Stock Markets

During the shortened trading week ahead of the Christmas holidays, stocks rebounded from the losses of the previous week. Investor sentiment was buoyed by prospects that the Omicron variant was not going to severely impact the economic recovery as earlier anticipated. As could be expected, trading volumes were low as many players were sidelined due to market closures on Friday ahead of the Christmas weekend. Stocks listed in the defensive utilities sector lagged the market while the consumer discretionary and energy stocks outperformed with the renewed optimism in the economic recovery moving forward. The beginning of the week started out tentatively, however, as the market sought its direction on Monday’s trading following the previous week’s downward momentum. Aside from Omicron worries, investors responded negatively to news over the weekend about Joe Manchin’s refusal to back Joe Biden’s 2 trillion dollar “Build Back Better” plan. But things turned for the better as the week wore on and evidence from South Africa’s early Omicron wave showed that the infections resulted only in mild symptoms and that cases seemed to be receding quickly. Further adding to renewed ebullience is the assurance from Joe Biden on Wednesday that there were no plans to return to lockdowns as a response to new coronavirus variants.

U.S. Economy

Moving forward into the new year, the developments surrounding the coronavirus will continue to chart the path of the economy. However, every new variant will cause a smaller negative effect on the response by policymakers as more medical solutions become available. Furthermore, governments are becoming more reluctant to impose severe restrictions on economic activity, and the public is also increasingly less receptive to such measures. Value investments are likely to benefit as the trend towards further economic expansion gains pace in 2022, and the Federal Reserve is poised to dial back its accommodative policies and the fiscal stimulus boost dissipates. A catch-up potential continues in some international markets where investments continue to be underpriced, such as international small and mid-cap assets and emerging market equities.

The Fed stimulus has aided in stabilizing the credit system through lowered borrowing costs and business and consumers. This excess liquidity, in the form of cheap money, has encouraged aggressive market moves that are typical in a bullish market. Speculative gains made in meme stocks (GameStop, BlackBerry), cryptocurrencies, and non-fungible tokens (NFTs) have whetted players’ appetites for technical plays rather than fundamental values. In 2022, real yields (after inflation) are expected to rise, and with the expected rate hikes mopping up the excess liquidity will likely come bouts of volatility in the speculative market segments. This does not necessarily pose a systemic threat to investors, but it will encourage tricky investor positioning as the year progresses. A clear-headed strategy that focuses on high-quality investments and diversification across asset classes will be the recommended approach in this bull market.

Metals and Mining

Over the past week, trading has been generally listless as there remains no strong motivation to position in the markets ahead of the holiday season up to the new year. Gold rose by 0.68% from $1,789.11 the previous week to $1,810.26 per troy ounce at this week’s close. Silver gained 4.84% when it rose from $22.37 to $22.87 per troy ounce. Platinum also edged higher beginning at $935.80 per troy ounce and closing at $981.10 for a 4.84% appreciation. Palladium closed the preceding week at $1,788.73 and this week at $1,948.32 per troy ounce for a gain of 8.92%.

Base metals also traded within narrow margins. Copper rose by 1.85% from $9,437.50 to $9,612.00 per metric tonne. Zinc gained 4.13% from the previous week’s close at $3,387.00 to the past week’s close at $3,527.00. Aluminum began from its earlier close at $2,724.50 to its close this week at $2,846.00, registering an increase of 4.46%. Tin gained 1.27% from its close in the previous week at $38,410.00 to this week’s close at $38,899.00.

Energy and Oil

Oil prices appeared to depart from their previous week’s attachment to the Omicron news updates as they reacted more closely to foreign supply developments. Prices have moved upwards as a result of the overall decline in U.S. crude stocks and the disruption in the Libyan supply. Strong demand triggered a week-on-week decline in inventories by 4.7 million barrels, despite U.S. crude supply constantly maintained at approximately 11.6-11.7 million barrels per day (b/d). Another episode of the domestic power struggle in Libya has reduced supply by about 300,000 b/d of crude almost instantly, providing a golden opportunity for those bullish in the oil sector. Brent traded around $75.50 per barrel as of Tuesday, even as the U.S. benchmark WTI hovered around $73 per barrel.

Natural Gas

Weighed down by forecasts for a milder winter ahead and reduced demand for heating than formerly expected, U.S. natural gas futures fell more than 6% on Thursday. The price drop was also no doubt further influenced by a smaller-than-usual storage withdrawal over the past week. The U.S. Energy Information Administration (EIA) reported that 55 billion cubic feet (bcf) of gas withdrawn during the week ending December 17 were accounted for by utilities, which is close to the 56-bcf decline analysts forecasted. The decline in U.S. prices came after European gas prices plunged more than 15% as warmer weather over the next few days and expectation of the arrival of several liquefied natural gas (LNG) tankers offset low exports from Russia.

World Markets

Major equity markets in Europe ended the shortened Christmas week significantly higher. The pan-European STOXX Europe 600 Index rose by 1.35% in local currency terms over the five days ending December 23. Germany’s Xetra DAX Index inched up 0.77%, Italy’s FTSE MIB climbed 0.87%, and France’s CAC 40 Index rose 1.44%. The UK’s FTSE 100 Index gained 1.55%. The week began on negative news regarding the rising cases attributed to the COVID-19 omicron variant and the tighter restrictions imposed to contain its spread. The Netherlands went into lockdown on Sunday and travel constraints were adopted in Austria, Germany, and France, further weakening investor confidence.

Also adding to the dour sentiment was the deadlock in the U.S. Congress over President Biden’s proposed $1.75 trillion Build Back Better spending plan. Despite the initial negative reaction, investor confidence picked up towards the week’s end when Moderna announced that lab tests show that its coronavirus vaccine booster dose is effective against the omicron variant. In the meantime, the European Central Bank (ECB) announced that it would keep its main policy rates at current levels. It elected instead to end its emergency asset purchase program in March but ease into a smooth transition by temporarily increasing its Asset Purchase Program. The exit from its accommodative monetary policy would be slow to calm business and consumer sentiment and threats of the variant to further economic growth.

Japan’s bourse took a tumble on the opening day of the week, further extending the deep plunge that ended the week before due to fears of the omicron spread, stagflation, and an impending economic slowdown. For the remainder of the week, however, stocks climbed on slow volume, bringing the NIKKEI 225 and the broader TOPIX to 28,798.4 and 1.989.4 points respectively when trading ended Thursday. Worries that strict restrictions may be imposed to slow the spread of the omicron variant fueled speculation that the global economic recovery may be obstructed. After the initial sell-off, the technology and pharmaceutical sectors led the rebound. The rally was a welcome development in the face of the rate hike by the Bank of England in the previous week and a possibly more aggressive rate increase in the U.S. by 2022. Volatility impacted both the currency and bond markets during the week.

China’s markets saw little change throughout the week up to the end of trading on Thursday. There was little reaction to an expected key rate cut by the central bank, the first in twenty months. The large-cap CSI 300 Index dipped by 0.1%, and the Shanghai Composite Index rose 0.3% from their previous close during the preceding Friday. The People’ Bank of China (PBOC) cut the one-year loan prime rate (LPR) on Monday, for the first time since April 2020. However, the five-year LPR remained unchanged. The LPR is not an official policy rate but it is based on the loan rates charged by 18 domestic lenders for the best customers. As such it is regarded as China’s de facto benchmark funding cost. The PBOC’s measure was expected by economists after the central bank cut its required reserve ratio in December. This easing measure diverged dramatically from policy direction in the U.S., where the Fed indicated that its monthly asset purchase plan would end sooner than expected, signaling further increases in the interest rate for the coming year.  China’s property sector remains worrisome as it was impacted by volatility for the week.

The Week Ahead

Among the important data to be released next week are the trade in goods advance report, pending home sales index, and initial and continuing jobless claims.

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

Stock indexes headed south amid volatility over the past week due to investor reaction to two prevailing concerns: the possible spread of the omicron variant, and the prospect that the central bank will tighten monetary policy to counter the rising inflation.  Growth stocks and technology-loaded Nasdaq Composite Index underperformed as longer-term interest rate expectations gained traction. On Friday, Nasdaq touched an intraday low that was slightly below its recent peak, still holding above the 10% threshold for a correction. Within the broad index S&P 500, technology and consumer discretionary shares were the worst performers, while the usually resilient consumer staples, health care, and utilities charted gains.

Partly causing the volatility that ended the week was the simultaneous expiration of three types of options and futures contracts. The Cboe Volatility Index (VIX) climbed during the week although it remained significantly below its early December levels. Front and center in investors’ sights were the Federal Reserve’s monetary policy meeting last Tuesday and Wednesday. Upon release last Tuesday of the report that producer prices rose 9.6% in November year-on-year, the highest increase since 2010 when data were first collected, the major stock indexes plummeted sharply. On Wednesday, the Fed’s quarterly survey of individual policymakers’ views was released, indicating that majority of officials now expected three quarter-point hikes rather than two were likely in 2022.

U.S. Economy

Despite worries of a possible slowdown in economic recovery, data points to a return to pre-pandemic output GDP in record time. This set the stage for unique conditions on the road to the normalization of monetary policies. This will likely create the shortest time between the end of the preceding recession and the first-rate hike thereafter. If the rate hike takes place by the next summer, the duration between recession and rate increase would have been cut in half; since 1985, the average time was four years. Furthermore, the 10-year Treasury rate is the lowest it has been approaching Fed tightening at below 1.5%. By comparison, the 10-year Treasury rates averaged 5.3% at the time of the first Fed hike, during the period since 1985. Liquidity is also the most abundant, as indicated by the Fed balance-sheet assets in proportion to GDP, which is at the highest level it has been since the last world war. Acceleration of the Fed’s taper appears appropriate since there is no longer any need for the emergency-level stimulus in the economy.

Metals and Mining

Gold prices are exhibiting some resilience as the metal descended to just above $1,750 an ounce but bounced off this major support. It then pushed up above the $1,800 level, indicating that investors may be gaining some interest in light of the rising inflation. Economists polled believe that inflation may range between 3% to 6% through the first semester of 2022 before dropping in the second half.

Last week, precious metals moved listlessly and ended mixed. Gold gained 0.86%, closing at $1,798.11 per troy ounce from its week-ago close at $1.782.84. Silver also rose slightly from its week-ago price at $22.20 per troy ounce to last week’s close at $22.37, gaining 0.77%. Platinum lost some ground, closing at $935.80 per troy ounce over the earlier week’s $945.66, dipping 1.04%. Palladium did somewhat better, gaining 1.38% from the previous week’s $1,764.32 per troy ounce to close at $1,788.73.

Week-on-week, the 3-month prices of the base metals also experienced little movement. Copper inched downward by 0.73%, from $9,506.50 per metric tonne to $9,437.50. Zinc gained 1.76%, rising from $3,328.50 per metric tonne to $3,387.00.  Aluminum recorded a higher gain of 4.53%, from the previous week’s $2.606.50 per metric tonne to the recent close at $2,724.50.  Tin ended the week lower by 2.51%, closing at $38.410.00 for the week compared to the earlier week’s $39,400.00.

Energy and Oil

In recent months, the oversupply of oil was the main concern in oil markets, something which may well materialize soon. This appears to be the direction in light of the softening of demand in Asia due to China’s zero-COVID measures. The continued clampdown by Beijing on independent refiners in Shandong has dampened the bullish sentiments of investors. In the meanwhile, Brent futures prices are rising above the spot price which is a signal of impending oversupply. Some factors on the upside remain, particularly the low level of global inventories which at present are approximately at their levels in March 2020. But European omicron cases are rising at a rate that threatens an oversupply situation way beyond the possible demand. The anticipated glut has caused ICE Brent price to descend to $73 per barrel. The U.S. benchmark WTI traded at about $70.5 per barrel.    

Natural Gas

Over the past 10 months of 2021, China’s imports of liquefied natural gas (LNG) were the largest in the world, surpassing Japan as shown by data from Japan’s Ministry of Finance and China’s Administration of Customs. For 51 years prior to 2021, Japan held the distinction of being the world’s top LNG importer. China’s LNG imports averaged 10.3 billion cubic feet per day (Bcf/d), and increased by 2.0 Bcf/d or 24% over the corresponding period last year. Over the same period, Japan’s LNG imports averaged 9.6 Bcf/d.

For the report week, December 8 to December 15, 2021, natural gas spot prices fell at most locations. The Henry Hub spot price fell to $3.75 per million British thermal units (MMBtu) at the week’s end from the previous week’s $3.79/MMBtu. The January 2022 New York Mercantile Exchange (NYMEX) contract price descended $0.013 from the earlier week’s $3.815/MMBtu to the recent Wednesday’s $3.802/MMBtu. Natural gas futures prices for delivery through the end of the current heating season dropped $0.50 to $3.744/MMBtu, but futures for delivery during the coming summer months rose by $0.03 to $3.671/MMBtu, in effect flattening the futures curve. For delivery during the winter months, the premium for natural gas futures is presently $0.072/MMBtu above contract prices for summer delivery, a reduction from last week’s $0.108/MMBtu.

World Markets

European stock prices dipped over the past week as the governments moved to intensify pandemic restrictions in response to the spread of the omicron coronavirus variant. Simultaneously, central banks grew more hawkish in reaction to the continued rise in inflation, raising investors’ concerns about investing in risky markets. The pan-European STOXX Europe 600 Index concluded trading for the week with a 0.35% loss. Principal indexes followed suit, with Germany’s Xetra DAX Index sliding 0.59%, Italy’s FTSE MIB Index dropping 0.41%, and France’s CAC 40 Index losing 0.93%. The UK’s FTSE 100 Index slumped 0.30%. The core eurozone bond yields exhibited volatility this week, ending lower in the end. Initially, yields sharply dropped on fears that the omicron surge will seriously slow down the economic recovery. Thereafter, hawkish pronouncements by major central banks and the decision by the European Central Bank (ECB) to scale back its emergency bond-buying program caused yields to rebound from its deep dive. A subsequent announcement by ECB President Christine Lagarde that an interest rate increase was “very unlikely” next year brought pressure on bond yields. Overall, peripheral eurozone bond yields rose. UK gilt yields rose after the Bank of England, (BOE) unexpectedly increased short-term interest rates.

Over the week, Japanese stock prices advanced. The Nikkei 225 Index rose 0.38% and the broader TOPIX Index gained 0.46%. the U.S. Federal Reserve’s tapering decision accounted for investor sentiment being lifted and bringing the indexes to positive territory. It appears many feel that the Fed decision signals confidence in the directions of the post-COVID global economy to which the Japanese open market is highly leveraged. The yield on the 10-year Japanese government bond adjusted downward to 0.04% from 0.05% at the end of the preceding week. As to currencies, the yen moderately weakened from JPY 113.39 to JPY 113.56 against the U.S. dollar.

The resurgence in global coronavirus cases has caused the Chinese markets to fall for the week, even as tensions between the U.S. and China intensified. Washington imposed investment and export restrictions on dozens of Chinese companies allegedly due to repressing China’s Muslim minorities and supporting the Beijing military. The CSI 300 Index pulled back 1.9% while the Shanghai Composite Index gave up 0.9% on listless trading. The yields on the country’s 10-year government bonds climbed to 2.873% from 2.861% the week earlier. The yuan fell to CNY 6.3714 against the U.S. dollar, compared to the earlier week’s exchange rate of CNY 6.3672.

The Week Ahead

Leading economic indicators, personal income, and the PCE index are among the important economic data scheduled for release this coming week.

Key Topics to Watch

• Leading economic indicators
• Current account deficit
• GDP revision (SAAR)
• Consumer confidence index
• Existing home sales (SAAR)
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Nominal personal income
• Nominal consumer spending
• Core inflation (monthly)
• Core inflation (year-over-year)
• Real disposable income
• Real consumer spending
• Durable goods orders
• Core capital goods orders
• New home sales (SAAR)
• UMich consumer sentiment index (final)
• Five-year inflation expectations (final)

Stock Markets

Fears concerning the possible fallout from the omicron variant of the SARS Cov-2 virus appear to have calmed down during the week as markets rebounded decisively, reversing two weeks of losses. The S&P 500 charted its best weekly gain since early this year, as most of the benchmark indices trod close to their record highs. The S&P MidCap 400 Index touched a new peak on Friday, hinting at a possible surge in the coming week. Driving much of the rally were information technology stocks, with Apple recording solid gains to push its market capitalization close to $3 trillion. This cements Apple’s reputation as the world’s most highly valued public company. The financial sector and utilities underperformed the rest of the market but still posted solid gains. The market was taking its cue from the announcement last week by Dr. Anthony Fauci, the U.S. president’s chief medical advisor, that the omicron variant does not appear to have “a great deal of severity,” even as the Centers for Disease Control and Prevention (CDC) commented that U.S omicron cases have been mild.  

U.S. Economy

The week’s economic news also helped to significantly bolster investor sentiment. The Labor Department reported on Thursday that 184,000 Americans applied for unemployment benefits the week before. This is the lowest number of people to have done so since 1969. The number of open jobs in the U.S. rose to 11 million, much more than anticipated, mostly accounted for by accommodation and food services. A decades-high inflation rate was also noted. On Friday, the year-over-year November consumer price index was reported at 6.8%, the highest since 1982. Part of the reason lies in the rising energy costs, although overall the increase in inflation rate was broad-based. Excluding food and energy, the core rate rose 4.9%, suggesting that principal causes could also be traced to supply chain issues and wage pressures. The tally, however, shows that both these components were generally consistent with expectations.

The Fed Chair, Jerome Powell, provided some indication that the coming monetary policies may assume greater restriction. Powell suggested that the word “transitory,” which was consistently used to describe the current inflationary push, be omitted, acknowledging by implication that inflation will become more persistent and should no longer be perceived as temporary. He also implied that the anticipated tapering of asset purchases may be advanced a few months sooner than previously planned. Such a move was perceived to make sense to allow some flexibility for when the FOMC could begin raising rates. This is a move that would be inevitable should inflation continue to remain stubbornly high. The same idea was expressed by other Fed governors during the week, suggesting the likelihood of its impending announcement.

Metals and Mining

According to some of the biggest international banks, gold is soon to experience renewed investor demand as inflation becomes increasingly regarded as more than transitory. Inflation is shaping up to be the most important economic challenge as 2022 approaches. On Friday, the announcement of a jump in the Consumer Price Index to an annualized 6.8% drew attention as the highest inflation reading in 39 years, signaling an even higher trajectory to possibly peak in the first semester before moving gradually down. Some analysts and economists see that there remains some headroom for further movement. What all of this means is that gold will continue to attract investors seeking to protect their wealth and purchasing power in an environment of growing uncertainty and risk.

Gold hardly moved over the past week as investors sought cues from a market of conflicting signals – the encouraging news of a mild omicron virus versus the persistent increase in the inflation rate. Gold lost 0.03% while silver slid by 1.42%. Palladium sank deeper 2.92%, although platinum bucked the trend to rise by 1.01%. The base metals were also mixed. Copper gained 0.94% and zinc went up 5.28%. Tin inched up 0.17%, but aluminum dipped by 0.63%.  

Energy and Oil

The oil markets gained some breathing space last week with the welcome news that the Omicron variant of COVID-19 is a mild infection that will not likely cause any major disruption in the global economic recovery currently underway. Demand remains largely stagnant at present while global crude inventories are still lower than the five-year average, keeping Brent marginally above the $75 per barrel price, and WTI at $72 per barrel. Covid aside, there are still some concerns that may keep global demand down, such as the lackluster air traffic activity in China and elsewhere in the world where travel restrictions are still effective. There is also the possibility of bankruptcies of large-scale Chinese property companies such as Evergrande and Kansa that may pull the market southward if they materialize. At the other extreme is what appears to be the start of a bullish situation in the U.S. resulting from soaring inflation, which is balancing off the negative sentiment. Although the anticipated Strategic Petroleum Reserve (SPR) release is still assumed to materialize by January to April 2022, the U.S. strategic crude inventories have already descended to 600 million barrels in the past week, the lowest level since May 2003. Even now, there is widespread speculation that the U.S. may enact an oil export ban because of the dwindling domestic reserves and the increased export outflows, but the Biden administration has stated that a ban is not considered as an option for the time being.

Natural Gas

During the report week December 1 to December 8, the Henry Hub spot price dropped from $4.23 per million British thermal units (MMBtu) to $3.79/MMBtu. The international gas prices remain close to their record highs, with swap prices for liquefied natural gas (LNG) cargos in East Asia for the rest of December averaging $35.06/MMBtu for the week, down by $1.41/MMBtu, lower than last week’s average of $36.57/MMBtu but still the second-highest weekly average since January 2020. The prices along the Gulf Coast fell due to lower heating demand expectations, while Midwest prices also fell, then rose, responding to lower-than-normal temperatures across the region. Prices in the West also rose due to colder-than-normal weather, but also because of the impaired capacity on the pipelines delivering natural gas to Southern California. In the Northeast, prices rose due to a winter storm traversing the region. The U.S. supply of natural gas decreased slightly while consumption remained unchanged for the week and U.S. LNG exports increased week-on-week,   

World Markets

Mirroring the U.S. European shares rebounded from their previous slump as concerns about the impact of the Omicron variant on the world economy abated. The pan-European STOXX Europe 600 Index closed the week higher by 2.76%, with France’s CAC 40 Index up 3.34%, Italy’s FTSE MIB Index up by 3.02%, and Germany’s Xetra DAX index also up by 2.99%. The UK’s FTSE 100 Index ascended 2.38%. Core eurozone bond yields also climbed in response to indications from Pfizer and BioNTech that their booster shot may be effective against the Omicron variant. This calmed fears about the likely economic repercussions of another covid spike, thereby contributing to the surging yields. There was a subsequent pullback on the yields, however, when speculations spread that the European Central Bank may raise asset purchases through its standard Asset Purchase Program when its emergency purchases are concluded in March 2022. UK gilt yields ended higher when the UK government announced the resumption of a new round of coronavirus restrictions. In response, the market moderated its expectations for potential interest rate increases.

The bourses in Japan made headway during the week as the Nikkei 225 Index gained 1.46% and the broader TOPIX Index advanced 0.90%. As in other global markets, concerns about the impact of another covid variant were brushed aside. So, too, did Japan appear to discount the downgrade to its third-quarter economic growth. In his policy speech to parliament, Prime Minister Fumio Kishida outlined his administration’s vision to usher in a new era in Japan, focusing on areas such as digitalization opportunities, climate change mitigation, and strengthening the start=up ecosystem. The yield on the 10-year Japanese government bond remained unchanged at 0.05%, while the yen weakened against the U.S. dollar to about 113.6 from 112.8 week-on-week as it remained vulnerable to expectations of further policy tightening by the U.S. Federal Reserve.

In China, the stock markets recorded weekly gains after the central bank reduced the reserve requirement ratio for banks. Inflation concerns also eased with the calming of the November factory gate inflation. The CSI 300 Index ascended 3.1% and the Shanghai Composite Index rose 1.6%. Nevertheless, concerns about the likelihood of defaults in the property sector and the withdrawal of additional U.S.-listed Chinese companies reined back sentiment after Didi Global, the ride-hailing app, indicated that it would delist from the New York Stock Exchange earlier this month. Yields on the country’s 10-year government bonds dipped to 2.861% from 2.926% the week earlier. Regarding currencies, the renminbi tested a five-year high of 6.3649 against the U.S. dollar on Friday after a weaker-than-expected midpoint was set by the People Bank of China (PBOC). The value of the renminbi is permitted by the central bank to rise or fall 2% against the U.S. dollar from an official midpoint rate it sets daily.

The Week Ahead

The PMI composite, Retail Sales growth, And the Fed Funds rate are among the important economic data to be released in the coming week.

Key Topics to Watch

• NFIB small business index
• Producer price index
• Retail sales
• Retail sales excluding autos
• Import price index
• Import price index excluding fuels
• Empire State manufacturing index
• NAHB home builders’ index
• Business inventories
• Federal Reserve FOMC announcement
• Jerome Powell press conference
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Building permits (SAAR)
• Housing starts (SAAR)
• Philadelphia Fed manufacturing index
• Industrial production index
• Capacity utilization
• Markit manufacturing PMI
• Markit services PMI

Markets Index Wrap Up

Stock Markets

Volatility characterized the past week’s trading with the major equity indexes pulling back on the announcement by Fed Chair Jerome Powell that the Federal Reserve may begin tapering on its monthly asset purchases and do so at a faster rate than expected. Also factoring in on investor sentiment are concerns that the emerging omicron variant of the coronavirus, which the World Health Organization (WHO) labeled as a variant of concern, may slow down the economic recovery and growth by further prolonging supply chain disruptions. The smaller and mid-cap benchmarks were outperformed by large-capitalized stocks. The communications services sector lost the most ground while the utilities sector was the only sector that realized any gains within the S&P 500. Among bonds and other fixed-income markets, worries that the omicron variant may wreak havoc once more in the global economy, together with uncertainties surrounding the upcoming move by the Feds. The Treasury yield curve flattened during the trading week as long-term rates decreased and short-maturity yields rose. Generating positive returns through most of the week were tax-free municipal bonds, which also performed consistently with the broad-sector U.S. Treasuries.

U.S. Economy

The principal concern about the sustainability of the ongoing economic recovery is the discovery of the omicron variant and how transmissible and severe it could be amid fears of the drop in the effectiveness of the current vaccines. Travel restrictions were tightened by many countries to stave off the possible spread of the variant, and hopes linger that the vaccines can continue to provide some protection against severe illness and hospitalization due to the unknown mutation.

The larger economic picture, however, looks stable, with strong household finances resulting from extensive fiscal support and government-income transfers emerging as the key factors behind the robust economic rebound post-pandemic. There is a reported $2.3 trillion estimated additional savings relative to the comparative average levels before the pandemic. This provides a safety buffer for uncertain times on the horizon for strong consumer spending should uncertainties materialize. There is also strong positive economic momentum with the most recent data indicating strength in the U.S. economy. Real GDP is growing at nearly 10% in the fourth quarter based on the forecast by the Atlanta Fed.

• Consumer spending is showing no signs of slowing, which is reassuring since it is the main driver of the U.S. economy. Last month, spending was reported as rising strongly even in real terms (i.e., without the effect of inflation).
• The leading indicator of factory activity, the ISM manufacturing PMI, moved higher in November and remains at close to its highest readings since 2004, although it is still off its peak. The comparative indicator for the services sector also rose to its record high, based on Friday’s report.
• The labor market remains robust. Although job growth in November registered its smallest gain for the year at 235,000 payroll jobs, the unemployment rate nevertheless fell by 4.2%, a larger than expected number. Labor force participation also rose steadily. The four-week claims have now descended to new pandemic lows, having fallen below the lowest point recorded in five of the last six expansions.

Metals and Mining

The gold market continues to struggle to find its strategic place among the financial markets as investors’ concerns increase over the more hawkish pronouncements of Federal Reserve Chair Jerome Powell. This is a reversal from three weeks ago when gold was on a bullish uptrend as investors flew to risk havens from inflationary pressures. At that time, the Fed regarded inflation as transitory and soon to descend to normal levels. More recently, however, the policy setters appear to dismiss the notion that the trending inflation was merely temporary and take the threat of inflation more seriously. The Fed announcement showed that it is prepared to adopt more aggressive in adopting monetary tightening measures, which the market took to mean that the tapering off of monthly bond purchases will be conducted at a faster pace in December. For 2022, the market is starting to price in four rate hikes. Gold remains stuck in this neutral territory for the meantime as investors try to discount the recent Fed proclamations.

There still remains long-term potential in precious metals as some investors shift to an accumulation strategy. It was announced in the just-concluded week that both the central banks of Singapore and Ireland began to purchase gold for the first time in decades. Singapore bought 27.35 metric tons of gold between May and June. For its part, the Irish central bank bought two tonnes of gold, marking its first gold purchase since 2009. For the week, gold lost 1.07% to end at $1,783.29 per troy ounce from $1,802.59 the previous week. Silver went from $23.16 to $22.52 week-on-week for a loss of 2.76%. Platinum also slid 2.31% from $958.28 to $936.19 per troy ounce for the week. Palladium buck the trend and closed at $1,817.43 per troy ounce from the earlier week’s close at $1,768.28, for a 2.95% gain.

For base metals, prices generally succumbed to the downward spiral. 3Mo copper descended 3.91% from $9,801.50 to $9.418.00 per metric tonne. Zinc fell 4.21% to $3.161.50 per metric tonne from $3,300.50 the week earlier. Aluminum began at $2,717.50 to slide down by 3.48% to  $2,623.00 per metric tonne week-on-week. Tin, meanwhile, inched down 0.94% from $39,709.00 to $39,335.00 per metric tonne for the week.

Energy and Oil

The much-anticipated decision from OPEC+ about reducing or ceasing its monthly 400,000 barrels per day (b/d) oil increase did not materialize, and the week’s expected stellar event fizzled out when the country-members decided to remain committed to the original plan. The oil consortium nevertheless committed to maintain its option to reverse that decision if the situation calls for it. Oil prices corrected on the news, the market subsequently calmed when players saw that the OPEC+ did not disregard the threat of the new Omicron virus strain. The member states committed to reconvene quickly if a sudden shift in market conditions came about. Also, the countries that have overproduced their quotas so far will see a cap on their upcoming production targets in order to balance their annual production volumes. These announcements helped to support oil prices and push them slightly upwards towards the end of the week.    

Natural Gas

For the report week November 24 to December 1, natural gas spot prices fell at most locations. The Henry Hub spot price cam down from $4.90 per million British thermal units (MMBtu) to $4.23/MMBtu during the week. International natural gas prices remained close to all-time-highs, while prices in the U.S. fell due to seasonally warm temperatures across most of the country. The Henry Hub spot price descended 14% or $0.67/MMBtu. Forecasts by the National Oceanic and Atmospheric Administration (NOAA) projects possible above-normal temperatures throughout most of the lower 48 states and an equal chance of normal temperatures across the rest of the country. U.S. natural gas consumption increased week-over-week in all sectors except the power sector. Exports of natural gas increased from the previous week, while U.S. LNG exports remained unchanged on a weekly basis.

World Markets

Trading in Europe’s stock markets was mixed as volatility returned due to Omicron variant concerns and continued signs of inflationary pressures. The pan-European STOXX Europe 600 Index ended 0.28% lower based on local currency terms. Among the major bourses, Germany’s Xetra DAX Index dipped 0.57%, France’s CAC 40 Index gained 0.38%, and Italy’s FTSE MIB Index also rose 0.33%. The UK’s FTSE 100 Index climbed 1.11%. The core eurozone bond yields fell to lower levels, affected by negative news on the further spread of the omicron variant. Comments by Federal Reserve officials indicating the adoption of tighter monetary policies created less of an impact on bond yields than the coronavirus news. Counterbalancing the Fed announcement are comments made by Bank of England Monetary Policy Committee member Michael Saunders that he may vote against a rate hike this month, in light of the uncertainties created by the omicron variant. This declaration further weighed down on yields.

The Japanese stock markets traded downward for the week also due to concerns that the omicron variant may spread throughout the country. These worries compelled Japan to close its borders to foreign nationals (except for those with special permission to enter), a move that caused investor sentiment to turn negative. The Nikkei 225 Index lost 2.51% of its value while the broader TOPIX Index also fell 1.37%. The yield on the ten-year Japanese government bond slid to 0.05% from 0.07% at the previous week’s close, mainly on safe-haven demand. The yen remained broadly unchanged from the previous week, at JPY 113.3 against the US dollar. The release of positive economic data, particularly the increase in industrial production and decrease in the unemployment rate, provided further support to investor sentiment.

Chinese stocks realized gains for the trading week despite the return of tensions between this country and the U.S. Tensions flared after the Chinese ride-hailing app Didi announced that it would delist its shares from the New York Stock Exchange. The CSI Index climbed 0.84% while the Shanghai Composite Index gained 1.2%. The announced delisting of Didi was a reaction to the directive by the U.S. Securities and Exchange Commission that Chinese companies listed on the U.S. stock exchanges must disclose whether they are owned or controlled by a government agency or instrumentality and for those companies to provide evidence of their auditing inspections. The yields on the country’s ten-year government bonds surged to 2.926% from 2.881% the week prior, in pace with the increase in U.S. Treasury yields in response to Federal Reserve news of an impending speedier tapering of the U.S. central bank’s monthly bond purchases. The yuan rose against the U.S, dollar to 6.3718 from 6.3917 the week before following the stronger midpoint rate set by the People’s Bank of China. China’s central bank allows the exchange rate to fluctuate 2% above or below the midpoint rate that it sets every morning.    

The Week Ahead

Inflation, productivity, and consumer credit are included among the important economic data expected to be released in the week to come.

Key Topics to Watch

• Trade deficit
• Productivity revision (SAAR)
• Unit labor costs revision (SAAR)
• Consumer credit (change)
• Job openings
• Job quits
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Wholesale inventories (revision)
• Real household wealth
• Real domestic nonfinancial debt
• Consumer price index
• Core inflation
• CPI (year-over-year change)
• UMich consumer sentiment index (preliminary)
• Expected inflation, five-years (preliminary)
• Federal budget

Markets Index Wrap Up

Stock Markets

Trading was shortened for the week due to the Thanksgiving holiday, but not before a sharp sell-off on news that a possibly more contagious and deadly coronavirus variant was spreading in South Africa. This new strain, dubbed the Omicron variant, has not yet been fully assessed as to whether it could effectively evade the protection provided by the current vaccines, but the market of risky assets, particularly equities, proved averse to the possibility of renewed lockdowns and pandemic restrictions on businesses and consumers. Before the suspension of trading, the information technology sector slumped as the rising Treasury yields eroded the value of future expected corporate profits in present terms. The yields fell on Friday in the midst of a flight to safe haven assets. Value stocks proved more resilient than growth stocks despite the selling pressure on leisure and travel stocks during the last trading day.

U.S. Economy

Thanksgiving marks a shift in the consumer shopping season with the Black Friday opening salvo. Consumer spending habits have evolved, however, with a larger volume of transactions being conducted online as well as holiday sales exceeding the traditional Thanksgiving-to-Christmas shopping window. Overall spending may experience a healthy jump despite possible supply-chain disruptions forcing consumers to limit their selections to in-stock brick-and-mortar store items. The National Retail Federation (NRF) foresees a hike in holiday sales for this year to the tune of 8.5% to 10.5% year-on-year.

There is much to fuel a healthier consumption appetite in the coming year, with the personal savings at 7.5% of disposable income. This is the highest personal savings rate approaching Thanksgiving in the past 25 years. Although this is a significant discount from the spike during the pandemic lockdowns when consumer spending was at a halt, the savings rate is still well above the 6.5% long-term average (or 6.1% excluding 2020). On the other hand, the wage growth rate, currently at 4.2%, is the highest it has been since this corresponding period in 2007, furthering impetus for consumer spending. Over the past quarter-century, as wage growth rises above 4% and accelerates, the growth in the gross domestic product (GDP) averages 3.2% compared with a 2.5% average for the entire period. A further improvement in the labor market is likewise expected to support a possible bull run for the next year. Labor shortages remain a problem that may be exacerbated by the likelihood of a new covid strain. The new post-pandemic low in the initial jobless claims that were reported last week, however, appears likely to support the strengthening of the labor market in 2022 with a decline in the prospective unemployment rate from the present 4.6%.

Metals and Mining

Monday and Tuesday of the past week saw a massive sell-off in precious metals after President Joe Biden’s announcement that he would nominate Jerome Powell to continue as chair of the Federal Reserve. While the connection is not clear, investors may expect that Powell may not adopt as dovish a policy as Lael Brainard, the other person considered for the position. Powell, however, is not expected to be openly hawkish in his stance. The rise in inflation has investors overly cautious of the imposition of restrictions in the monetary policy before the end of the year. \

After the initial sell-off in precious metals, however, there was a noticeably strong rebound when the news of the latest COVID-19 variant was released. The discovery of the Omicron mutation in South Africa and its likelihood of triggering another round of surges and lockdowns around the world has shifted attention back to gold as a safe haven asset during times of heightened risk. The price of gold bounced off an almost three-week low, and recovered, although to a level short of the previous week’s close.

At the close of trading for the week, the spot price of gold, which began at $1,845.74 per troy ounce, ended at $1,802.59, lower by 2.34%. Silver also lost 5.93% in value, descending from $24.62, its close of the previous week, to Friday’s close at $            23.16 per troy ounce. Platinum also slid for the week, from $1,034.16 to $958.28, or a loss of 7.34%. Palladium ended the week 14.36% lower, starting at $2,061.25 and ending at $1,765.28 per troy ounce. Base metals (3Mo) took the opposite direction of their precious counterparts. Copper rose 3.81% for the week, from its $9,441.50 of the previous week to Friday’s close at $9,801.50 per metric tonne. Zinc gained 4.48% to close at $3,300.50 on Friday from the earlier week’s close at $3.159.00 per metric tonne. Aluminum climbed 3.88% to its recent close at $2,717.50 per metric tonne from the prior week’s close at $2.616.00. Tin also gained 3.27% week-on-week to close at $39,709.00 per metric tonne from $38,453.00.

Energy and Oil

On Friday, oil prices plunged by more than 10% across the board on jitters that a new COVID strain is starting to spread from South Africa. The so-called Omicron variant has once more resurrected fears of future economic lockdowns and the likelihood of a curtailed demand on oil and gas. Earlier, the release of Strategic Petroleum Reserves announced by Joe Biden failed to bring down prices of oil and, instead, spurred them higher. What the U.S. President intended to achieve, therefore, was attained by the prospect of a new virus and fears of a reversal of the fledgling economic recovery. With the scheduled meeting of the OPEC+ on December 2 meeting, it is still possible for the consortium to influence the outcome of the SPR release and the recent price fluctuation by possibly reducing production targets for 2022. Thus far, the OPEC’s Economic Commission Board estimates that global crude surplus for the first quarter of 2022 will only be inflated by the SPR releases set in motion by the United States and its partners. It may eventually lead to a slower-than-assumed OPEC+ production rollout.

Natural Gas

The recent news release concerning the Omicron covid variant has arrested the climb of LNG spot prices in Asia. Instead, fears of a reduction in demand for liquefied natural gas due to a slowdown in the economic recovery have gas prices dipping to $36 per million British thermal units (MMBtu), although demand is still ramping up in Japan and South Korea. The price currently remains above the seasonal high. In the west, US natural gas prices continue their ascent despite the past week’s trading being shortened by the Thanksgiving holiday. The U.S. natural gas Henry Hub futures rose 5% for the week to end at $5.16/MMBtu. This is likely due to the expected increase in the demand for heating as the cold winter months approach. Week over week, U.S. natural gas consumption has increased mainly by the residential and commercial sector, rising 3.0% or 2.3 billion cubic feet per day (Bcf/d). U.S. LNG exports have also increased during the same period, amounting to 22 LNG vessels with a combined carrying capacity of 79 Bcf/d departing the U.S. between November 11 and November 17, 2021.

World Markets

Equities in Europe declined precipitously on concerns that the economic recovery of the region may be interrupted by the spread of the Omicron variant of the coronavirus. The new mutation was discovered in South Africa, and it is perceived to spark a new round of pandemic restrictions throughout Europe and possibly the world. The pan-European STOXX Europe 600 Index closed the week lower by more than 4%. The principal indexes in Italy, France, Germany, Spain, and the Netherlands also took a nosedive. The UK’s FTSE 100 Index was not as severe since the pound’s exchange rate against the dollar depreciated. Since many of the listed companies in the FTSE 100 Index are multinationals earning in US dollars, the weaker pound tends to bolster the index. The core eurozone bond yields were relatively unchanged as the news of the Omicron variant softened their ascent from the week’s highs. The peripheral eurozone bond yields have remained high due to the prevailing fears of continued inflation and the possibility that central banks may adopt more restrictive policies, following the UK gilts.

In Japan, the stock exchanges appeared to sustain their high levels halfway through the week, but to later give way on fears that the economic recovery may be derailed. The Nikkei 225 lost 3.3% when it descended below 29,000 points to close at 28,752. The Topix performed only slightly better, falling 2.91% to finish below the 2,000-point support and ending at 1,985. Selling pressure was evident in the airlines and automotive sectors as sentiments were negatively affected by the slower than expected pace of economic recovery. Later in the week, the reappointment of Federal Reserve Chair Jerome Powell exacerbated concerns that interest rates in the U.S. may be raised sooner than expected, creating a wider divergence from Japan’s policies. At this point, growth-oriented stocks and highly valued technology companies absorbed the selling pressure of the speculated monetary tightening. The yen also slid to new multi-year lows, while the benchmark 10-year Japanese government bond yields rose to 0.085%, its highest level for the month of November before it corrected to 0.07%.

The Chinese bourses also weakened although not as sharply as the Western and Japanese markets. The CSI index dipped 0.6% while the Shanghai Composite Index remained unchanged, even as U.S.-Chinese tensions (i.e. regarding Taiwan’s status and trade issues) prevailed and economic pressures continued to rise, further fueling expectations for supportive government measures. The yields on China’s 10-year government bonds descended from the previous week’s 2.946% to 2.881% as a result of investors’ flight to safe haven assets. The yuan strengthened slightly to 6.3917 against the U.S. dollar, compared to last week’s exchange rate of 6.4009 per USD.

The Week Ahead

The employment rate, the consumer confidence index, and the PMI index are among the important economic data due for release in the coming week.

Key Topics to Watch

• Pending home sales
• S&P Case-Shiller home price index (year-over-year-change)
• Chicago PMI
• Consumer confidence index
• ADP employment report
• Markit manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Beige Book
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Markit services PMI (final)
• ISM services index
• Factory orders
• Core capital goods orders (revision)

Markets Index Wrap Up

Stock Markets

The past week saw the major indexes ending mixed even as the Nasdaq tested a new record high. Investors swayed between fear and greed as they weighed the prospects of strong economic data and corporate profits reports against concerns about rising inflation, prevailing supply constraints, and the upsurge in coronavirus cases in certain regions. Value stocks were outperformed by growth stocks, accounting for the new intraday high attained by the Nasdaq Composite index during Friday’s trading. Within the S&P 500 Index, sector returns varied widely. Consumer discretionary stocks were boosted by strong gains in Amazon.com shares and a partial resurgence in Tesla. Information technology shares rallied on the back of a strong performance by Apple. As oil prices dropped for the week, so did energy stocks in line with discussions between China and the U.S. about the release of strategic reserves, and as U.S. inventories climbed for the first time in the past five weeks.

Taking a longer-term view, the bourses are up approximately 25% since the beginning of the year. It treaded a relatively easy path, with only one 5% correction so far. Some investors are exhibiting signs of fearing that they had missed out on the bottom as they continue to buy with good volume among the high-flying stocks whose significant gains continue to attract attention among those eager to catch up. Simultaneously, however, there is a sense among those who came in early that the overheated market may signal some profit-taking. The sustained rally poses some prospects of a major correction, possibly to digest some of the gains before heading back towards positive territory.

U.S. Economy

There are signs that the economic expansion is again gaining momentum. For instance, the Commerce Department reported on Tuesday a jump in October retail sales amounting to 1.7%. This represents the largest gain recorded since March, even as September’s retail sales figure was revised upward. Inflation may have accounted for some of the increase, as sales in gas stations ascended 3.9%, but the impact of early holiday shopping could not be discounted. There was also a higher-than-expected increase in October’s industrial production, at 1.6% compared to 0.7%. The current measure of manufacturing activity in the New York region also showed higher than expected results.

There is also speculation about the future direction of Fed policy, although it is generally accepted that more stringent measures are coming to address the rising inflation rate. What is uncertain is how soon and how severe the more restrictive monetary policies may be. Due to the role played by the extraordinary monetary stimulus and liquidity in the stock market rally, it is likely that equities may dramatically respond to the coming bond taper and eventual rate hikes. Some analysts even suggest that the forthcoming tighter Fed policy may usher in a possible future recession or bear market. But this is all speculative, as currently, the situation is far from foreboding that an overly restrictive monetary setting is likely. The more likely scenario is that the Fed restrictions will be introduced more gradually and with sufficient forethought, and though it may cause some volatility into the markets, monetary policy by the Federal Reserve may well be more than a tailwind than a headwind for the longer term.

Metals and Mining

The week was mostly one of quiet sideways trading, with gold likely to end the week strong. However, movements in the U.S. dollar caused precious metals to move south very quickly. At the close of the week, gold ended below $1,850, its critical initial support, thus possibly signaling further downward movement barring any fundamental changes over the weekend. The U.S. currency simultaneously shot up to end the week at a new 16-month high, ascending 96 points. The rising currency value is creating headwinds for precious metals concerning their valuation in dollar terms. The growing gap in monetary policies is the cause of the strengthening of the dollar, as the Federal Reserve proceeds with its plan to taper monthly bond purchases, potentially leading to interest rate hikes in 2022.

There is still some upside to precious metals as inflation continues to pose a threat to other, riskier, investment vehicles. The recent dips in metal prices may be an opportunity to accumulate. Gold spot price began last week at $1,864.90 and ended at $1,845.74 per troy ounce, for a weekly loss of 1.03%. Silver ended one week ago at $25.32 and the just-concluded week at $24.62 per troy ounce, losing 2.76%. Platinum began at $1,085.80 and closed the week at $1,034.16 per troy ounce, plunging 4.76%. Palladium came from $2,111.41 to end at $2,061.25 per troy ounce, sliding 2.38%. Base metals did not fare much better. Copper began at $9,633.50 per metric tonne but closed Friday at $9,441.50 for a weekly loss of 1.99%. Zinc, which was at $3,279.00 the week before, ended last week at $3,159.00, losing 3.66%. Aluminum was previously $2,660.00 but ended at $2,616.00 per metric tonne, thus descending 1.65%. Tin, however, bucked the trend to close 1.98% higher, climbing from $37,708.00 to close at $38,453.00 per metric tonne.

Energy and Oil

For most of the week, crude prices were stagnant in the light of conflicting market signals – inventories have dropped to their lowest point in years, off by about 300 million barrels from their summer highs. There were unprecedented stock draws in both the Americas and Asia that confirm the sentiment of tightness in the market. At the same time, the unexpected increase of coronavirus cases across the Atlantic Basin heightened demand concerns as nations mull over a return to lockdowns, further slowing the economic recovery. Austria is poised to be the first Western European country to reimpose a full coronavirus lockdown this autumn, due to the resurgence of COVID infections. The situation between OPEC+ and the U.S. also failed to improve this past week. On Friday, the U.S. West Texas Intermediate crude oil futures traded lower after they descended steeply from their intraday highs during the trading session. The sudden strengthening of the U.S. dollar also weighed in on the demand forecasts. The possibility was also raised that the potential release of crude reserved in leading economies may flood the market with too much supply.

Natural Gas

For the report week starting November 10 and ending November 17, 2021, natural spot prices rose at most locations. Henry Hub spot price increased from $4.58 per million British thermal units (MMBtu) at the week’s open to end at $4.79/MMBtu on Wednesday’s close. International natural gas prices also went up for the same duration. For the balance of November, swap prices for liquefied natural gas (LNG) cargos in East Asia increased for the second consecutive week. The weekly average increased to $32.69/MMBtu for this report week, $0.55 higher than the previous week’s average of $32.13/MMBtu.  In the Netherlands at the Title Transfer Facility (TTF), Europe’s most liquid natural gas spot market, the day-ahead price gained for the second week in a row to average a weekly $27.68/MMBtu, ahead by $2.95/MMBtu from $24.73/MMBtu, the previous week’s average. Compared to the same week last year – i.e., for the week ending November 18, 2020 – prices in East Asia and at TTF were $6.80/MMBtu and $4.74/MMBtu, respectively.  

World Markets

In Europe, shares were mostly unchanged for the week as the coronavirus surge through the region posed a challenge to the economic recovery. The pan=European STOXX Europe 600 Index closed 0.14% lower week-on-week. The major European indexes were mixed. Italy’s FTSE MIB Index lost 1.42%, Germany’s Xetra DAX Index rose 0.41%, while France’s CAC 40 Index gained 0.29%. The UK’s FTSE 100 Index slid by 1.69%.

The core Eurozone bond yields fell on comments by the European Central Bank (ECB) President Christine Lagarde signaling the continuation of accommodative policies. Lagarde dispelled worries of interest rate increases, pointing to the prospect of a dissipating inflation increase. She also broached that asset purchases may proceed even after the expiry of the Pandemic Emergency Purchase Programme. After Austria’s announcement of the reinstatement of a nationwide coronavirus lockdown, fears spread in Europe that further COVID restrictions may once again become prevalent, pushing core yields down further. Peripheral eurozone bonds followed the trend set by core markets, while UK gilt yields remained broadly unchanged, taking their cue from the ECG’s announcement.

In Asia, Japan’s stock market returns were cautiously up after the government announced a larger-than-expected stimulus package. The Nikkei 225 Index gained 0.46% and the broader TOPIX Index increased by 0.19%. The Bank of Japan announced that monetary policy would continue to be accommodative, leading the yen to slightly weaken against the U.S. dollar from JPY 113.9 last week to JPY114.5 at the end of this week. The yield on the Japanese 10-year government bond inched up to 0.08% from 0.07% the week earlier.

 The Chinese bourses were not much different, ending the week mixed as the CSI 300 Index moved sideways and the Shanghai Composite Index ticked up 0.5%. Lackluster third-quarter earnings and revenue performance announced by Alibaba Group Holdings, the e-commerce Chinese conglomerate, topped a week of mostly negative news on the economy and on efforts by real estate firms to raise funds. The People’s Bank of China (PBOC) remained supportive of the economy with the unveiling of its targeted lending program worth RMB 200 billion in financing aimed at the domestic coal sector. Yields on the country’s 10-year government bonds remained steady at 2.946% for the week, in reaction to Beijing’s willingness to use the PBOC’s balance sheet to direct credit at the margin toward favored sectors. The yuan slipped to 6.4009 per U.S. dollar, constituting a two-week low.  

The Week Ahead

Personal income and credit, the PCE index, and the PMI composite are among the important economic data scheduled to be released in the coming week

Key Topics to Watch

• Chicago Fed national activity index
• Existing home sales (SAAR)
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• GDP revision (SAAR)
• Gross domestic income (SAAR)
• Durable goods orders
• Core capital goods orders
• Trade in goods (advance)
• Personal income (nominal)
• Real disposable income
• Consumer spending (nominal)
• Real consumer spending
• Core inflation
• Core inflation (year-over-year)
• New home sales (SAAR)
• UMich consumer sentiment index (final)
• 5-year inflation expectations
• FOMC minutes

Markets Index Wrap Up

Stock Markets

During the past week, data showing the highest inflation in the last thirty years caused investor sentiment to dip and stocks to retreat from their record highs. The S&P 500 recorded its first loss on Tuesday in the last nine consecutive sessions that ended its longest winning streak going back to 2017. Within the S&P 500 index, the consumer discretionary shares underperformed all the other sectors due to a steep fall in Tesla. The sell-down was sparked by an announcement by CEO Elon Musk of plans to sell some of his shares. Energy shares likewise plummeted in line with the oil price drop-offs from their recent highs. Of the sectors that outperformed, the small materials sector was the strongest, apparently boosted by the passage of the $1.2 trillion infrastructure bill in the U.S. House of Representatives. Also noteworthy for the week was the initial public offering of Rivian, maker of electric vehicles. Since the launch of Facebook’s offering in 2012, this was the largest IPO for an American company. Thursday was marked by the observance of Veteran’s Day, during which fixed income markets were closed.   

U.S. Economy

On Wednesday morning it was announced that the consumer price index (CPI) surged 0.9% for October, overshooting consensus expectations pegging the increase at 0.6%. This latest rise brought the year-over-year CPI increase to 6.2%, the highest CPI level since December 1990. A large part of the reason for this rise in inflation can be attributed to the sudden increase in energy prices. Nevertheless, core inflation (i.e., excluding the energy and food segments) also increased by 0.6% which is also higher than expected, bringing the core reading to 4.6%.

Inflationary pressures may be transitory, however. Components of inflation that are temporary by nature are the volatile prices for energy and gas, automobiles, and food and lodging. These sectors are sensitive to supply chain disruptions, labor shortages, and higher demand, all three of which are transient disruptors in the recovering post-pandemic economy. It is highly likely that the surge in prices seen to date will not occur again in the coming months. Supply-chain bottlenecks are likely to ease in the near future, which will also tend to ease up the production costs in the automobile industry. There are some areas, however, where inflationary components may tend to remain elevated, such as wage inflation, shelter and rent costs, medical care services, and education costs.

Over the long term, such as ten years or more, other factors may exert downward pressure on inflation. These include an aging demographic, rise in automation, and globalization. The older population in many developed economies, and the working age population are likely to shrink, putting a broad downward pressure on consumption and inflation. Technological advances that enhance automation in production make it possible for larger parts of the workforce to be replaced or supplemented, keeping the wage inflation down and thereby also reducing inflation overall. Finally, globalization implies that multinational companies may source labor and parts from other parts of the world where they cost less. There appears to be a diminishing trend towards globalization, however, which is a development that must be studied.

Metals and Mining

The announced increase in the U.S. CPI last Wednesday has triggered concerns that the Federal Reserve might not be up to the task of controlling the fast-rising inflation. The impression is that the U.S. Central Bank is losing control is due to the lack of further actions that it may take to halt the rising trend in prices. A global supply crunch is driving the present inflationary push, Hiking interest rates is not likely to be effective in increasing the supply of needed manufacturing supplies such as microchips, or the volume of consumer goods to fill grocery store shelves. Rate hikes will also not effectively reduce the soaring gas prices. What is worse, data from the University of Michigan point to the early prospect of weakening consumer sentiment, which may lead to less consumption. This creates lower growth, and thus stagflation.

The fear of a faltering economy is driving the precious metals market, which is now seeing a five-month high. Gold is the one asset of intrinsic value that investors flee to when the other financial markets become volatile. The precious metals market is currently performing well as the flight-to-risk investment vehicle, particularly in this inflationary environment. Over the past week, the spot price of gold climbed 2.56% to $1,864.90 per troy ounce at Friday’s close of trading, from the previous week’s close of $1,818.36. Silver rose 4.80%, from the previous week’s close of $24.16 to last week’s closing price of $25.32 per troy ounce. Platinum climbed from $1,036.24 in the previous week to rise 4.78% and end at $1,085.80 per troy ounce. Palladium gained 3.50% week-on-week, starting from $2,040.09 to close the week at $2,111.41 per troy ounce.

Base metals also made solid gains for the week. Copper began at $9,439.00 per metric tonne and closed last week at $9,633.50 for a gain of $2.06%. Zinc, which ended the previous week at $3,240.50, closed the succeeding week at $3,279.00 for a gain of 1.19%. Aluminum began with a price of $2,554.50, the earlier week’s close, to end at $2,660.00 for this week, registering an increase of 4.13%. Tin, which previously closed at $36,452.00, ended this week at $37,708.00, gaining 3.45% in market value.

Energy and Oil

Crude prices have recently been trading the range between $80 and $85 per barrel, but their loss of momentum from the past surge will bring them to a third consecutive weekly decline. Other than the pullback in the futures markets, other indications point to a further slump in crude oil prices. The U.S. government will likely decide on further SPR releases in the coming days. In addition, the demand scenario is likely to weaken further as OPEC decided to reduce its fourth-quarter demand forecast by 330,000 barrels per day (b/d), driven down by the adverse effect of rising energy prices and inflation on the economic recovery. A further consideration is the increasing pressure put by the strengthening dollar on crude prices. As the dollar’s value appreciates, the price of crude tends to go down in terms of the U.S. currency.  

Natural Gas

With the forward view of providing sufficient winter supplies for gas and electric consumers, the California Public Utilities Commission (CPUC) voted unanimously on Nov. 4 to increase the amount of natural gas stored at the Aliso storage facility in Los Angeles County, to 41 billion cubic feet (Bcf) from 34 Bcf. This move guarantees that Southern California Gas Co. (SoCalGas), the operator at the Aliso Canyon facility, will be able to meet the minimum reliability needs of the region. The supply conditions throughout the region have been tight for most of the summer and well into autumn. For the coming winter, a technical assessment by SoCalGas shows that gas demand may reach 4,967 million cubic feet per day (MMcfd), should a one-in-10- year cold day event take place.

The steep discounts in forward prices were part of the large sell-off throughout the country. Henry Hub December prices further declined due to a bearish weather outlook, stronger production, and inconsistent feed gas demand by the U.S. LNG facilities. The New York Mercantile Exchange (NYMEX) trading established the trend for the U.S. benchmark as contracts ended in the red for most trading days. The December futures contract capped the week at $4.791, off $0.358 day/day and lower from a $5.516 settlement on Nov. 5. Although we are two weeks into November, the winter weather remains absent from forecasts. Other bearish factors continue to dominate the gas market.

World Markets

In Europe, share prices rose in response to the continued accommodative monetary policy and the prospects of continued economic growth, negating for the moment concerns about the rising inflation. The pan-European STOXX Europe 600 Index rose 0.68%. Also gaining are Germany’s Xetra DAX by 0.25%, France’s CAC 40 Index by 0.72%, and the UK’s FTSE 100 Index by 0.60%. Going in the opposite direction is Italy’s FTSE MIB, which lost 023%. Among the fixed income investments, core eurozone bond yields rose. Earlier in the week, the markets did not expect an increase in interest rates in light of the European Central Bank’s dovish comments. However, the surge in the U.S. inflation rate to higher-than-expected levels prompted a reversal, forcing yields higher. Broadly following the trend of the core markets are the peripheral eurozone and the UK government bond yields.

In Japan, news about the particulars in the government’s proposed fiscal stimulus package and the impression that Japanese valuations were lagging behind their U.S. peers incentivized some investor accumulation in the country’s equity markets over the past week. The corporate earnings report season indicated that there were positive effects from the weakness of the currency. The Nikkei 225 and the broader TOPIX indexes traded sideways, generating neither gains nor losses. The yen further weakened to JPY 114.05 versus the U.S. dollar, down from JPY 113.41, primarily because of speculation that the Bank of Japan will maintain low interest rates beyond the central banks of other developed countries. The yield on the 10-year Japanese government bond remained unchanged at 0.07%.’

The Chinese stock markets gained ground consistent with expectations that Beijing will be adopting easing measures to aid highly leveraged property companies with looming debt defaults. The large-cap CSI 300 Index ascended 0.95% while the Shanghai Composite Index climbed 1.4%. Over the week, embattled China Evergrande Group was able to avoid a last-minute default for the third time in the month. Furthermore, the Kaisa Group informed its creditors that it may not be able to pay the coupons on its bonds due to legal and cross-default issues offshore and domestically. Kaisa is also on the brink of default as it has the most offshore bonds of any Chinese developer after Evergrande. In 2015 Kaisa became the first property developer to default on its dollar bonds, which became a landmark event at the time. The property sector remains a key industry in China’s economy, giving rise to the possibility of a spillover effect into the other sectors.

The Week Ahead

In the coming week, expect Retail Sales, Initial and continuing jobless claims, and the Leading Economic Indicators index to be among the important economic data to be released.

Key Topics to Watch

• Empire State manufacturing index
• Retail sales
• Retails sales ex-autos
• Import price index
• Industrial production
• Capacity utilization
• NAHB home builders’ index
• Business inventories
• Building permits (SAAR)
• Housing starts (SAAR)
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Philadelphia Fed manufacturing index
• Leading economic indicators

Markets Index Wrap Up

Stock Markets

The stellar performance of equities over the past week was the result of healthy economic data, a robust end to the earnings season, and a comparatively modest outcome of the Federal Reserve policy meeting, all of which boosted investor sentiment. The major indexes, including the Dow Jones Industrial Average, the broad S&P 500 Index, and the Nasdaq Composite, rose to record highs. Growth shares outperformed value stocks, and the technology and small-caps sectors chalked up a strong performance. After the Biden administration officials broached the likelihood of releasing some supply from the strategic petroleum reserve, oil prices dropped from their recent highs, causing a slump in the energy sector. Profit margins remained resilient despite the rise in commodity prices and ongoing supply chain disruptions across several industries, due to the strong results among the remaining companies reporting their earnings for the third quarter. It seemed that equity investors tended to be more bearish towards companies that lagged consensus expectations, and more bullish towards those that did better than expected.

U.S. Economy

The Fed announced the start of its tapering, or winding down, of monthly bond purchases. Currently at $120 billion, tapering will commence at $15 billion per month, at which rate the Fed will entirely phase out purchases by June 2022. This gradual withdrawal of the emergency support extended during the 2020 pandemic recession was generally expected, since this intention was signaled in advance by policymakers. Some volatility is expected as the market seeks to price in the result of this policy shift. The general concern was that the Fed might be compelled to raise interest rates sooner than expected in response to the fast-rising inflation rate and other central banks leaning towards monetary tightening. The market calmed and resumed its surge only when the Fed announced that inflation pressures are expected to be temporary, implying that the monetary authority will be dovish on rate hikes.

Currently, there is increasing uncertainty in the outcome of the Fed’s two clashing mandates, that of full employment and stable prices. Employment figures continued to remain below pre-pandemic levels by more than four million despite the solid gains of last month, suggesting that the Fed maintain an accommodative policy. This appears to clash with the Fed’s inflation measure that hit a 30-year high in September and remained above 3% over the past six months, which appears to justify a tightening monetary policy. In reconciling the two mandates, policymakers acquiesce that the inflationary pressures may extend beyond current expectations, but the factors behind the increase in prices are merely transitory. These factors include the strong demand for goods, supply-chain disruptions, and transportation bottlenecks. The supply-demand imbalance is evidently a continuing post-pandemic malaise, but as the economy opens up and the imbalance resolves itself, inflation rates will return to moderate levels. In the meantime, tapering will not be a major market concern as the Fed will continue to provide stimulus at a slower pace as their bond purchasing is tapered.

Metals and Mining

Gold investors remain vigilant as the metal continued to fall short of sustaining a rally over the past two months, but there may be a shift in momentum as inflation rates continue to remain high and may likely rise, making gold an undervalued hedge. The spot price of gold ended above the $1,800 per troy ounce, close to its eight-week high. This is the first time that the company has ended above a strong resistance level since it first breached $1,800 in September. The rally comes in response to a report released by the U.S. Labor Department that 531,000 jobs were created in October, well above expectations, despite analysts’ observations that the market seems to be focusing on wage inflation. Wages have risen by 4.9% over the last 12 months. This trend is likely to continue as companies are compelled to increase wages to attract new workers. As the Federal Reserve and the Bank of England have announced that they are not expecting to raise interest rates anytime soon, rising inflation pressures may force real rates to fall, adding further to gold’s positive outlook.

The spot price of gold increased from $1,783.38 to $1,818.36 per troy ounce over the past week, for a weekly gain of 1.96%.  Silver closed the previous week at $23.90 and ascended over the week to $24.16 per troy ounce for a gain of 1.09%. Platinum began the week at $1,022.22 and ended at $1,036.24 per troy ounce, an increase of 1.37%. Palladium, previously at $2,004.06, rose to $2,040.09 per troy ounce, for a weekly gain of 1.80%. Compared to precious metals, base metals ended mixed for the week. 3Mo copper which closed at $9,666.50 in the previous week ended lower the past week at $9,439.00 per metric tonne, for a loss of 2.35%. Zinc ended this past week at $3,240.50 per metric ton, higher by 17.99% than the prior week’s close of $2,746.50. Aluminun lost 24.24% for the week, beginning at $3,372.00 per metric tonne and ending at $2,554.50. Tin, on the other hand, rose from $35,858.00 to $36,452.00 by the week’s end for a gain of 1.66%.

Energy and Oil

International oil majors are speculating that there may be tangible increases in U.S. shale output over the next year as several investors may be diverting their windfall profits over to investing in shale. It is less likely that producers will hedge next year’s annual production, opening the possibility that next year’s U.S. crude production may be accelerated sooner than first anticipated. It is alleged that the U.S. is ready to tap into crude SPRs to impose control over runaway gasoline prices, a possibility that offset the decision by the OPEC+ to maintain the current trend in supply discipline. For this month’s meeting by the OPEC+, no new shift in policy has been announced for the oil markets. The oil group has agreed to continue with the 400,000 barrels per day monthly increments for December 2021, consistent with the past months’ performance, despite the increased demand by oil importers for higher supply in the market.

Natural Gas

An estimated 4 billion or more cubic feet per day (Bcf/d) of new capacity has been brought online for the third quarter of 2021, supplying mainly the demand markets in the Gulf Coast and Northeast region. Aside from a fairly balanced gas market for the report week October 27 to November 3, relatively mild weather also prevailed for this duration, tempering demand for air conditioning during the warm season. The Henry Hub spot price dipped by $0.27 from the week’s high of $5,86/MMBtu at the start of the week to $5.59/MMBtu by the week’s end, after touching a low at $5.17/MMBtu midweek.

The demand along the Gulf Coast ascended on average for the week, on the back of higher feed gas deliveries to LNG export terminals in Southern Louisiana. The non-export demand in the region was unchanged for the week. In the Midwest, prices decreased by $0.28 from $5.28/MMBtu to $5.54/MMBtu for the report week, closely tracking the Henry Hub price. In Northern California, the price at PG&E Citygate fell $1.17/MMBtu, from $7.43/MMBtu to $6.26/MMBtu for the week, In Southern California, the price at SoCal Citygate descended by $1.11 from $6.90/MMBtu at the start of the report week to $5.79/MMBtu by the week’s end.   

U.S. supply of natural gas is up slightly for this report week due to natural gas production increasing for the second consecutive week. U.S. natural gas consumption significantly increased over the week due to increased consumption in the residential/commercial sector. In the international arena, Asian liquid natural gas (LNG) prices continue their three-week descent due to improving balance in Europe and the end of the maintenance effort at Chevron’s Wheatstone LNG project in Australia. With the improvement of supply, LNG is trading back at below $30 per million British thermal units (MMBtu).  

World Markets

In Europe, equities ascended due to strong corporate earnings reports and indications from the European Central Bank (ECB) that they are keen on maintaining interest rates at a low level for the time being. The pan-European STOXX Europe 600 Index gained 1.67%. All on the upside are Germany’s Xetra DAX which rose 2.33%, France’s CAC 40 Index which gained 3.08%, and Italy’s FTSE MIB Index which surged 3.42% higher. The UK’s FTSE Index climbed 1.25%, even as the UK pound lost value against the U.S. dollar. The Bank of England kept interest rates unchanged, contrary to expectations. When the pound falls against the dollar, U.S. stocks tend to gain since many companies listed as components of the index are multinationals whose revenues are generated overseas. The core eurozone bond yields dipped from their earlier highs also in response to the ECB pushing back against increasing interest rates next year. The bank expects that inflation will continue to be subdued in the medium term. Core yields further dropped after the BOE signaled its policy is to remain unchanged on rates. UK gilt yields and peripheral eurozone bond yields also descended in tandem with the core eurozone bond yield trend.  

In Japan, the solid election victory of the ruling Liberal Democratic Party led by Prime Minister Fumio Kishida infused renewed investor confidence in the equities market. The Nikkei 225 rose 2.49% in last week’s trading, while the broader TOPIX Index climbed 2.01% higher. The prospects of a stable government and policy continuity encouraged investors to take more aggressive positions in the market. The yield on the 10-year Japanese government bond slid to 0.07%, down from 0.09% from the week earlier, while the Japanese currency closed the week at approximately JPY 113.8 versus the USD, close to the three-year lows. The Bank of Japan assured investors that monetary policies will remain at their current levels.

Chinese equities went the opposite direction from that of Japan, recording a weekly loss. The CSI 300 Index dipped 1.4% and the Shanghai Composite Index fell 1.6% as news concerning the embattled property sector and the fresh COVID-19 outbreak nationwide threw cold water on investors’ sentiment. There were new restrictions in most places, triggering concerns regarding supply chain constraints. Furthermore, as infection rates neared a three-month high, worries regarding the country’s continued economic growth were more pronounced. Consistent with a flight to safety of investment funds, the yield on the 10-year Chinese government bond fell 8 basis points to 2.908% from 2.989% the week before. The yuan rose 0.16% to rest at 6.3995 versus the U.S. dollar.   

The Week Ahead

Among the major economic data expected to be released in the coming week are hourly earnings, inflation data, and the Federal budget.

Key Topics to Watch

• NFIB small business index
• Producer price index final demand
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Consumer price index
• Core CPI
• Wholesale inventories (revision)
• Federal budget
• Job openings
• UMich consumer sentiment index (preliminary)
• Five-year inflation expectations (preliminary)

Markets Index Wrap Up



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Stock Markets

The past week was the busiest week of the third-quarter earnings reporting season, which gave impetus for stocks to rapidly ascend. Most of the major indexes broke out into new highs as most sectors recorded gains. Technology and internet-related companies announced strong results, causing an increase in trading volumes. Within the S&P 500, consumer discretionary shares outperformed due to the surge in Tesla’s prices. As a result, the company’s capitalization topped $1 trillion after news broke out that car rental company Hertz Global will purchase 100,000 of Tesla’s electric vehicles (EVs). As oil prices descended from their recent long-term peaks, prices of energy shares corrected, causing the sector to underperform the market. Also lagging were Amazon.com and Apple, with a capitalization of $1.7 trillion and $2.5 trillion respectively. Supply chain woes continue to plague this sector, with labor and input shortages prompting lower growth forecasts. The resulting decline pulled stock indexes lower from their highs on Friday morning.

Volatility fell this month compared to past years, with the VIX (“fear index”) falling to 17.0, similar to readings before the pandemic. The 5.2% September correction shed most of the overhang, enabling a lighter market to recover and register a 6.6% on the S&P 500 for October. Both growth and value sectors responded with optimism. The further improvement in the COVID-19 situation, both in the U.S. and in other countries, appears to provide a further boost to investor sentiments.

U.S. Economy

The U.S. and the global economy continue on their path to recovery as the pandemic trend and the delta variant situation continue to decline. Looking forward to 2022, however, some risks continue to demand attention and vigilant monitoring. One persistent signal is the elevation in the inflation rate at above the 2.0% targeted by the Federal Reserve. This has remained consistent over the past six months, which is accounted for in part by the supply chain disruptions and supply shortages in areas such as semiconductors. There are signs of gradual improvement, such as the shortening of semiconductor lead times from their peak in October, causing a few automakers to positively note better supply conditions for the third quarter. Generally, corporations estimate that by mid-2022, they may expect supply chain pressures to be fully resolved.

Another area of concern is the monetary policy and future policies to be implemented by the Fed. Speculation is rife that Fed rate hikes might commence as soon as the summer of 2022, triggering volatility in markets. Recently, higher yields on two-year Treasury notes cued the possibility of some market disturbance. However, the Fed has provided continued assurance that it plans to begin with tapering its asset purchases and pause before it would contemplate hiking interest rates. Tapering is likely to begin in November 2021 and continue until midyear 2022. It is the opinion of market analysts that the Fed will continue to exercise patience and continue to observe accommodative measures until the data confirms the need for tightening monetary policy. This outlook will continue to support economic recovery and bring down unemployment below its current 4.8%, which by then will enable the Fed to more confidently raise rates. It has been historically proven that markets perform better during periods of tapering towards the start of rate hiking. There is every reason to believe that the same is likely to occur in this post-pandemic recovery.

Metals and Mining

As with the preceding three weeks, gold tested but retracted from the $1,800 per ounce significant resistance level. The threat of inflation continues to create speculation about the future direction of gold prices due to the precious metal’s attraction as a flight-to-safety investment vehicle. The Federal Reserve tends to take a more hawkish position when inflationary pressures become more pronounced. In the coming week, the Fed will meet to possibly discuss commending the reduction of their monthly bond purchases. Causes for concern include the higher cost of energy and pandemic-related supply constrictions which, if stronger than anticipated, may speed up plans towards adopting more restrictive monetary policies.

The spot price of gold declined slightly last week, falling 0.52% from $1,792.65 to $1,783.38 per troy ounce. Silver likewise dipped from $24.32 to $23.90 per troy ounce, down 1.73%. Platinum descended 2.09% to $1,022.22 per troy ounce from $1,043.99 the week before. Palladium also went south but only slightly, losing 0.86% from the earlier week’s close of $2,021.50 to this week’s $2,004.06. While precious metals generally fell, prices of base metals were mixed. Copper lost 1.68%, closing the past week at $9,666.50 from the previous week’s $9,831.50 per metric tonne. Zinc lost 19.92% to close this past week at $2,746.50 per metric tonne from the earlier week’s $3,429.50. Tin declined by 3.74% from $37,250.00 to $35,858.00 per metric tonne. Bucking the trend was aluminum, which gained 15.86% from $2,910.50 to $3,372.00 per metric tonne.

Energy and Oil

The impressive rally in oil over the past several weeks has settled somewhat over the recent trading week as oil, gas, and coal prices all posted weekly losses. Crude experienced its first week-on-week decline in two months despite the very optimistic third-quarter results announced this week, the most notable of which was Chevron which announced its highest quarterly profit in 8 years. For the week, crude oil settled at below the $85 per barrel benchmark around which it had been moving. Oil supply will continue at their present levels with the OPEC+ Joint Technical Committee agreeing to maintain its commitment to the 400,000 barrel per day supply increase per month, notwithstanding calls from importers to increase supply further.

For November, nuclear talks with Iran returned to the geopolitical agenda. Coming to the table are European Union negotiators with their Iranian counterparts. The restart follows a three-month pause due to the election of President Ebrahim Raisi. Meanwhile, Chinese thermal coal futures traded on the Zhengzhou exchange have dropped to their biggest weekly fail in years. The decline, amounting to 970 CNY or $150 per metric tonne, resulted from Beijing’s restriction on coal prices.  In Saudi Arabia, prospects surged on the launching of a 400 MW Dumat al Jandal wind plant by Vestas, the world’s largest wind turbine maker in the months to come.

Natural Gas

The supply of natural gas in the U.S. for the report week, October 20 to October 27, is slightly higher than the week earlier due to increased dry natural gas production. Data from the IHS Markit indicates that the average total supply of natural gas increased by 1.4% over the previous week’s total of 98.1 billion cubic feet per day (Bcf/d). Almost all of this increase is accounted for by the dry natural gas production week-on-week growth of 1.5%, or 1.4 Bcf/d. There was a 1.1% increase in average net imports from Canada from last week to 5.8 Bcf/d. This is significant as it is the highest weekly average going back to the third week of February.

Natural gas consumption in the U.S. rose week-on-week led by the strong increase in the residential/commercial sector demand. The total demand for natural gas in the country increased by 4.8%, or 4.1 Bcf/d for the week, according to the IHS Markit data. This exceeds the increase over the previous week by twofold. The average weekly consumption of natural gas surged in all end-use sectors, the largest demand being in the residential and commercial sectors. This sectoral increase registered 24.3%, or 3.4 Bcf/d, due to the transition to the winter heating season.

During this report week, natural gas spot prices rose at almost all locations. The Henry Hub spot price ascended from $4.79 per million British thermal units (MMBtu) at the start of the week, to $5.86/MMBtu by the week’s end. The November 2021 NYMEX contract expired by the end of the week at $6.202/MMBtu, up by $1.03/MMBtu from the week earlier. The December 2021 NYMEX contract price rose to $6.198/MMBtu, up by $0.75/MMBtu for the week.

World Markets

Over the past week, the pan-European STOXX Europe 600 Index rose by 0.77% on the back of strong corporate earnings. The optimism this generated appears to have compensated for concerns about inflation and the likelihood that central banks may begin to adopt restrictive monetary policies. Germany’s Xetra DAX Index gained 0.94%, France’s CAC 40 Index advanced 1.44%, and Italy’s FTSE MIB Index rose 1.14%. The UK’s FTSE 100 Index climbed 0.46%. Core eurozone yields rebounded while peripheral eurozone bond yields mirrored the core markets. the Debt Management Office reduced the amount of gilt issuance for the rest of the fiscal year by a larger-than-expected amount, resulting in the fall in UK gilt yields.

Japan’s stock exchanges moved sideways for the week with mixed outcomes in anticipation of the October 31 general election. The Nikkei 225 gained 0.30% as the broader TOPIX Index dropped by 0.05%. The ruling Liberal Democrat Party, led by Fumio Kishida, is generally expected to remain in power post-election, but it may lose seats in the powerful lower house of parliament. Nevertheless, earnings announcements among domestic companies helped to buoy market sentiment for the week. The yield on the 10-year Japanese government bond slid earlier in the week but recovered to end the week unchanged at 0.1%. The yen also moved sideways to close at JPY 113.5 against the U.S. dollar.

China’s bourses retreated in light of sustained worries surrounding the property sector. The large-cap CSI Index benchmark and the Shanghai Composite Index each fell by 1% for the week. Weakness in the property sector raised investors’ anxiety since the sector comprises a full third of the country’s overall economy. A series of defaults, credit rating downgrades, and lately a proposed tax plan shook investor confidence in the market. The tax plan is conceived by authorities to reduce leverage among the leading developers. Concerning new tech regulation, Beijing continued its restrictive policies and proposed to impose a security review on internet companies with more than one million users, before they can send user-related data abroad. The yields on China’s 10-year government bond dipped by two basis points to 2.986%, and the yuan lost ground by 0.2% against the U.S. dollar due to dollar purchases by state-run banks at the week’s end.  

The Week Ahead

This week, the important economic data expected to be released include the Employment Rate, Unit Labor Costs, and Productivity data.

Key Topics to Watch

• Markit manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Homeownership rate
• ADP employment report
• Markit services PMI (final)
• ISM services index
• Durable goods orders (revision)
• Core capital goods orders (revision)
• Factory orders (revision)
• Federal Reserve statement\
• Fed Chair Jerome Powell press conference
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• International trade deficit
• Productivity (SAAR)
• Unit labor costs (SAAR)
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Consumer credit

Markets Index Wrap Up

Stock Markets

Making significant moves to record highs in the past trading week are the Dow Jones Industrial Index (DJIA), the broad S&P 500 Index (which hit a seven-day winning streak), and the S&P MidCap 400 Index. The surges were partly due to the series of positive company earnings reports for the third quarter. The Cboe Volatility Index (VIX) fell to its lowest since the pandemic began in apparent confirmation of the currently prevailing strong investor sentiment. Leading the gains within the S&P 500 are the real estate and utilities sectors, as well as health care shares boosted by insurance providers. For most of the week, communications services remained strong, although social media stocks took a deep dive on Friday due to negative news from Snapchat parent Snap. The latter issued downward guidance on possible future earnings, blaming its dilemma on the new Apple iPhone privacy settings. Another sector that underperformed during the week was Energy shares, after their recent substantial gains. Due to the past week’s performance, equities gained nearly 6% this month, fully offsetting the previous month’s losses. In contrast, bonds came under pressure, with the 10-year yield reaching its highest level since May. The rising inflation continued to be a major concern, although bonds may continue to be a worthwhile investment.

U.S. Economy

Despite the fact that the 10-year Treasury yield advancing to 1.70% in the past week from 1.20% in August, over the last 50 years, yields have never been this low relative to economic growth and inflation. This phenomenon hints at the existence of further upside for yields, yet it is worth keeping in mind that longer-term yields peaked at a lower rate in each of four market cycles over the past four decades. This downward trend has persisted and may continue to persist in the future. Interest rates may continue to experience downward pressure due to a number of factors. One is the changing demographics; the rising life expectancy and aging population indicate greater savings for prolonged retirements. This will drive an increase in savings and demand for bonds. \

On the other hand, investors with a longer-term investment horizon may benefit from higher yields in the long run, however, rising interest rates may be unattractive for fixed-income returns in the short run. It is typical for interest rates to rise as the economy improves and corporate earnings rise. High-yield bonds will tend to outperform in a lower corporate-bond default risk scenario. Consequently, with the growth, higher inflation, and rising interest rates, the value-style investments and cyclical sectors in equities are also likely to perform well, in the same manner as financials and energy shares did this year. As the economy expands, investors will do well to maintain a balanced approach in their portfolio allocations between equity and fixed income. It will be best to overweigh investment-grade bonds in the fixed-income portion, as bonds will likely prove resilient during brief downturns.

Metals and Mining

The optimism that pushed precious metals higher spilled over into the greater part of the past trading week, with gold and silver prices rising to near-peak levels. Gold even exceeded $1,800 an ounce to realize a new six-week high. However, the buoyancy in precious metals was disturbed by the announcement by Federal Reserve Chair Jerome Powell that steps are being taken to contain the risk of rising inflation. On an online conference hosted by South African Reserve Bank, Powell affirmed that the central bank would pursue the reduction of its monthly bond purchase as scheduled. He commented that supply chain issues are expected to be resolved despite rising inflation risks, and inflation will return to 2%. Since gold is regarded as the flight-to-safety alternative during rising inflation, the announcement caused a roughly $30 correction in gold prices off their session highs. Nearing Friday’s close, however, investors went bargain hunting and pushed the precious metal to within a few dollars short of $1,800 per ounce.

Gold spot price ended the week at $1,792.65 per troy ounce, up 1.42% from last week’s close at $1,767,62. Silver gained 4.33% to close at $24.32 per troy ounce from the previous $23.31. Platinum lost 1.38% to close at $1,043.99 from the earlier week’s $1,058.64 per troy ounce. Palladium also lost for the week, ending at $2.021.50 per troy ounce from $2.078.21, down by 2.73%. Base metals did not fare better. Copper spot slid from the previous week’s $10,281 to this Friday’s close of $9,831.50 per metric tonne. Zinc ended the week at $3,429.50 per metric tonne, down 9.62% from last week’s close of $3.794.50. Aluminum ended at $2.910.50, per metric tonne, lower by 8.23% from the earlier week’s close of $3,171.50. Tin moved sideways, gaining only 0.13% week-on-week, from $37,200 to $37,250 per metric tonne.   

Energy and Oil

Emerging once more into the spotlight are energy stocks. The energy sector significantly outperformed the broad S&P 500 index in the past week, The crude oil spot price itself was stagnant for most of the week, with Brent trading at $85 per barrel and WTI moving closer to Brent at $83 per barrel. Although both gas and coal prices have corrected this week off their previous peaks, the reduction was not sufficient enough to balance the tight supply. Oil was able to maintain its price support as a result of a surprise U.S. crude stock draw, even as the EIA data controverted the API’s forecast of solid gains for the week. Although crude futures experienced a steep reversal, it is unlikely that oil prices will significantly change until the current energy crunch experiences a fundamental shift. On the global front, Saudi Arabia turned down the clamor for a strategic change in the OPEC+ production strategy. Amidst increasing pressure to reduce outright prices, Saudi Energy Minister Prince Abdulaziz bin Salman stated that the current crude shortage is not the cause of the present energy crunch.

Natural Gas

For the report week, Wednesday, October 13 to Wednesday, October 20, natural gas spot prices descended at most locations. The Henry Hub spot prices dropped $0.66 from $5.45 per million British thermal units (MMBtu) to $4.79/MMBtu week-on-week. Demand declined more than supply for the week, causing the Gulf Coast prices to come down. The HIS Markit estimates a drop by about 220 million cubic feet per day (MMcf/d) in average weekly supply into Southern Louisiana where the Henry Hub is located, due mainly to lower receipts from the north and lower offshore production. Midwest prices also declined during the past week as a result of mild temperatures. A warming trend across the central lower 48 states brought a $0.35 price decrease from $5.18/MMBtu to $4.83/MMBtu at the Chicago Citygate. In California, prices are mixed for the week, rising in the south while falling in the north. The PG&E Citygate in Northern California dropped by $0.10, from $6.86/MMBtu to $6.76/MMBtu. The price at SoCal Citygate in Southern California increased by $0.02 from $6.00/MMBtu to $6.02/MMBtu for the week.

World Markets

In Europe, shares rose due to investor optimism in positive corporate earnings reports. Investor sentiments discounted for the meantime the potential risks of tightening monetary policy by central banks and the likelihood of a slowdown in economic momentum. The pan-European STOXX Europe 600 Index closed 0.53% higher week-on-week, while the major indexes were mixed. Italy’s FTSE MIB gained marginally by 0.31%, while Germany’s Xetra DAX Index lost slightly by 0.28%. France’s CAC 60 Index was unchanged. The UK’s FTSE 100 Index slid by 0.41%. These performances were quite acceptable, given that the market might have been spooked by the rising inflation and the possibility of more restrictive central bank policies. Core eurozone bond yields were elevated on concerns that monetary authorities might raise interest rates sooner than expected. Peripheral eurozone bond yields mirrored the movements in core markets. UK gilt yields rose steeply after the Bank of England hinted that it would “have to act” should inflationary pressures persist, maybe as soon as November. A Reuters poll of economists suggested that the BoE might be the first major central bank to begin rate increases, sending yields further upwards.

In Japan, campaigning for the October 31 general election commenced even as the ruling Liberal Democratic Party led in the polls. Japan’s stock markets absorbed a weekly loss, with the Nikkei 225 Index down by 0.91% and the broader TOPIX Index declining by 1.07%. The yen moved close to a four-year low against the U.S. dollar, ending the week at JPY 113.9 versus USD 1. The currency underperformance was primarily attributed to the widening spread between U.S. and Japanese sovereign yields, speculation that the Japanese government would adopt more stimulus measures, and the steep increase in oil prices. The yield on the Japanese 10-year government bond ascended to 0.09%.

China’s stock markets gained steam as the large-cap CSI 300 benchmark rose by 0.6% and the Shanghai Composite Index gained 0.3%. Officials exerted efforts to calm the markets, particularly with regard to the property sector. Cash-strapped China Evergrande Group made a delayed coupon payment, triggering a rally in the property developer’s bonds and shares. At the start of the week, China’s stocks were sluggish after the data released on Monday showed that the country’s third-quarter GDP increased by a lower-than-expected 4.9% from last year. The underperformance was due to economic expansion being reined in by power shortages and property sector woes. The most recent quarterly growth report was the weakest since the third quarter in 2020 and much slower than the second quarter’s 7.9% growth rate.

The Week Ahead

Consumer credit and consumption, core inflation, and GDP growth are included among the important economic data to be released in the coming week.

Key Topics to Watch

• S&P Case-Shiller home price index (year-over-year)
• Consumer confidence index
• New home sales (SAAR)
• Durable goods orders
• Core capital goods orders
• Advance report on trade in goods
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Gross domestic product (real, SAAR)
• Pending home sales index
• Nominal personal income
• Real disposable income
• Nominal consumer spending
• Real consumer spending
• Core inflation
• Employment cost index
• Chicago PMI
• UMich consumer sentiment index (final)

Markets Index Wrap Up