.39 per mmBtu when the week began, to $4.57 per mmBtu at the end of the week. International spot prices were mixed while that of futures decreased. The price of the March 2022 NYMEX contract slid by $0.094, from $4.717 per mmBtu on February 16 to $4.623 on February 23. Prices in the Midwest rose slightly with cooler temperatures while those in the Gulf Coast also increased despite forecasts that the warm weather will continue. In the West, temperatures fell and with it prices increased; those in the Northeast rose as another winter storm is anticipated. Total natural gas supply in the U.S. market declined slightly this past week, even as the total consumption fell slightly. U.S. liquid natural gas exports are down by five vessels this week compared to the previous week.

World Markets

Equities fell in Europe due to fears that the Russian invasion of Ukraine will give way to higher inflation and economic slowdown. The pan-European STOXX Europe 600 Index closed 1.58% lower. France’s CAC 40 Index also ended 2.56% down while Italy’s FTSE MIB Index slid 2.77%. Germany’s DAX Index, one of the bourses with the highest exposures in Russia, plunged 3.16%. By comparison, the UK’s FTSE 100 Index slipped by a marginal 0.32%. The core eurozone bond yields descended after the Russian invasion into Ukraine triggered a flight to safety. Likewise giving way were the UK gilt and peripheral eurozone bond yields.

Likewise impacted by the Russia-Ukraine conflict, Japan’s stock market returns were negative during the past week’s trading. The Nikkei 225 lost 2.38% and the broader TOPIX Index descended 2.50%. The yield on the 10-year Japanese government bond dropped to 0.20% from 0.22% during the close of the previous week. The Governor of the Bank of Japan, Haruhiko Kuroda, announced that Japan’s central bank does not have any immediate plans to reduce its monetary stimulus. If necessary, it would purchase unlimited quantities of bonds to keep yields within the target range. The yen weakened to approximately JPY 115.32 versus the U.S. dollar, compared to JPY 115.00 during the preceding week.

The Chinese bourses sustained a weekly loss also in response to the geopolitical situation between Russia and Ukraine, indicative of the investors’ depressed risk sentiment. The Shanghai Composite Index slid 1.1% while the large-cap CSI 300 Index lost 1.6%. The yield on the 10-year Chinese government bond descended to 2.806% compared to the previous week’s yield of 2.814%. Regarding currencies, the yuan strengthened against the U.S. dollar, ending around 6.3135 per dollar from 6.33 the earlier week as a result of higher foreign inflows into Chinese assets. Further dampening buying sentiment into stocks was the decision by the People’s Bank of China to maintain interest rates steady. The central bank maintained the one-year and five-year loan prime rates at the same levels they were the previous week. This surprised experts and analysts who forecast that the benchmark lending rate will recede.

The Week Ahead

In the week ahead, the important economic data scheduled for release include the hourly earnings growth and the unemployment rate.

Key Topics to Watch

• Trade in goods, advance report
• Chicago PMI
• Atlanta Fed President Raphael Bostic speaks, Feb. 28
• Markit manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Atlanta Fed President Raphael Bostic speaks, March 1
• ADP employment report
• Chicago Fed President Charles Evans speaks
• Louis Fed President James Bullard speaks
• Fed Chair Jerome Powell testifies at House committee
• Beige Book
• Initial jobless claims
• Continuing jobless claims
• Productivity revision (SAAR)
• Unit labor costs revision (SAAR)
• Markit services PMI (final)
• ISM services index
• Factory orders
• Core capital equipment orders (revision)
• Fed Chair Jerome Powell testifies at Senate committee
• New York Fed President John Williams speaks
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Labor force participation rate, prime working age
• Chicago Fed President Charles Evans speaks

Markets Index Wrap Up

Stock Markets

In the week just ended, markets closed lower on concerns about the escalating tensions between Russia and the Ukraine. Volatility intensified and investors pulled back from equities in favor of safe-haven assets with perceived greater stability. The geopolitical tensions were only an addition to a market already contending with inflation levels not seen in four decades and expectations of rising Federal Reserve rates. In due time, attention may once more be channeled to economic fundamentals, although market volatility may continue to be a major challenge that investors will have to deal with for the rest of the year.

The large-cap indexes succumbed to its second straight week of losses, weighed down by the dramatic plunge of the Meta Platforms (Facebook’s parent) price, taking with it the rest of the communications sector. The consumer staples sector, which comprises the normally defensive industries, outperformed in the S&P 500 Index, particularly due to gains in Procter & Gamble and Walmart. In the face of market volatility and the upcoming long holiday (markets will remain closed on Monday, February 21, in observance of President’s Day), traded volumes were light as investors refrained from taking a position.

U.S. Economy

Conflicting signals associated with Federal Reserve indicators also fostered added caution among investors. Last, Monday, James Bullard, St. Louis Fed President, announced in an interview on CNBC that policymakers were dealing with the inflation increase, and questions may arise on the credibility of the central bank. Bullard indicated that it was his opinion and the consensus among fellow policymakers that a full percentage point increase in the federal funds rate may be expected by July. This ran contrary to traders’ expectation of a mere quarter-point increase in March, reflecting a more accommodative stance.

Other mixed economic data may also have suggested the unlikelihood of a more aggressive rate hike in the next Fed meeting. For the first time in a month, weekly jobless claims increased coupled with two lower-than-expected regional manufacturing indexes. On the other hand, retail sales grew 3.8% in January, which is above expectations, and the most it has recovered since spring. There is a caveat, however, that the sales data has not been adjusted for inflation, thus much of the increase may have been accounted for by the rise in prices. The Labor Department also reported on Tuesday that January’s producer prices increased by 1.0%, which is the highest in eight months and higher than forecasted. Housing numbers demonstrated no strong trends either way since housing starts rose less than expected but housing permits grew more than the consensus estimate.

Treasury yields fluctuated throughout the week due to the confusing signals from the Fed, Russia, and economic reports. The volatility in interest rates, together with outflows from municipal bond funds, weighed on the tax-exempt bond market. Light levels of supply, however, provided technical support to the market.

Metals and Mining

The same uncertainty in the geopolitical situation has also affected the precious metals sector but with increased optimism. Gold is riding the wave of fear and momentum that drives a flight to safe-haven assets. The price of the yellow metal touched $1,900 per ounce, an eight-month high. Although the gold rally surged by 3%, it is still uncertain whether the momentum will be sustained if and when the tensions between Russia and the U.S. will abate. While in normal times the price of gold may recede to prior levels, there is still the matter of inflation to contend with. The current inflation rate, which is the highest in four decades, may trigger monetary policy tightening that may move the global economy closer to a worldwide recession. The Bank of America chief investment strategist, Michael Hartnett, commented on Friday that the risk of a recession may be increasing. If this were to take place, it is an opportunity for gold to shine, providing a stable alternative to an increasingly uncertain monetary future.

Over the past week, gold increased by 2.13% from $1,858.76 to $1,898.43 per troy ounce. Silver rose from $23.59 in the preceding week to $23.92 per troy ounce in the week just concluded, gaining 1.40%. Platinum gained 4.03%, from $1,030.80 to $1,072.33 per troy ounce. Palladium climbed from $2,308.50 to end the week at $2,350.75 per troy ounce, a rise of 1.83%.  Among base metals. copper moved up slightly by 0.97%, from $9,860.50 to $9,956.00 per metric tonne.  Zinc fell from $3,626.50 to $3,575.50 per metric tonne for a loss of 1.41%. Aluminum rose by 4.02% from the previous week’s level at $3,136.50 to the past week’s close at $3,262.50 per metric tonne. Tin gained 1.36% week-on-week, from $43,549.00 to $44,140.00.

Energy and Oil

Oil prices have come down from their previous weeks’ highs. Oil price hikes that have taken place due to news about the Ukraine-Russian tensions have been offset by apparent progress in negotiations regarding the Iran nuclear talks. Improvement in the Iran situation is likely to assure a more stable supply of oil that would put to rest speculations of an oil supply shortage that a Russian embargo may trigger. The easing of sanctions on Iran is supposedly dependent on a sequence of steps, a matter which reportedly has been settled. The first step is for Iran to stop all enrichment of radioactive materials beyond 5% purity, simultaneous with the release of political prisoners. The Joint Comprehensive Plan of Action (JCPOA) members are then going to unfreeze Iranian assets frozen during the imposition of sanctions. If Iran shall agree to the deal, there is expected to be a more liberal flow of crude from this country beginning the third quarter of 2022. This should allay market fears about any supply tightness moving forward, bringing oil prices down. Should the Vienna talks successfully conclude, OPEC+ members have signaled their willingness to integrate Iran, which after all is a founding member of the OPEC, into their production curtailment deal.

Natural Gas

The spot prices of natural gas rose at most locations during the report week from February 9 to February 16. The Henry Hub spot price ascended to $4.39 per million British thermal units (MMBtu) from the previous week’s $4.06/MMBtu. International spot prices were mixed in the absence of more market-moving news. Regarding futures, the price of the March 2022 NYMEX contract rose $0.708, to end at $4.717/MMBtu for the week from the earlier week’s $4.009/MMBtu. The price of the 12-month strip averaging March 2022 through February 2023 futures contracts increased by $0.552 to $4.726/MMBtu.

In the U.S., prices along the Gulf Coast rose ahead of a cold front forecast for the central lower 48 states. Prices in the Mideast rose moderately, in line with the Henry Hub price. Prices also rose slightly in the West as a result of the cold weather front moving into the region. In the Northeast, prices are demonstrating some volatility as a result of the fluctuating weather patterns. The total natural gas supply in the U.S. is expected to rise in the coming week in tandem with increasing production. The total U.S. natural gas consumption is expected to substantially decrease across most sectors this week. This week, U.S. LNG exports are down by four vessels from last week.

World Markets

European equities slumped due to continued uncertainty in monetary policies and the tensions at the Ukraine-Russian border. The pan-European STOXX Europe 600 Index closed the week lower by 1.86%. France’s CAC 40 Index dipped 1.17%, Italy’s FTSE MIB Index descended 1.70%, and Germany’s DAX index lost 2.48% of its value. The UK’s FTSE 100 Index corrected by 1.92%. The core eurozone bond yields experienced some volatility but ended lower in the end due to intensified fears of a possible Russian invasion of Ukraine. Peripheral eurozone and UK government bond yields followed the direction taken by core markets. Christine Lagarde, the president of the European Central Bank, together with Governing Council members Pablo Hernandez de Cos and Francois Villeroy de Galhau, sought to reassure the markets that any adjustments to monetary policy would be gradual and guided by key economic data.

In Japan, the stock markets sustained week-on-week losses as sentiment continued to be affected by geopolitical developments in Ukraine and a possible shift to more aggressive monetary policy tightening by the U.S. Federal Reserve. The Nikkei 225 Index slid 2.07% and the broader TOPIX Index receded 1.95%. The fixed-rate Japanese government bond purchase operation of the Bank of Japan (BoJ) did not see any offers as market yields remain lower, successfully capped long-term interest rates, and kept the yield on the 10-year JGB unchanged at 0.22%. The yen moved higher against the U.S. dollar at JPY 115.18 compared to JPY 115.45 the previous week. The strength of the currency is dependent mainly on safe-haven demand in light of the worries over geopolitical issues.

Chinese equities climbed in response to positive signals from the government and lower-than-expected inflation figures that greatly buoyed investor sentiment. The Shanghai Composite Index gained 0.8% for the week, and the CSI 300 Index climbed 1.1%, in a week when most other international bourses were descending. The yield on the 10-year sovereign bond settled unchanged at 2.814%, while the yuan exchange rate against the U.S. dollar rose to 6.33 from 6.36 one week ago. An announcement by China’s Premier Li Keqiang stated that Beijing promised to rapidly implement measures that will strengthen economic support, particularly after the negative effects of COVID-19. Furthermore, corporate tax rates will be cut down, fiscal spending will be strengthened, and fiscal discipline instituted. Furthermore, the head of the People’s Bank of China (PBOC) indicated that supportive monetary policies will be maintained by the central bank for the rest of the year.

The Week Ahead

Among the important economic data scheduled for release in the coming week are consumer spending, consumer income, and consumer confidence.

Key Topics to Watch

• S&P Case-Shiller home price index (year-over-year change)
• FHFA home price index (year-over-year change)
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• Consumer confidence index
• Initial jobless claims
• Continuing jobless claims
• Gross domestic product revision (SAAR)
• Gross domestic income (SAAR)
• New home sales
• Nominal personal income
• Nominal consumer spending
• PCE inflation (monthly)
• Core inflation (monthly)
• PCE inflation (year-over-year)
• Real disposable income
• Real consumer spending
• UMich consumer sentiment (final)
• 5-year inflation expectations (final)
• Pending home sales

Markets Index Wrap Up

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Stock Markets

Volatility marked this week’s trading which saw large-cap indexes end lower and the S&P MidCap 400 and small-cap Russell 2000 indexes treading water with modest gains. Underperforming the rest was the technology-laden Nasdaq Composite Index that ended the week down 15% from its recent high and ending in correction territory. Investor sentiment continues to be dominated by the clash between robust earnings growth and worries about the impending monetary tightening. The possibility of a Russian invasion of Ukraine overshadows speculations, causing a sell-off at the week’s end. Pulling down the broader indexes early in the week were declines in the large-cap technology stocks such as Google parent Alphabet, Facebook parent Meta Platforms, and Microsoft, although lost ground was recovered by the middle of the week. Counters in the hospitality sector such as hotels, restaurants, casinos, online travel agencies, and air and cruise lines rallied with the continued opening of the economy.

U.S. Economy

On Thursday, it was announced that the inflation rate hit its highest level in forty years, jarring the markets and erasing the gains made by midweek. News released by the Labor Department showed the consumer price index (CPI) surged 7.5% for the year ending January. This is higher than consensus expectations, and topped annual gains going back to February 1982.  Core prices not including food and energy purchases climbed 6.0%, the highest since August 1982. Due to concerns about inflation, the University of Michigan reported that the preliminary benchmark for consumer sentiment came in at 61.7, well short of the expected 67 and the lowest it has been since October 2011.

The announcement of the upper-limit CPI and comments about more restrictive monetary policies by James Bullard, St. Louis Federal Reserve Bank president, propelled short-term rates upward on Thursday resulting in a flattening of the yield curve. As investors priced in a Fed rate hike accelerated schedule, the two-year U.S. Treasury note yield ascended to its highest point in two years. Investors included the plausible scenario of a 50-basis-point rate hike by the Fed’s policy meeting in March. The benchmark 10-year U.S. Treasury note yield exceeded 2.00% for the first time since mid-2019.

In the underlying fundamentals, there appears to be broad-based resiliency across goods and services. Price pressures are spreading beyond a few items that are still affected by supply-chain disruptions, resulting in higher food, electricity, used cars, and housing prices which led to price hikes. The most significant component in the consumer-spending basket, rents, is likely to accelerate further as a result of rising home prices, a tight labor market, and the lowest rental vacancy rate in 38 years. A descent to more moderate price increases is unlikely to take place soon with the services inflation picking up. This might prompt central banks to take more aggressive measures moving forward. The good news, however, is that GDP is expected to continue growing at an above-average pace for the year and the unemployment rate will remain at near-record lows. The economy does not need further support. The expected increases in interest rates will increase the cost of borrowing that may in turn temper consumer spending, thus balancing off supply and demand, slowing down inflation.

Metals and Mining

There is a breakout in gold prices above the $1,850 critical resistance level, closing the week at a three-month high. As tensions heightened between the U.S. and Russia, causing gold to surge late Friday. Triggering the rally was the White House announcement that recommended all U.S. citizens to leave Ukraine within 48 hours. The news sparked a 500-point sell-down in the Dow Jones Industrial Average for a 1% drop for the day. Simultaneously, gold gained 1% for the day, trading last at $1,863.80 per ounce. The continued volatility in equities is only seen to further help the precious metals market see substantial gains. When there is a lot to fear in the financial markets, gold becomes more attractive as a stable safe haven.

Gold gained 2.79% last week, from the earlier week’s close at $1,808.28 to the just-concluded week’s close at $1,858.76 per troy ounce. Silver, formerly at $22.52 ascended to close at $23.59 per troy ounce for a gain of 4.75%. Platinum rose slightly from $1,028.19 to $1,030.80 per troy ounce, an increase of 0.25%. Palladium also climbed from $2,294.06 to $2,308.50 per troy ounce to record a 0.63% price appreciation. Among the base metals, copper price increased from the previous week’s $9,841.50 to this week’s close at $9,860.50 per metric tonne, increasing by 0.19%. Zinc inched up 0.39% from $3,612.50 to $3,626.50 per metric tonne as aluminum climbed 2.03% from $3,074.00 to $3,136.50 per metric tonne. The price of tin went up 1.23% for the week, from $43,021.00 to $43,549.00 per metric tonne.

Energy and Oil

Over the past week, Iran was front and center in the oil market news, on the back of a potential breakthrough in the nuclear deal. Negotiations were expected to be successful by several market participants, resulting in oil prices descending over the week as a correction to the previous week’s climb to the mid-$90s per barrel. Even if a deal were to take place soon, it would take several months before Iran’s crude oil to reach the markets; thus, the sudden and unexpected rally was driven more by market optimism rather than realistic expectation. Taking a closer look at fundamentals, the underperformance of OPEC+ appears to suggest levels close to one million barrels per day (b/d) in February. The rumors have even prompted the International Energy Agency (IEA) to weigh in for more oil production. The IEA joined the ranks of countries such as India as well as other major importers in calling for OPEC+ to raise the supply in the crude market. The Agency urged Saudi Arabia and the United Arab Emirates to use their spare capacity to supplement the deteriorating underperformance of OPEC+. Volume shortage has totaled some 800,000 b/d since the beginning of 2021.  As if to add to the supply problem, global shortages of diesel have become more pronounced as Northwest Europe inventories descended to their lowest level since 2008 at least. Singapore gasoil stocks have also fallen to multi-year lows of approximately 8.2 million barrels.

Natural Gas

For the report week February 2 to February 9, spot prices for natural gas fell at most locations. The Henry Hub spot price descended from $6.44 per million British thermal units (mmBtu) at the start of the week, to $4.06/mmBtu by the end of the week. International natural gas prices also fell in the global market. The March 2022 NYMEX contract price dropped $1.492 to $4.009/mmBtu to $5.501/mmBtu week-on-week. The price of the 12-month strip-averaging March 2022 through February 2023 futures contracts slipped $1.019 to $4.174/mmBtu. All along the Gulf Coast, prices for natural gas fell as the effects of the cold front dissipate across Texas. The drop in the prices in the Midwest corresponded with the Henry Hub price, even as prices fell in the West in response to the rising temperatures. The U.S. total natural gas supply fell during this report week due to decreased dry natural gas production. The total consumption of natural gas throughout the U.S. fell in line with decreased consumption in most sectors, while LNG exports are up by five vessels this week from last week.

World Markets

In Europe, share prices rallied on the back of strong corporate earnings. The pan-European STOXX Europe 600 Index closed 1.61% higher in local currency terms. The value-oriented stocks and cyclical industry stocks performed better compared to the market. This is seen to be in reaction to the inflationary pressures and the likely implications they have for the monetary policy initiatives of major central banks.  Germany’s Xetra DAX Index surged 2.16%, Italy’s FTSE MIB Index climbed 1.36%, and France’s CAC 40 Index rose 0.87%. The UK’s FTSE 100 Index advanced 1.92%, buoyed by positive investor reaction to better-than-expected economic data. The core peripheral eurozone government bond yields ascended in response to the higher-than-expected inflation forecast announced by the European Commission and an unexpected rise in U.S. inflation. After data was reported that the economic contraction was below expectations in December and grew 1% in the fourth quarter, UK gilt yields increased. The resilience demonstrated by the markets prompted investor expectations that the Bank of England may soon increase interest rates again. Overall, the EC lowered its 2022 outlook for EU economic growth from its previous forecast of 4.3% to 4.0%.

Despite last week being a holiday-shortened week for Japan, its stock markets posted gains as the Nikkei 225 Index rose 0.93% and the broader TOPIX Index climbed 1.66% in response to solid corporate earnings. The yen lost some of its value against the U.S. dollar, weakening to approximately JPY 116.02 from what was previously JPY 115.22. The higher-than-expected U.S. inflation rate sent the foreign currency upwards in response to expectations of a move by the Federal Reserve to aggressively tighten their monetary policy. The ten-year Japanese government bond yield ended the week at 0.22%, a 10% increase from the 0.20% at the end of the previous week, prompting the Bank of Japan to quickly move to curb rising yields and to ensure a more stable and favorable financial situation. BoJ Governor Haruhiko Kuroda continued to assure the market that monetary policy will remain at its current trajectory since inflation in Japan remains well below its 2% target.

Chinese equities gained on official assurances of support and a perception that the regulatory crackdowns by authorities have peaked. The Shanghai Composite Index added 3% in value while the CSI 300 Index gained 0.8% since January 28, the final trading day prior to the weeklong Lunar New Year break. In the past week, the People’s Bank of China (PBOC) announced that loans for affordable rental housing would not be included in the limited amount banks may lend to the property sector. In the Communist Party newspaper People’s Daily, an editorial stated that China’s economy still needed capital for growth despite requiring regulations on the use of capital to curb the tendency towards monopolistic behavior. It was also stated in another article that regulatory control on the internet sector will become increasingly rules-based, suggesting a possible easing of the government’s crackdown on the tech sector. PBOC data indicated that the country’s foreign currency reserves dropped in January by approximately $28 billion to $3.22 trillion. This is lower than expected during a month that saw the U.S. dollar strengthen. New loans and aggregate financing exceeded forecasts, rising to record levels in January, according to the central bank. China’s credit growth will possibly accelerate in the months to come amid reductions in borrowing costs, a more accommodative fiscal policy, and the relaxing of constraints on mortgage lending.

The Week Ahead

Among the vital economic data to be released in the coming week are the Leading Economic Indicators index and Industrial Production.

Key Topics to Watch

• Louis Fed President James Bullard interviewed
• Producer price index
• Empire State manufacturing index
• Retail sales
• Retail sales excluding autos
• Import price index
• Industrial production
• Capacity utilization
• Business inventories
• NAHB home builders’ index
• FOMC minutes
• Initial jobless claims
• Continuing jobless claims
• Building permits (SAAR)
• Housing starts (SAAR)
• Philadelphia Fed manufacturing index
• Louis Fed President James Bullard speaks
• Cleveland Fed President Loretta Mester speaks
• Chicago Booth School – New York Fed meetings
• Existing home sales (SAAR)
• Leading economic indicators
• Fed Gov. Christopher Waller speaks

Markets Index Wrap Up

Stock Markets

The equity markets continued to be volatile throughout the past week although overall gains were recorded for the second week in a row. Growth and value shares performed similarly while large-caps were outpaced by the medium and small-caps, a breakout of the pattern of value outperformance in place since November. There were 112 companies listed in the S&P 500 Index scheduled to release performance reports, making this one of the busiest weeks of the fourth-quarter earnings reporting season. Several large-capitalized stocks were included, thus driving the movement in broad benchmark indexes. Facebook’s stock price declined by 26% as a result of the announcement of a drop in its daily users and guidance for slower revenue growth. The event alone erased $232 billion off the company’s market capitalization on Thursday, a record-breaking development. On the other hand, a report of better-than-expected earnings for Amazon.com attributed to its Web services business bolstered the indexes back to higher levels on Friday. Among the sectors, energy outperformed the rest, building on their significant lead for the year. U.S. oil prices surged above $90 per barrel, mainly due to agreement among the major oil exporters to commit to a modest production increase despite the rising oil demand.

U.S. Economy

Good news on the economy accompanied last Friday’s release of the most recent monthly employment report. In the month of January, almost half a million (467,000) jobs, much higher than were expected, were added to the employment market. This is an optimistic development in the light of the omicron spread. It is a signal that the underlying labor market remains sufficiently robust to overcome the potential disruption posed by the current and future covid variants. There are signs that the worst of the coronavirus pandemic will end in January, and that public health conditions will continue to ease moving forward. Furthermore, the anticipated rate hike in March is generally accepted as a done deal and investors have discounted this development in the expectation that markets have recalibrated to a more aggressive monetary policy.

Also in January, the hospitality and leisure sectors reported a welcome growth in payrolls. These remained the last sectors to recover as a result of the lockdowns and mobility restrictions. The employment levels in this sector have still not recovered to their pre-pandemic levels, so a continued increase in hiring is expected as the economy continues to rebuild. Average hourly earnings have grown 5.7% on an annual basis, adding a positive note to the growth rate in consumer spending. There is a noticeable jump in the labor-force participation rate that has climbed to a new high post-pandemic amid the largest month-over-month increase in ten years. Posing a challenge is the continued labor shortage, although it is an optimistic sign that workers are eager to return to the labor force, possibly encouraged by the fading covid concerns and the lure of higher wages. Total employment is reported to be 1.7 million below the pre-pandemic level and is clearly on the road to better days ahead.

Metals and Mining

The gold market is presently at a standstill and failing to advance, but at least it maintains its level at $1,800 per ounce. Where it goes from here is uncertain. There are two equal but opposing forces impacting precious metals at present. The first is the escalating inflation which is the highest it has been in years. The second is the expectation that the Federal Reserve will adopt aggressive measures to cool down the overheating economy caused by the rising consumer prices. The workings of these two forces are keeping gold prices on hold. Investor surveys point to the likelihood that gold prices will remain stable at the current level, according to the London Bullion Market Association.

In the past week, spot gold price rose 0.93%, closing the previous week at $1,791.53 and this week at $1,808.28 per troy ounce. Silver began this week at the previous week’s close of $22.47 and ended Friday at $22.52 for a marginal rise of 0.22%. For platinum, the earlier week’s close at $1,013.50 ascended to $1,028.19 by week’s end, for a gain of 1.45%. Among the precious metals, palladium lost 3.57% of its value during the week, beginning at $2,378.88 and ending at $2,294.06 per troy ounce.

For the base metals, copper rose from $9,507.50 per metric tonne to close at $9,841.50, gaining 3.51% for the week. Zinc closed the previous week at $3,609.50 and this week at $3,612.50 per metric tonne for a sideways gain of 0.08%. Aluminum began at $3,082.50 and ended the week at $3,074.00 per metric tonne for a marginal loss of -0.28%. Lastly, tin commenced at the earlier week’s close of $41,684.00 and ended at this week’s close at $43,021.00 for an increase of 3.21%.

Energy and Oil

A severe winter storm that is moving across the U.S. has added another risk factor to the oil market. The storm has reached the Permian Basin and sparked concerns that potential supply disruptions may occur in the largest American shale source. Additionally, the OPEC+ commitments in its production increases into March 2022 have remained unchanged, signifying the inability or unwillingness of the group to meet rising demand. The Russian-Ukraine geopolitics add another dimension to the situation, prompting strong speculations that the $100 per barrel mark will soon be breached. Oil prices have been rising, bringing Friday’s Brent trading to $93 per barrel and the US benchmark WTI trending above $92 per barrel. In a 16-minute meeting, the OPEC+ signified that it would extend its 400,000 barrel per day increases into March 2022. The move ignores talks about continuous underperformance of production targets and depleting spare capacity.

Natural Gas

At most locations for the report week January 26 to February 2, natural gas sport prices rose. The Henry Hub spot price increased from $4.37 per million British thermal units at the beginning of the week to $6.44/mmBtu by the week’s end. International natural gas prices were mixed during the week. Along the Gulf Coast, prices rose ahead of forecasts of freezing temperatures. In the Midwest, prices increased in line with those at the Henry Hub, while in the West, prices climbed in response to cooler temperatures increased consumption, and reduced supply. The U.S. natural gas supply was relatively flat this week, although U.S. natural gas consumption fell across all sectors. U.S. LNG exports fell by three vessels this week compared to last week’s exports.

World Markets

European equities fell after Christine Lagarde, President of the European Central Bank (ECB) issued comments that implied the likelihood of a possible rate increase this year. The pan-European STOXX Europe 600 Index closed the week down 0.73% while major indexes likewise slid lower. Although Italy’s FTSE MIB Index posted modest gains, France’s CAC 40 Index descended 0.21% and Germany’s Xetra DAX Index dropped 1.43%. The UK’s FTSE 100 Index saw a 0.67% gain. The core eurozone bond yields climbed on worries about inflationary pressures and the potential of a change in the accommodative policies of the ECB. Peripheral eurozone bond yields aligned with the core yields. Gilt yields moved higher on the back of an increase in interest rates by the Bank of England (BoE), the second such increase since December.

In Japan, the stock markets rose for the week on optimism that the government could present a policy by next week on potentially easing the ban on the entry of foreign nonresidents into the country. The Nikkei 225 Index rose 2.70% while the broader TOPIX Index gained 2.86%. The rally occurred late in the week, led by stocks that were likely to benefit from an economic reopening as a result of the lifting of the ban. The report failed, however, to detail what measures will be eased. With regards to monetary policy, the Bank of Japan (BoJ) reassured the markets that there were no plans to modify the current accommodative policy, boosting broad sentiments. Despite consumer prices remaining low, other major central banks are under inflationary pressure to raise interest rates and tighten monetary policy. This is fueling speculation that the BoJ will eventually be forced to follow suit. The yield on the 10-year Japanese government bond rose to 0.20% this week from 0.17% at the end of the preceding week. This is the highest level since the BoJ began its negative interest rate policy in January 2016. The exchange rate of the yen to the U.S. dollar strengthened to JPY 114.91 from the previous week’s JPY 115.26.

China’s financial markets remained close for the weeklong Lunar New Year celebration. In economic news, a moderation in factory production and services was indicated by government purchasing managers’ surveys for January. There was a decline in the official manufacturing Purchasing Managers’ Index (PMI) from December’s 50.3 reading to 50.1, while the nonmanufacturing rating, which measures construction and services sectors activity, dipped from 52.7 to 51.1. Expansion is separated from contraction at the 50.0 mark. Smaller private firms struggled last month in China’s manufacturing sector, as evidenced by the Caixin/Markit Manufacturing PMI for January which fell to its lowest level since February 2020.  In addition, there was more evidence of falling sales in China’s property sector, which continues to suffer from its cash crunch that began last year.

The Week Ahead

For the week ahead, expect consumer credit, inflation, and jobless claims to be among the important economic data to be released.

Key Topics to Watch

• Consumer credit
• NFIB small-business index
• International trade
• Real household debt (year-over-year)
• Wholesale inventories (revision)
• Gov Michelle Bowman speaks
• Cleveland Fed President Loretta Mester speaks
• Initial jobless claims
• Continuing jobless claims
• Consumer price index (month-to-month)
• Core CPI (month-to-month)
• Consumer price index (year-to-year)
• Core CPI (year-to-year)
• Federal budget
• Richmond Fed President Tom Barkin speaks
• UMich consumer sentiment index (preliminary)
• UMich 5-year-inflation expectations (preliminary)

Markets Index Wrap Up