Stock Markets

Several geopolitical issues weighed on investor sentiment this week, including higher oil prices pushing inflation worries and the looming U.S. government shutdown in the absence of a bill raising the debt ceiling by September 30. The S&P 500 Index suffered a fourth consecutive weekly decline, closing lower this week by 0.74%. The Dow Jones Industrial Average (DJIA) also fell for the week, by 1.34%, while the D.J. Total Stock Market Index slid by 0.54%. The NYSE Composite was also down by 1.10%. The S&P midcaps and small caps gained some ground, rising by 0.26% and 0.42% respectively, even as the Nasdaq Stock Market Composite Index inched upward by a slim 0.06%. The sector that lost the most ground within the index was utilities, although bucking the trend were energy stocks which outperformed the rest.

Fear that inflation will prove more difficult for central banks to rein in spurred a sell-off in bonds. On Wednesday, the yield on the benchmark 10-year U.S. Treasury note peaked above 4.6%, sending bond prices on a downward spiral (since bond prices and yields move opposite to each other). On the other hand, 10-year Treasury yields inched modestly lower after the release of encouraging eurozone and U.S. inflation data. Also coming under strong selling pressure were tax-exempt municipal bonds and high-yield bonds.

U.S. Economy

The core personal consumption expenditure (PCE) index for August increased 3.9% year-on-year. This is a key inflation indicator that is closely watched by the Federal Reserve as it excludes the volatile food and energy categories. Presently, it is at the lowest annual inflation rate in around two years but still above the central bank’s 2% target rate. The latest reading is a moderation from the upwardly revised 4.3% annual inflation rate recorded in July. The core PCE inflation came in below expectations at 0.1% month-over-month. With all items included, the monthly inflation was driven by high energy prices to rise to 0.4% from 0.2% in July.

Durable goods orders and shipments surprised on the upside, increasing month-over-month in August, despite the weakness in new orders signaled by recent manufacturing surveys. Paced by strength in machinery, headline orders increased by 0.2% whereas consensus expectations had called for a decline. Durable goods orders, excluding transportation, increased by 0.4% from July. This measure is considered to reflect the near-term indicator of the economy’s health. It excludes the transportation category because the big price tags on aircraft and other equipment can distort underlying trends by creating the potential for large orders.

On another front, the Conference Board’s gauge of U.S. consumer confidence slid to 103.0 in September. This outcome is below expectations and is lower than the preceding month’s upwardly revised reading of 108.7. The survey’s expectations component accounts for much of the weakness in this indicator. The component declined by 9.6 points to 73.7, as the percentage of respondents who thought a recession was “somewhat” or “very likely” ticked up after declining in August.

Metals and Mining

The gold market had a significant sell-off this week which dropped the spot price of gold by 4% from Friday the week before. This was the worst week for gold since June 2021. While this looks bad, there is still room for the yellow metal to descend further. Some analysts mentioned that they would not be surprised to see gold prices test once more prices close to the $1,800 per ounce level. Since mid-June, the market has been consolidating between the tight band from $1,900 to $1,980; since the consolidation was relatively lengthy, the breakdown will tend to be violent. Furthermore, the surging momentum in the bond yields and the U.S. dollar pointed to the eventual breakdown in precious metals.

The spot prices of precious metals have exhibited weakness this week. Gold plummeted by 3.98% this week, from its closing price one week ago at $1,925.24 to its closing price this week at $1,848.63 per troy ounce. Silver rose slightly by 0.27% from its closing price last week at $22.12 to its closing price this week at $22.18 per troy ounce. Platinum ended the week lower by 2.45%, from its previous price of $930.73 to its price this week at $907.90 per troy ounce. Palladium closed this week slightly lower by 0.48%, from last week’s closing price of $1,254.23 to this week’s closing price of $1,248.19 per troy ounce. The three-month LME prices of base metals ended mixed. Copper ended this week at $8,270.50 per metric ton, up by 0.93% from the previous price of $8,194.00. Zinc also ended up closing at $2,649.50 per metric ton, gaining by 5.39% from its week-go closing at $2,514.00. Aluminum closed this week at $2,347.00 per metric ton, rising by 6.10% from last week’s close at $2,212.00. Tin ended this week at $23,944.00 per metric ton, falling by 6.52%            from last week’s price of $25,613.00.

Energy and Oil

Despite some very bullish news this week, ranging from improving macroeconomic outlook in China to wafer-thin Cushing stocks, oil prices have been trading within a tight range as crude remains overbought and potential surges above $95 per barrel meet with stiff resistance. Crude inventories at the key U.S. storage hub of Cushing, Oklahoma fell to their lowest since July 2022, at 22.0 million barrels. At this level, operators fear operational risks as oil becomes difficult to remove if tank storage holds less than 20 million barrels. Meanwhile, the expiry of November ICE Brent futures has seen backwardation between the expiring month and the December contract shoot up to an astounding $2 per barrel. In the week to come, focus will once more pivot towards Saudi Arabia as OPEC+ meets next week and the market anticipates the announcement of another round of potential production cuts.

Natural Gas

For the report week from Wednesday, September 20 to Wednesday, September 27, 2023, the Henry Hub spot price fell by $0.06 from $2.77 per million British thermal units (MMBtu) to $2.71/MMBtu. The October 2023 NYMEX contract expired by the end of the report week at $2.764/MMBtu, up by $0.03 from the start of the report week. The price of the November 2023 NYMEX contract, which represents the first month of sales of natural gas for winter heating season delivery, decreased to $2.899/MMBtu, down by $0.02 from the start to the end of the report week. The price of the 12-month strip averaging November 2023 through October 2024 futures contracts declined by $0.01 to $3.220/MMBtu.

International natural gas futures prices increased this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.80 to a weekly average of $14.63/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $1.32 to a weekly average of $12.61/MMBtu, the highest weekly average since late April. In the week last year corresponding to this report week (the week beginning September 21 and ending September 28, 2022), the prices were $39.77/MMBtu in East Asia and $53.45/MMBtu at the TTF.

World Markets

Stocks fell across Europe over the just-concluded week amid concerns about a prolonged period of higher interest rates and a weak Chinese economy. The pan-European STOXX Europe 600 Index ended 0.67% lower in local currency terms. Major stock markets followed the same trend. Italy’s FTSE MIB fell by 1.16%, Germany’s DAX descended by 1.10%, and France’s CAC 40 declined by 0.69%. The UK’s FTSE 100 Index slid by 0.99%. Bond investors focused on the higher-for-longer rates narrative in financial markets, sending European government bond yields broadly up. Germany’s benchmark 10-year government bond yield rose to almost 3%, a level it had not seen in more than ten years, before backing off its peak on Friday. In Italy, amid concerns that the government would need to increase debt issuance next year to finance a bigger deficit, bond yield also advanced. The yield on the UK benchmark 10-year bond climbed above 4.5% before falling back slightly on Friday. In the meantime, Eurozone inflation dropped to 4.3%, its lowest level in two years and weaker than forecasted. This was a marked improvement from August’s 5.2%. The core rate’s initial estimate (excluding food, energy, alcohol, and tobacco) likewise declined from 5.3% to 4.5%.

Japan’s stock market pulled back for the week. The Nikkei declined by 1.7% while the broader TOPIX Index descended by 2.2%. The market reacted to concerns that the U.S. interest rates may potentially remain higher for a longer period, simultaneous with a surge in the price of oil. However, investors welcomed the announcement by the Japanese government that a new economic stimulus plan is about to be launched. Meantime, the Bank of Japan remained staunchly committed to its ultra-accommodative monetary policy stance to keep its inflation target in check, to which the slowing core inflation in the Tokyo area lent support. Regarding the national currency, the yen traded mostly within the JPY 148 range against the U.S. dollar, although it briefly weakened beyond the JPY 149 level and touched an 11-month low before recovering. The move fueled further speculation that the Japanese monetary authorities could intervene in the foreign exchange market to prop up the yen under its repeated declaration that they would respond appropriately to sudden currency fluctuations. The yield on the 10-year Japanese government bond (JGB) rose to 0.76% this week from 0.74% at the end of the previous week.

Chinese stocks declined over the holiday-shortened trading week, during which investor sentiment was dampened by a lack of uplifting economic news. The blue-chip CSI 300 Index and Shanghai Composite Index both lost ground during the week that ended Thursday. Stock Markets in mainland China were closed on Friday which was the start of the 10-day holiday for the Mid-Autumn Festival and National Day. The markets will reopen on Monday, October 9. The Hong Kong benchmark Hang Seng Index fell by 1.37% for the week ended Friday. There were no official economic news released in China during the week. However, a private survey showed that prices in China are recovering, allaying fears of a prolonged deflation. The World Economics survey reported that its all-sector price index for China ascended to a 14-month high in September. The survey was the latest data point indicating that China’s economy may have bottomed out after losing momentum following a post-lockdown recovery in this year’s first quarter. Signs of stabilization in the Chinese economy also appeared to be indicated by official data for August released earlier in September. Retail sales and the industrial economy grew faster than expected year-on-year while unemployment fell unexpectedly from July. On the other hand, fixed-asset investment growth failed to meet expectations due to a steeper decline in property investment.

The Week Ahead

Included in the important economic data for release this week are the unemployment rate for September and other labor market readings including the JOLTS Job Openings report.

Key Topics to Watch

• S&P final U.S. manufacturing PMI
• ISM manufacturing
• Construction spending
• Job openings
• ADP employment
• S&P final U.S. services PMI
• Factory orders
• ISM services
• Initial jobless claims
• U.S. trade deficit
• U.S. employment report
• U.S. employment rate
• U,S. hourly wages
• Hourly wages year-over-year
• Consumer credit

Markets Index Wrap Up

Stock Markets
Investors’ reaction to rising U.S. Treasury yields and hawkish forecasts from the Federal Reserve’s latest meeting weighed on the major U.S. stock market benchmarks in the trading week just concluded. The Dow Jones Industrial Average (DJIA) descended by 1.89% while the D.J. Total Stock Market recorded a 3.03% loss. The broad-based S&P 500 Index came down by 2.93% while the technology-tracking Nasdaq Stock Market Composite fell by 3.62%. The NYSE Composite Index slid by 2.53%. The investor risk perception indicator CBOE Volatility Index (VIX) shot up by 24.73%. On Thursday, the S&P 500 Index suffered its worst single-day loss in six months. This week was its third consecutive week of losses.
Additionally, investors are concerned about the repercussions of the United Auto Workers’ strike that began with three plants on September 15 and has now expanded to include 20 states nationwide. There is also the potential that the U.S. government will shut down for failure to pass the 12 annual appropriation bills that fund government operations before the current fiscal year ends on September 30. The market sell-down may also have been worsened by tax-loss harvesting before the fiscal year-end. The Fed maintained its short-term lending benchmark rate at a target level set during the previous meeting in July of 5.25% to 5.50%. The market was surprised, however, when policymakers declared an outlook for rates in 2024 that was significantly higher than expected, with a correspondingly higher rate prediction for 2025. The Fed raised its growth forecast which is an admission that the economy has been more resilient than expected.
U.S. Economy
The next move by the Federal Reserve regarding future rate cuts will depend upon the trajectory of the economy. It forecasts stronger growth in 2023 to 2024 which led to the likelihood of raising interest rates once more to intercept a further increase in inflation due to the heating economy. But if growth is maintained while inflation eases up, then the Fed may gradually normalize rates by gradually reversing it to a neutral level. The biggest surprise out of this week’s meeting is that the Fed sees only two potential rate increases next year, down from the initial four rate cuts it projected in June.
Early signs are evident of easing in consumption and the labor market, but the Fed’s forecast of 2024 growth indicates only moderate cooling, to 1.5% annual growth, before returning to 1.8% in 2025. It places the unemployment rate at a constant 3.8% for the current year, and growing to no higher than 4.1% for the cycle, well below the 10-year average of 5.0% unemployment. The initial reaction in the market has been a greater than proportional move higher in Treasury yields and a rapid descent in stocks. Both the 2-year and the 10-year U.S. Treasury yields hit highs of this cycle after the Fed meeting. The laggards in recent days have been the longer-duration parts of both fixed-income and equity markets. Since a rapid rise in yields has weighed particularly on higher valuation growth parts of the market historically, this trend may continue in the short term.
Metals and Mining
While the gold market may not just yet have the momentum to break out of its neutral trading channel around $1,950, it nevertheless remains well-positioned to benefit if and when sentiment turns, a possibility that may materialize sooner than expected. The U.S. has so far been able to avoid a recession and expectations of a soft landing are gradually firming up, but many analysts continue to doubt whether this optimistic goal can be realistically achieved. Gold’s price action is proving that investors are more cautious about protecting themselves against a downturn. Gold’s resilience is more remarkable considering how, in the past week, the Federal Reserve decided against raising interest rates during its meeting but maintained its hawkish stance.
The spot price of precious metals moved sideways for the week. Gold went up by only 0.07% from the previous week’s close at $1,923.91 to close at $1,925.24 per troy ounce this week. Silver went down significantly by 3.99% from the earlier week’s closing price of $23.04 to the recent closing price of $22.12 per troy ounce. Platinum, which was formerly at $29.69, ended this week at $930.73 per troy ounce, for an increase of 0.11%. Palladium gained 0.27% from last week’s closing price of $1,250.89 to close this week at the price of $1,254.23 per troy ounce. The three-month LME prices of industrial metals are generally down. Copper receded by 2.66% from last week’s closing price of $8,417.50 to end this week at the price of $8,194.00 per metric ton. Zinc declined by 2.18% from its previous price of $2,570.00 to end this week at $2,514.00 per metric ton. Aluminum inched down by 0.56% from its closing price last week of $2,224.50 to its close this week at $2,212.00 per metric ton. Tin ended this week 1.09% lower from its previous week’s close at $25,895.00 to close at $25,613.00 per metric ton.
Energy and Oil
Diesel price were once again boosted by Russia’s decision to ban fuel exports for an undetermined period. Moscow has temporarily banned exports of gasoline and diesel to all countries except for Belarus, Kazakhstan, Armenia, and Kyrgyzstan, to stabilize runaway fuel prices that have been hitting record highs almost every day in September. As a consequence, Europe is experiencing a stunning $45 per metric ton day-to-day surge on its middle distillates. The rise in distillates likewise pushed oil prices higher, offsetting the downward pressure caused by economic developments. Europe is almost certain to head into contraction in the third quarter of this year, while the U.S. Fed reiterated its “higher for longer” interest rate policy, Oil prices were kept largely unchanged by the worsening macroeconomic outlook compared to a week ago, with ICE Brent still hovering around the $94 per barrel price level.
Natural Gas
For the report week beginning on Wednesday, September 13, and ending on Wednesday, September 20, the Henry Hub spot price increased by $0.01 from $2.76 per million British thermal units (MMBtu) to $2.77/MMBtu. Regarding the Henry Hub futures market, the price of the October 2023 NYMEX contract increased by $0.053, from $2.680/MMBtu at the start of the week to $2.733/MMBtu at the end of the week. the price of the 12-month strip averaging October 2023 through September 2024 futures contracts declined by $0.06 to $3.180/MMBtu.
International natural gas futures prices ascended this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia rose by $0.47 to a weekly average of $13.83/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $0.31 to a weekly average of $11.29/MMBtu. In the week last year corresponding to this report week (from September 14 to September 21, 2022), the prices were $43.97/MMBtu in East Asia and $56.63/MMBtu at the TTF.
World Markets
European stocks followed the cue in the U.S. markets. The pan-European STOXX Europe 600 Index ended lower by 1.98% as the region’s central banks signaled that interest rates will remain elevated for some time into the future. The economic outlook was further clouded by higher oil prices and poor business activity data. Major country stock indexes likewise went south. Italy’s FTSE MIB dipped by 1.13%, Germany’s DAX declined by 2.26%, and France’s CAC 40 slumped by 2.67%. The UK’s FTSE 100 Index hardly changed either way in local currency terms as investor perception of equities earning in dollars was propped up by a depreciation of the UK pound’s exchange rate to the U.S. dollar. Since many UK-listed firms are multinationals with overseas revenues, a weaker British pound sterling provides support to the index. After European Central Bank (ECB) officials announced that they could not rule out another interest rate increase, and after the Fed indicated they would maintain their rates higher for longer, Eurozone government bond yields increased.
Japan’s stock markets also fell for the week. The Nikkei Index ended lower by 3.4% week-on-week and the broader TOPIX declined 2.2% for the same period. The signals sent by the US. Federal Reserve regarding keeping its interest rates higher for longer to bring inflation under control impacted heavily on investor sentiment in Japan. Japan, on the other hand, continued to maintain its ultra-loose monetary policy as expected by market players. This, in turn, dashed hopes that the central bank would hint at an exit from negative interest rates. The continued monetary policy divergence between the Fed’s hawkish stance and the dovish Bank of Japan (BoJ) pushed the yen lower against the U.S. dollar, from around JPY 147.8 the previous week to about JPY 148.3 per greenback this week. Finance officials signified that it would not rule out any options to respond to excessive currency volatility on the occasion that speculators take advantage of the situation regarding concerns about potential intervention in the foreign exchange markets to prop up the yen.
Chinese stocks climbed as investors grew increasingly optimistic about the brighter economic future of the country. The blue-chip CSI 300 Index gained by 0.81% while the Shanghai Composite Index added 0.47%. Hong Kong’s benchmark Hang Seng Index lost by 0.7%. The official data for August which was released the prior week provided some evidence of economic stabilization, although no major economic indicators were released in China this week, Retail sales, industrial production, and lending activity increased more than forecasted last month compared to one year ago. However, fixed-asset investment grew less than expected as the drop in property investment worsened. On Thursday, the State Council, which is China’s cabinet, promised to accelerate measures to consolidate China’s recovery and continue supporting growth in 2024, according to state media. Senior officials acknowledged that China is facing economic challenges, but are optimistic that historical trends point to the country’s economic improvement over the long-term. In the meantime, Chinese banks kept their one- and five-year loan prime rates unchanged after the People’s Bank of China (PBOC) kept its medium-term lending facility rate on hold the week before simultaneous with reducing the reserve requirement ratio for the second time this year. PBOC officials feel there is sufficient policy room to support China’s recovery, signaling that there may be further easing following this month’s pause.
The Week Ahead
Included among the important economic data scheduled for release in the coming week are a read on consumer confidence, new home sales, and PCE inflation data for August.
Key Topics to Watch
• New home sales
• S&P Case Shiller home price index (20 cities)
• Consumer confidence
• Fed Gov. Bowman speaks
• Durable goods orders
• Durable goods minus transportation
• Initial jobless claims
• GDP (revision)
• Fed Gov. Cook speaks
• Fed Chairman Powell speaks
• Personal income
• Personal spending
• PCE Index
• Core PCE Index
• PCE (year-over-year)
• Core PCE (year-over-year)
• Advanced U.S. trade balance in goods
• Advanced retail inventories
• Advanced wholesale inventories
• Chicago Business Barometer
• Consumer sentiment (final)
Markets Index Wrap Up

Stock Markets

Stock indexes ended up mixed this week as investors waited on the sidelines for confirmation of a clearer trend. The Dow Jones Industrial Average (DJIA) ended slightly up by 0.12% although the DJ Total Stock Market lost 0.21%. The broad-based S&P 500 Index inched down by 0.16% and the technology-tracking Nasdaq Stock Market Composite dipped even lower, losing 0.39% of its value. The NYSE Composite, like the DJIA, added 0.60% at the week’s close. The CBOE Volatility Index, the market’s risk perception indicator, descended by 0.36%. Value stocks led the gains while large-cap shares outperformed small caps. The investors’ rush to value is a reaction to the U.S. benchmark West Texas Intermediate oil prices surging above $90 per barrel for the first time since November 2022.

Meanwhile, Apple’s new product introduction event on Tuesday included a price increase on its top-of-the-line iPhone 15, causing technology and growth stocks to pull back. Sentiment towards the technology sector was further dampened through the week after Apple’s products received mixed reviews. The broad market was boosted, however, by the initial public offering of 2023 triggering a first-day price jump as shares of a UK microchip designer started trading on the Nasdaq on Tuesday. Positive economic data released on Wednesday further sent optimistic waves across the markets.

U.S. Economy

On Wednesday, the eagerly anticipated August consumer price index (CPI) data was released. It showed that the Federal Reserve has achieved some progress in its attempt to control inflation. Unfortunately, the recent resumption of increases in energy prices may result in further tightening monetary policy by the central bank. The widely expected effect of higher gasoline prices materialized as headline CPI number showed the largest monthly increase since August 2022. Nevertheless, the markets took in stride the news that the core CPI increase, which excluded food and energy, was marginally higher than expected. On Thursday, the August producer price index (PPI) data similarly indicated that the headline producer prices rose more than expected while the core PPI fell in line with expectations.

In the meantime, the retail sales for August were strong which further demonstrated that consumers remain willing to spend.  Overall, the week’s economic data hardly impacted the market’s expectations that the Fed will hold rates steady at its policy meeting scheduled for September 19-20. Much of the economic data seems to affirm the growing expectation for a soft-landing scenario that inflation will gradually cool and the Fed’s target rate will be achieved without a deep recession. Affirming this outlook, Wall Street’s widely-followed “fear gauge,” the Chicago Board Options Exchange (CBOE) Volatility Index, or VIX, descended to its lowest level since before the onset of the pandemic in early 2020. U.S. Treasury yields, on the other hand, experienced a modest increase over most maturities as prices were little changed in the secondary markets, with investor attention being focused on the primary market.

Metals and Mining

The gold market appears to have broken out of the $1,800 support only to be stuck in directionless range trading between $1,900 and $1,980 per ounce. Trading in this market may be difficult as well as unexciting, but there is a silver lining. Prices have so far not broken down below the $1,900 level, which is building fresh support at this price. Despite the Fed’s hawkish position on monetary policy, the bond yields holding above 4% and the U.S. dollar index near a six-month high above 105 points, the gold market appears unaffected and remains resilient above the August lows. One of the reasons for gold’s ability to withstand the assault of higher yields and the U.S. dollar is that central banks continue to buy substantial quantities of gold. Data from the World Gold Council, the central banks of Poland, Czechia, and India extended their months-long buying spree in August. The National Bank of Poland dovetails Singapore and China as the third-largest gold buyer this year. The central banks constitute a significant demand factor in the gold market, making it difficult to be bearish on this precious metal.

The spot market for precious metals moved up this week. Gold climbed by 0.25% from last week’s close at $1,919.08 to end this week at $1,923.91 per troy ounce. Silver ascended by 0.48% from the previous week’s closing price of $22.93 to this week’s closing price of $23.04 per troy ounce. Platinum, which closed last week at $896.60, ended this week at $929.69 per troy ounce to gain by 3.69%. Palladium came from its price last week at $1,199.23 to end this week at $1,250.89 per troy ounce for an upward leap of 4.31%. The three-month LME prices of industrial metals also moved up collectively. Copper, which closed last week at $8,242.50, ended this week at $8,417.50 per metric ton for a gain of 2.12%. Zinc was worth $2,443.50 last week and this week was worth $2,570.00 per metric ton, thus gaining 5.18% for the week. Aluminum closed last week at $2,183.50 and this week at $2,224.50 per metric ton, rising by 1.88%. Tin closed the previous week at $25,573.00, while its closing price this week was $25,895.00 per metric ton for a gain of 1.26%.

Energy and Oil

A string of positive macroeconomic reports on China suggesting that both manufacturing output and retail sales grew by 4.5-4.6% year-on-year triggered a bull run in oil prices that continued throughout this week. The new data surpassed analysts’ expectations and buoyed investor expectations in the oil market that a resumption of China’s economic recovery will enhance the demand for crude and other energy sources. Chinese refinery runs reached an all-time high in August at 15.23 million barrels per day (b/d), transforming the country from an underperforming bearish factor to the largest bullish upside for oil prices.

Demand optimism was lifted by the news from China despite both Europe and the United States struggling with refinery maintenance. Furthermore, OPEC reiterated its bullish outlook for 2024 oil demand, forecasting that it will rise by 2.24 million b/d on the back of a faster economic recovery in major economies. The outlook overrides the concerns regarding high-interest rates and elevated inflation, with global GDP growth forecasted to come in at 2.5% next year.

Natural Gas

The U.S. exported a record volume of natural gas in the first half of this year than in any other previous semi-annual period. It averaged 12.5 billion cubic feet per day (Bcf/d), exceeding the same period in 2022 by 11%. In May, U.S. natural gas exports as liquefied natural gas (LNG) and by pipeline averaged a monthly record high of 13.6 Bcf/d. Since 1957, the U.S. once more became a natural gas net exporter (i.e. natural gas exporters exceeded natural gas imports) for the first time in 2017, due primarily to increased LNG exports.

For the report week starting Wednesday, September 6, and ending Wednesday, September 13, the Henry Hub spot price rose by $0.27 from $2.49 per million British thermal units (MMBtu)to $2.76/MMBtu. The price of the October 2023 NYMEX contract increased by $0.17, from $2.510/MMBtu at the start of the report week to $2.680/MMBtu by the week’s end. The price of the 12-month strip averaging October 2023 through September 2024 futures contracts rose by $0.032 to $3.240/MMBtu.

International natural gas futures prices ascended this report week. the weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.10 to a weekly average of $13.36/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $0.23 to a weekly average of $10.98/MMBtu. In the week last year corresponding to this week (i.e., from September 7 to September 14, 2022), the prices were $53.19/MMBtu in East Asia and $60.81/MMBtu at the TTF.

World Markets

European equities ended higher this week, with the pan-European STOXX Europe 600 Index gaining by 1.60%. Germany’s DAX gained by 0.94%, France’s CAC 40 Index climbed by 1.91%, and Italy’s FTSE MIB surged by 2.35%. The UK’s FTSE 100 Index jumped by 3.12%, helped by the depreciation of the UK pound versus the U.S. dollar. A decline in the pound translates to higher earnings for dollar-earning multinational companies listed on the exchange that generate overseas revenue. Investor sentiment also appeared to have been lifted by better economic data out of China indicating that it has resumed its path towards economic recovery, and Europe’s as well. While the European Central Bank (ECB) raised interest rates, it nevertheless signaled that borrowing costs may have reached a peak. The ECB raised interest rates for the 10^th consecutive time. The ECB president proclaimed that a “solid majority” of policymakers backed the quarter-point rate hike that took the key deposit rate to a record high of 4.0%. The interest rate has reached a level that will return inflation to the target if maintained for a sufficiently long duration.

Japan’s stock markets rose during the week. The Nikkei 225 Index climbed by 2.8% while the broader TOPIX Index surged by 2.9%. Investor optimism was helped by good news about China’s macroeconomic situation, dispelling the uncertainty about the impact of the country’s stimulus efforts on its economic growth and markets. The strong U.S. bourses and the weakness in the yen also drove the stock markets, since a weak currency is perceived to be beneficial to Japan’s export industry. The Bank of Japan’s (BoJ’s) governor suggested that the central bank could have sufficient data by the end of the year to determine if wages will continue to rise and lead to the end of the policy of negative interest rates. Japan’s policy is anchored on the principle that sustained wage growth is key to the achievement of the country’s inflation target of 2%. While Gov. Kazuo Ueda was careful to stress that policy normalization is still some distance away, his comments were perceived as hawkish by investors. They were also taken to be a verbal intervention in response to the historic weakness in the yen.

Chinese stock markets ended mixed in reaction to official indicators that revealed that the country’s economy may have bottomed despite data also pointing to ongoing weakness in the property market. The Shanghai Composite Index moved sideways with neither gain nor loss for the week while the blue-chip CSI 300 Index slid down by 0.83%. The Hang Seng Index, Hong Kong’s benchmark, gave up 0.1%. The official data for August indicated that the country was well on its way towards economic stabilization. Indicators of industrial production and retail sales grew more than forecast last month from a year ago. Unemployment fell unexpectedly from July. On the other hand, fixed-asset investment growth fell short of forecasts because of a steeper decline in real estate investment. New bank loans rose higher than the consensus estimate, topping RMB 1.36 trillion in August. This was higher than July’s RMB 345.9 billion. Corporate demand largely drove credit expansion, while household and longer-term loans also grew.

The Week Ahead

Included in the important economic data expected to be released next week are the FOMC meeting, housing and home builder data, and preliminary S&P Global PMI data for September.

Key Topics to Watch

• Home builder confidence index
• Housing starts
• Building permits
• Fed interest rate decision
• Fed Chair Powell press conference
• Initial jobless claims
• Philadelphia Fed manufacturing survey
• U.S. current account deficit
• U.S. leading economic indicators
• Existing home sales
• Fed Gov. Lisa Cook speaks
• S&P flash U.S. services PMI
• S&P flash U.S. manufacturing PMI
• Minneapolis Fed President Neel Kashkari speaks
• San Francisco Fed President Mary Daly speaks

Markets Index Wrap Up

Stock Markets

The holiday-shortened week ended lower across all the major indexes as Monday saw the markets closed in observance of the Labor Day holiday. According to the WSJ Markets report, the Dow Jones Industrial Average (DJIA) slipped 0.75% down as the DJ Total Stock Market Index gave up double that with a loss of 1.47%. The broad-based S&P 500 Index descended by 1.29% while the technology-heavy Nasdaq Stock Market Composite declined by 1.93%. The investor risk perception indicator, CBOE Volatility Index, rose by 5.73%. The dip in equities may be a technical correction from the previous week’s gains, but it is also driven by positive economic signals that sent interest rates higher. Growth stocks outperformed value shares, while large-cap counters fared better than small-caps by a wider margin.

A decline in Apple’s share price accounts for the deeper slump in the Nasdaq compared to the broader indexes. Apple’s sell-down was precipitated by news that Chinese government employees would henceforth be forbidden from using iPhones. Another source of discouragement for investors is reports that the upcoming iPhone15 will have a much higher tag price than current models. Also weighing down on the indexes were declines in NVIDIA and other chipmakers.

U.S. Economy

While the week’s economic calendar was not especially heavy this week, the released reports seemed to drive investor sentiment by generally surprising on the upside. The Institute for Supply Management’s report on August services sector activity appeared to stand out as the main market mover. It shows that the services sector activity for that month jumped unexpectedly to its highest level since February. According to the report, new orders were growing at a faster pace but inventories had risen considerably as order backlogs fell sharply. Export orders likewise remained robust, despite the growing worries through the week about a sharp slowdown in the Chinese economy.

The data that emerged this week also showed that productivity rose by 3.5% last quarter which is the strongest productivity growth rate since 2020. If the distortions from the pandemic are excluded, the productivity rate registered was the highest reading since the third quarter of 2017. Stronger productivity should drive upward support to GDP, particularly when occurring simultaneously with growth in the labor force, as the next section shows. Rising productivity can exert a dampening effect on inflation, especially in a moderating wage-growth environment as is the case at present. This confluence of economic factors could actually help the Fed in pausing and possibly reversing the recent interest rate hikes.

The weekly jobless claims report that was released on Thursday came in lower than expected. This suggested that the strength in labor demand continues despite the solid increase in the unemployment rate from 3.5% to 3.8% in August. The number of Americans applying for unemployment in the previous week, which was expected to increase slightly, fell to 216,000, its lowest level in six months. Continuing claims fell to its lowest level since mid-July at 1.58 million. The jobless numbers triggered an increase in short-term bond yields. The yield on the two-year U.S. treasury note briefly returned above the 5% threshold on Thursday afternoon.

Metals and Mining

Most traders are focused on trading the top two precious metals, gold and silver, but they tend to ignore the precious metal that may be one of the most essential in the coming decade. Platinum has a growing potential overlooked by many, as industrial demand for it continues to grow in an environment where supply growth is stagnating. The market faces a deficit of one million ounces this year while total platinum demand in the second quarter this year increased by 27% compared to the second quarter of last year. At the same time, automotive demand rose by 19% compared to last year, according to the latest estimates from the World Platinum Investment Council. The automotive sector represents about 80% of global platinum demand. This precious metal is a critical element in catalytic converters, which are used to reduce harmful emissions in diesel and gasoline-powered engines.

The spot prices of precious metals fell across the board this week. Gold came from $1,940.06 last week and ended at $1,919.08 per troy ounce this week for a loss of 1.08%. Silver, which ended at $24.19 one week ago, closed at $22.93 per troy ounce this week for a drop of 5.21%. Platinum descended by 6.98% this week from last week’s e at $963.85 to end at $896.60 per troy ounce. Palladium lost 1.85% of its value from the previous week’s closing price of $1,221.87 to this week’s closing price of $1,199.23 per troy ounce. The three-month LME prices of base metals also took a dive over this week. Copper came from $8,500.50 last week to end at $8,242.50 per metric ton this week for a decline of 3.04%. Zinc, which closed last week at $2,485.50, ended this week at $2,443.50 per metric ton for a drop of 1.69%. Aluminum came from last week’s price of $2,237.00 to end this week at $2,183.50 per metric ton, registering a slide of 2.39%. Tin descended from its price last week of $25,806.00 to this week’s price of $25,573.00 per metric ton, a decline of 0.90%.

Energy and Oil

Weaker-than-expected macroeconomic data from China capped market sentiment earlier this week. However, firm support for ICE Brent to stay at around $90 per barrel was provided by the fourth consecutive crude inventory draw in the United States combined with another week-on-week drop in gasoline stocks. Global balances were not materially altered by the extension of Saudi and Russian supply and export cuts until December 2023. However, it reiterates the bullish narrative of light supply further down the road. In the meantime, the Biden administration canceled the last remaining oil and gas leases along the coast of the Arctic National Wildlife Refuge. Much to the ire of the Alaskan authorities, the administration claimed that the Trump-era lease sales were “seriously flawed” and were based on legal deficiencies.

Natural Gas

For the week spanning August 30 to September 6, 2023, the Henry Hub spot price remained flat at $2.49 per million British thermal units (MMBtu). Regarding the Henry Hub futures price, the price of the October 2023 NYMEX contract decreased by $0.286, from $2.796/MMBtu at the start of the week to $2.510/MMBtu at the week’s end. The price of the 12-month strip averaging October 2023 through September 2024 futures contracts declined by $0.138 to $3.208/MMBtu. The NYMEX January 2024 contract reflects a premium of about $1.17/MMBtu to the October 2023 contract.

The international natural gas futures prices decreased this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $0.07 to a weekly average of $13.26/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by $0.46 to a weekly average of $10.75/MMBtu. The corresponding prices last year (for the week ending September 7, 2022) to this week’s prices were $56.07/MMBtu in East Asia and $66.49/MMBtu at the TTF.

World Markets

The pan-European STOXX Europe 600 Index closed lower by 0.76% this week on concerns that elevated interest rates may push the economy into a slowdown and eventually a recession. Among the major stock indexes, Italy’s FTSE MIB slumped by 1.46%, France’s CAC 40 Index declined by 0.77%, and Germany’s DAX descended by 0.63%. The UK’s FTSE 100 Index bucked the general trend and rose by 0.18%. The yields on German and Italian 10-year sovereign bonds inched higher amid worries about the eurozone economy. The yield on the 10-year government bond in the U.K. ended higher but pulled back from the highs it attained midweek. A series of economic data provided more indications that the eurozone economy continues to incur obstacles. The gross domestic product (GDP) in the bloc ticked up by 0.1% in the second quarter while a drop in exports contributed to Eurostat’s downward revision of its initial estimate of 0.3% expansion. Weaker automotive fuel purchases were reflected in the drop in retail sales volumes in the eurozone by 0.2% sequentially in July. The year-over-year decline was 1.0%.

Japanese bourses were mixed this week. The Nikkei dipped by 0.3% while the broader TOPIX gained by 0.4%. Investor risk appetite was weighed down by worries about China’s economic slowdown and the impact on global demand. Japan’s economy may not be doing as well as originally thought as suggested by some weak economic data releases. Further dampening sentiment was a downward revision made to second-quarter economic growth. Japan’s second-quarter 2023 gross domestic product expanded by 4.8% quarter-on-quarter on an annualized basis, which is weaker than the 6,0% growth estimated preliminarily. Also coming in softer than anticipated were capital spending, private consumption, and public investment. The yield on the 10-year Japanese government bond (JGB) remained steady at around the 0.6% range. The yen weakened to around JPY 147 per U.S. dollar, its lowest level in more than 10 months, from the JPY 146 at the end of the earlier week. This prompted Japan’s Ministry of Finance to issue its strongest warnings to date on foreign exchange market intervention to prop up the end.

Chinese stocks fell back this week as the latest economic indicators confirmed speculation about the country’s weakening outlook. The Shanghai Composite Index declined by 0.53% while the blue-chip CSI 300 Index descended by 1.36%. The Hong Kong benchmark Hang Seng Index fell for the week that ended Thursday as financial markets were closed on Friday due to a heavy rainstorm that flooded the city. The private Caixin/X&P Global survey or services activity dropped to 51.8 in August which is below the forecast and July’s 54.1. The gauge remains above eh 50 threshold, indicating expansion for the eighth consecutive month,

but it was the slowest increase since December, the outcome of the poor demand that is dragging China’s economy down further. The indicator is broadly consistent with the prior week’s nonmanufacturing Purchasing Managers’ Index (PMI), which also slowed to its lowest level his year. The official nonmanufacturing PMI remained in contraction for the fifth consecutive month but came in slightly above expectations. China’s trade fell by 8,8% in August from one year earlier, somewhat moderating from the sharp 14.5% drop in July. Imports shrank by 7.3%, and both readings were above expectations, suggesting that some sectors in China’s economy may be rounding the bottom. China’s renminbi currency fell to a record low of 7.36 against the U.S. dollar in overseas trading after the central bank set its yuan fixing rate at a two-month low.

The Week Ahead

Among the important economic data expected this week are the retail sales data, the CPI inflation report, and capacity utilization.

Key Topics to Watch

• Consumer price index
• Core CPI
• CPI (year-over-year)
• Core CPI (year-over-year)
• Initial jobless claims
• Producer price index
• Core PPI
• PPI (year-over-year)
• Core PPI (year-over-year)
• U.S. retail sales
• Retail sales minus autos
• Business inventories
• U.S. import prices
• Empire State manufacturing survey
• Industrial production
• Capacity utilization
• Consumer sentiment (prelim)

Markets Index Wrap Up

Stock Markets

The Dow Jones Industrial Average (DJIA) moved marginally lower this week by 0.45% although the DJ Total Stock Market inched higher by 0.72%. The broad S&P 500 Index also gained by 0.82% with small caps losing ground and midcaps gaining. The technology-heavy Nasdaq Stock Market Composite surged by 2.26% while the NYSE Composite moved up by 0.11% and the Russell 1000 by 0.79%. The CBOE Volatility Index, which tracks investor risk perception, declined by 9.36%, according to data from the WSJ Markets.

The Federal Reserve’s pronouncement in this week’s annual Jackson Hole symposium about future interest rate hikes remained hawkish but was noticeably more balanced than last year. This was seen as catering favorably for equities and bonds, although uncertainty remains concerning what policy measures are still needed to deal with the higher-than-target inflation readings. Powell conveyed that the Fed remains committed to defeating inflation even though it may cause “some pain” for U.S. households. His message was somewhat more nuanced, however, emphasizing that future Fed decisions will be based on the data, indicating that the policy-making body is keeping its options open. The Fed’s mixed signals muted trading for the week.

Growth stocks outperformed value shares this week as investors responded to substantial earnings and revenue reports by artificial intelligence chipmaker NVIDIA. Earlier in the week, financials pulled back after S&P Global downgraded its credit rating of five regional banks. The downgrade was, in part, due to stresses in the commercial real estate lending market. A generally cautious picture regarding the health of the U.S., consumer market was painted by second-quarter results reported by some retailers. Department store operator Macy’s shares fell sharply as a result of reporting a drop in earnings and warned of growing consumer caution coupled with rising credit card delinquencies. Nordstrom, Macy’s competitor, also reported rising late payments on its credit cards in issuing a cautious outlook, although their realized earnings and revenues beat estimates. Nordstrom, specialty retailer Dick’s Sporting Goods, and discount chain Dollar Tree all noted that earnings suffered due to exceptionally high levels of theft from their stores.

U.S. Economy 

According to the Fed, economic growth remains more resilient even by their own expectations, although some downside is still expected in reaction to the impact of past, and possibly future, rate hikes through the economy. Policy rates are likely nearing or at their peak. In the meantime, the durable goods orders data released on Thursday indicated that a somewhat higher degree of business caution was prevalent in some areas. Durable goods orders excluding defense and transportation, a commonly accepted proxy for business investment, rose by 0.1% in July although it was more than offset by a downwardly revised 0.4% contraction in June.  S&P Global’s index of manufacturing activity also fell more than expected in August. This indicator reversed most of July’s strong gain and moved further back into contraction territory.

Despite the highest mortgage rates in years, the housing sector appeared more robust with new home sales ascending to their highest level in July since early 2022. On Thursday, Freddie Mac reported that the 30-year fixed rate mortgage had reached its highest level since 2001. However, existing home sales declined and missed expectations. In the Jackson Hole, Wyoming Fed symposium, Powell admitted that the higher rates had slowed growth in wages and industrial production even as tightening bank lending standards were colling the economy. He noted that economic growth, on the other hand, remained above its longer-term trend. Furthermore, the housing sector also appeared to be regaining momentum after slowing sharply over the past one and a half years.

Metals and Mining

Despite the many challenges that faced the gold market, prices refuse to go lower, possibly indicating that strong support exists at current levels. Among the challenges was the increase in 10-year bond yields to its highest in 15 years. Higher bond yields traditionally bode ill for gold prices because they raise the opportunity cost of precious metals, a nonyielding asset. This week the gold market did see some initial weakness, but this was quickly dispelled as prices were looking to start the weekend with a 1% gain, ending four weeks of losses. Simultaneously, silver is ending the week up as it saw a modest short squeeze. Despite its current strength, however, it is unlikely that gold has the momentum to rally back to $2,000 per ounce anytime soon, with the Fed’s prevailing policy addressing stubborn inflation and a relatively tight labor market.

This week, the spot prices of precious metals ended mixed. Gold closed the week at $1,914.96 per troy ounce, up by 1.36% from last week’s close at $1,889.31. Silver ended at $24.23 per troy ounce, higher by 6.51% from the previous week’s close at $22.75. Platinum ended the week at $948.43 per troy ounce, higher by 3.70% from the previous week’s close at $914.58. Palladium bucked the trend to close at $1,227.74 per troy ounce, down by 2.37% from the earlier week’s close at $1,257.57. The three-month LME prices of industrial metals were generally up. Copper, which closed at $8,235.50 last week, rose by 1.51% to close at $8,359.50 per metric ton. Zinc, which ended one week ago at $2,298.00, closed this week at $2,394.00 per metric ton for a gain of 4.18%. Aluminum, which last traded at $2,145.50 last week, closed this week at $2,157.50 per metric ton for a gain of 0.56%. Tin gained 2.23% from the previous week’s close at $25,305.00 to this week’s close at $25,870.00 per metric ton.

Energy and Oil

Oil prices this week were weighed heavily down by rumors of a US-Venezuela rapprochement and the prospect of Kurdish oil exports returning to the market. However, some of the downward pressure was counter-balanced by healthy U.S. crude inventory draws and lower-than-expected product stock levels in Europe. The U.S. Federal Reserve’s Jackson Hole meeting this week also failed to surprise in either direction; therefore, in the absence of any major turns, oil prices ended the week sideways with another very minor weekly loss.

Natural Gas

In the first six months of 2023, the U.S. exported more liquefied natural gas (LNG) than any other LNG-exporting country in the world, according to data from CEDIGAZ. the increase in LNG exports from the U.S. was mostly due to Freeport LNG’s return to service and continued growth in global LNG demand, particularly in Europe. Following the U.S. was Australia as the world’s second-largest exporter. The European Union (EU 27 plus the UK) reprised its 2022 position as the main destination for U.S. LNG in the first half of 2023, accounting for 67% of total U.S. exports which increased by 14% over the 2022 annual average. The Netherlands, the U.K., France, Spain, and Germany accounted for 77% of total U.S. LNG exports to Europe.

For this report week from August 16 to August 23, 2023, the Henry Hub spot price rose by $0.04, from $2.55 per million British thermal units (MMBtu) to $2.59/MMBtu. The price of the September 2023 NYMEX contract decreased by $0.095 from $2.592/MMBtu at the start of the week to $2.497/MMBtu at the end of the week. The price of the 12-month strip averaging September 2023 to August 2024 futures contracts descended by $0.115 to $3.224/MMBtu.

International natural gas futures prices increased for this report week. The weekly average front-month future prices for LNG cargoes in East Asia increased by $2.33 to a weekly average of $14.09/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $0.60 to a weekly average of $12.35/MMBtu. In the week in 2022 that corresponded to this week (August 17 to August 24, 2022), the prices were $59.01/MMBtu in East Asia and $77.60/MMBtu at the TTF.

World Market

In Europe, there was some optimistic macroeconomic news that incentivized investors to push stock prices higher. The pan-European STOXX Europe 600 Index inched up by 0.66% as expectations grew that interest rates may soon peak and European natural gas prices dropped. The major stock indexes in the region generally ended higher. Italy’s FTSE MIB advanced by 1.61%, France’s CAC 40 Index ascended by 0.91%, and Germany’s DAX climbed by 0.37%. The UK’s FTSE 100 Index gained by 1.05%. Eurozone bond yields declined and the 10-year German sovereign yields closed lower. Economic data indicated that the European economy was weakening, leading to growing expectations in the financial markets that future interest rates would not increase much further.

Japanese stocks rose this week as the market rallied from the declines of the previous week to chalk up four consecutive days of gains before giving up much of the gains in Friday’s trading. The broad TOPIX ended up 1.3% while the benchmark Nikkei 225 closed the week higher by 0.6%. Japanese investors appeared unaffected by a softer-than-hoped-for policy response from China to address their slowing growth and a building property crunch. Encouraging domestic data announcements further buoyed the markets. Both manufacturing and services sector activity combined to bring flash composite PMI data to increase to 52.6 in August, up from 52.2 in July. While Japan’s factory activity declined for a third consecutive month in August, the data shows that the rate of decline was decelerating. A 3.1% rise in Japan’s core consumer prices in July was generally well received although various inflation readings during the week provided mixed messages. The yen continued to weaken against the dollar, a trend that prevailed over recent months. This week it finished in the low JPY 146 range against the U.S. dollar, which is close to levels reached in September-October 2022, prompting intervention from the Bank of Japan.

Chinese stocks ended lower for the week in line with growing investor pessimism about the country’s economic outlook. The Shanghai Composite Index as well as the blue-chip CSI 300 Index both suffered weekly declines, adding to their year-to-date losses. The Shanghai Composite Index is at its lowest level since December of last year, while the CSI 300 Index is trading at its lowest level since November 2022. The Hang Seng Index, Hong Kong’s benchmark which entered a bear market Friday of the preceding week, retraced to end up marginally higher for the week, although it also is at its lowest level since November. Several factors contributed to an erosion of confidence in China’s economy, among which are disappointing domestic economic data, signs of deflation, record youth unemployment, and continued liquidity problems in the debt-laden property sector. The specter of accelerated capital outflows is being raised by signs of deteriorating growth and a sense that Beijing has relatively few good options to arrest the downturn. Over the 13 trading days through Wednesday, overseas funds sold the equivalent of US $10.7 billion from the mainland market. However, the risks of a systemic crisis emanating from China’s property sector appear low.

The Week Ahead

Among the important economic data scheduled for release this week are the July PCE inflation report, the August unemployment rate, and nominal personal income and spending.

Key Topics to Watch

• S&P Case-Shiller home price index (20 cities)
• Job openings
• Consumer confidence
• ADP employment
• GDP (revision)
• Advanced U.S. trade balance in goods
• Advanced retail inventories
• Advanced wholesale inventories
• Pending home sales
• Initial jobless claims
• Personal income (nominal)
• Personal spending (nominal)
• PCE index
• Core PCE index
• PCE (year-over-year)
• Core PCE (year-over-year)
• Chicago Business Barometer
• U.S. nonfarm payrolls
• U.S. unemployment rate
• U.S. hourly wages
• Hourly wages year-over-year
• ISM manufacturing
• Construction spending

Markets Index Wrap Up

Stock Markets

Stocks fell over the week sending all the major indexes downward. The Dow Jones Industrial Average (DJIA) slumped by 2.21%, not far from the DJ Total Stock Market’s 2.24% drop. The broad-based S&P 500 Index declined by 2.11% while the technology-heavy Nasdaq Stock Market Composite fell even further by 2.59%. The NYSE Composite Index descended by 2.44%. Not surprisingly, the risk indicator CBOE Volatility Index rose by 16.58%. Part of the decline may be accounted for as part of a healthy pullback strategy, although there is no doubt that sentiment was affected by developments in the geopolitical environment and a recalibration in investors’ realistic economic expectations due to the recent optimistic economic news losing steam.

This is the third consecutive week that stocks ended lower. Investor sentiment was apparently dampened by a sharp increase in longer-term bond yields and concerns that China is facing a sharp economic slowdown. The S&P 500 Index has closed the week down by 5.15% from its intraday peak on July 26. Although growth shares should weaken the most in theory in reaction to rising rates placing a greater discount on future earnings, they are instead holding up moderately better than value stocks, as shown by the Russell 1000 Growth Index. Small-cap stocks underperformed the rest of the market. According to traders, the market’s swing appeared to have been accentuated by program trading, technical factors, and thin summer trading. Nevertheless, shifting expectations for the economy will likely continue to drive market movements for the second semester of 2023.

U.S. Economy

The sharp rise in inflation rates the economy has experienced since 2022 appears to be tapering off, which means that it is unlikely that the Federal Reserve will resume its policy of increasing interest rates to keep inflation under control. The focus of economic and monetary policymakers has shifted from increasing inflation to slowing growth. In the year thus far, longer-term interest rates climbed significantly, causing the 10-year Treasury yield to hit a new high for the year in the past week. It appears that there is a resiliency in economic growth prompting the market to accept that the Fed may continue to raise interest rates in the future, which resulted in the record high reached by the 10-year Treasury yield last week.

While household spending may slow as the year heads towards its end, this does not spell a significant retreat in consumer spending from the market altogether. The likelihood of a rolling recession is still intact, which means different areas of the economy will alternate in their slowdown which will result in a mild deceleration in the overall GDP. Spending remained strong in July, according to the recent retail sales report, although the underlying trends showed that sending habits are shifting. Sales of household furnishings, including furniture and appliances, vehicles, electronics, and other large-ticket items, declined. If the economy can sidestep a hard recession, which is the likely outcome due to healthy employment conditions and strong consumer finances, then there appears no reason that the financial markets will return the steady gains it has made since the bear market bottomed out last year.

Metals and Mining

The metals market this week responded to the movements in other financial and commodities markets. On the last day of trading, gold prices hit another five-month low overnight as rising U.S. treasury yields and a rally in the U.S. dollar index created headwinds causing sellers to dominate in the gold and silver markets. Foreign markets also caused ripples as the Chinese economy continued to soften, prompting the country’s central bank to promise further stimulus measures and support the depreciating yuan. Meantime, minutes of the last FOMC meeting released on Wednesday afternoon sent signals that the Fed remains committed to reining in the U.S. inflation. The market read the minutes as leaning hawkish, causing the rise in U.S. treasury yields. However, gold closed slightly higher for the last trading day, ending nine consecutive daily declines and lower lows.

The spot prices of precious metals ended lower this week. Gold closed at $1,889.31 per troy ounce this week, down by 1.28% from its closing price of $1,913.76 the week before. Silver ended trading almost unchanged, from last week’s price of $22.69 to this week’s price of $22.75 per troy ounce, marginally up by 0.26%. Platinum dipped by 0.16% from last week’s closing price of $916.07 to this week’s closing price of $914.58 per troy ounce. Palladium, previously at $1,299.07, ended this week at $1,257.57 per troy ounce for a decline of 3.19%.

The three-month LME prices of industrial metals have also lost some ground for the week. Copper came from $8,386.00 the week before to $8,235.50 per metric ton this past week for a decline of 1.79%. Zinc, previously at $2,457.00, closed this week at $2,298.00 per metric ton, a descent of 6.47%. Aluminum closed this week at $2,145.50 per metric ton, lower by 2.65% from the earlier week’s closing price of $2,204.00. Tin, formerly at $26,885.00, descended by 5.88% to close the week at $25,305.00 per metric ton.

Energy and Oil

The upside for crude oil prices is no longer as clear as it was two weeks ago even though backwardation in oil markets reached the widest level since April and inventories are declining globally. Backwardation refers to the condition when the current price, or spot price, of crude is higher than prices trading in the futures market. The recent minutes of the FOMC meeting showed that the Fed members were divided over the need for further rate hikes, thereby cautioning against market hopes of a soft recession. Furthermore, Chinese economic woes were again resurrected, causing Brent to move lower week-on-week to end at $84 per barrel.

Natural Gas

For the report week from Wednesday, August 9, to Wednesday, August 16, 2023, the Henry Hub spot price fell by $0.36 from $2.91 per million British thermal units (MMBtu) – its highest price since January 2023 – to $2.55/MMBtu, aligning with the decline in the Henry Hub futures price. The price of the September 2023 NYMEX contract decreased by $0.367 from $2.959/MMBtu to $2.529. The price of the 12-month strip averaging September 2023 through August 2024 futures contracts declined by $0.133 to $3.340/MMBtu. Regarding regional spot prices, natural gas spot prices fell at most locations during this report week, except in Southern California. Price changes this week ranged from an increase of $2.85/MMBtu at SoCal Citygate to a decrease of $0.42/MMBtu at Sumas on the Canada-Washington border.

International natural gas futures prices increased this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.78 to a weekly average of $11.76/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $1.40 to a weekly average of $11.75/MMBtu. During the week last year corresponding to this report week (the week from August 10 to August 17, 2022), the prices were $49.94/MMBtu and $65.07/MMBtu in East Asia and at the TTF, respectively.

World Markets

Stocks fell in Europe due to growing fear of growing uncertainty surrounding China’s economic outlook as well as the likelihood of a prolonged elevated interest rate regime in Europe. The pan-European STOXX Europe 600 Index plunged by 2.34%, while major stock indexes likewise softened. Germany’s DAX declined by 1.62%, Italy’s FTSE MIB lost 1.81%, and France’s CAC 40 Index gave up by 2.40% for the week. The UK’s FTSE Index plummeted by 3.48%. UK’s markets reacted to the report of wage growth accelerating, thus bolstering the perception that inflation rates will again increase. This exerted further pressure on the Bank of England (BoE) to further raise interest rates.to put the arrest a possibly heating economy. Average weekly earnings (excluding bonuses) in the UK climbed by 7.8% in the three months through June from 7.4% in the three months through May. Services prices, which are seen by the BoE as the best predictor of underlying domestic inflation, speeded up to its highest level since March 1992 at 7.4%.

Japan’s stock markets declined over the week amid concerns regarding the broader impact of China’s macroeconomic weakness and its troubled property sector. The Nikkei 225 Index receded by 3.2% and the broader TOPIX Index fell by 2.9%. Tourism-related stocks led the shares whose prices declined most notably. The yield on the 10-year Japanese government bond (JGB) increased to 0.64% from 0.58%, its yield level at the end of the previous week. This was the result of the Bank of Japan’s (BoJ’s) monetary policy adjustment in July, the purpose of which was to allow JGB yields to more freely rise by turning its 0.5% yield ceiling from a rigid limit to a reference point. The yen softened to around HPY 145.5 versus the U.S. dollar, from its previous exchange rate of about JPY 144.9 the week earlier. Japanese authorities were prompted to intervene in the foreign exchange market in September 2022 to stem the currency’s decline when it traded at its lowest level in nine months. Meanwhile, Japan’s GDP grew by 6.0% quarter-on-quarter in the three months to the end of June 2023, driven largely by strong exports, and exceeding the 2.9% forecast by economists.

China’s equities succumbed to growing pessimism about the country’s flagging economic recovery. The Shanghai Stock Exchange Index dropped by 1.80% and the blue-chip CSI 300 fell by 2.58%. Hong Kong’s benchmark Hang Seng Index plunged by 5.89%, its biggest weekly fall in five months. According to official data for July, China’s economic activity continued to soften overall. Retail sales and industrial output advanced at a slower-than-expected rate in July compared to their readings one year ago. Also falling short of forecast was the fixed asset investment growth for the first seven months of 2023. Urban unemployment worsened slightly, edging up from June’s 5.2% to July’s 5.3%. New home prices in 70 of China’s largest cities fell by 0.23% in July from June, when they declined for the first time this year. Recent developments suggest that the strength of the recovery of China’s property sector may be faltering, and it may not sustain the growing stabilization it showed earlier this year.

The Week Ahead

The important economic data to be released in the coming week include the Purchasing Managers’ Index for services and manufacturing and the Michigan consumer sentiment survey.

Key Topics to Watch

• Existing home sales
• S&P flash U.S services PMI
• S&P Flash U.S. manufacturing PMI
• New home sales
• Fed officials interviews from Jackson Hole summit
• Initial jobless claims
• Durable goods orders
• Durable goods minus transportation
• Powell gives opening speech at Jackson Hole summit
• University of Michigan consumer sentiment final

Markets Index Wrap Up

Stock Markets

The stock markets consolidated over the past week resulting in mixed readings for the major U.S. indexes. According to the WSJ report on the markets, the Dow Jones Industrial Average (DJIA) inched up by 0.62% while the total stock market index slipped down by 0.52%. The broad S&P 500 Index dipped by 0.31% and the technology-heavy Nasdaq Stock Market Composite lost by 1.90%. The NYSE Composite rose by 0.45%. The CBOE Volatility Index, an indicator of perceived risk in the markets, fell by 13.22%. The market is seen to be taking a breather to digest the gains made over the strong rally during the first semester of this year where the S&P rose by 18% and the Nasdaq by 30% from March to July.

Light volumes marked the sideways movement in the indexes as investors weighed the improving inflation data against the recent rise in long-term interest rates. The light trading is also consistent with the summer vacation season and the end of the quarter earnings reporting We may expect to see a technical correction by 5% to 10% as the markets head into August and September which tend to historically be more volatile months. Investors should not be alarmed as they see the indexes coming down as this development is a healthy one and may present some opportunities for bargain-hunting. It may also signal the early beginnings of a longer-term bull market, especially with expected improvements in many fundamental indicators such as inflation, interest rates, and the GDP.

Midweek healthcare stocks rose as evidence was reported of the efficacy of diabetes drugs in treating obesity and related ailments. Meanwhile, information technology stocks underperformed due to concerns that rising interest rates may reduce the value of their future profits. Also exhibiting weakness were industrial stocks which is attributed to worries over a potential strike by the United Auto Workers union. Financial stocks briefly experienced a sell-off on Tuesday morning as Moody’s Investors Service lowered its ratings for ten small- and mid-cap banks. The same rating agency placed six other entities on downgrade watch. The cause for the downgrade was funding costs and the banks’ exposure to the struggling commercial real estate sector.

U.S. Economy

Economic reports were relatively light over the past week, although closely watched inflation data were released and caused some excitement among investors. Stocks jumped on Thursday’s opening bell on reports that the Labor Department’s consumer price index (CPI) advanced by 0.2% in July. This brought the CPI’s increase to 3.2% year-over-year which is slightly below expectations. Continuing pressure from shelter costs was offset by a slight drop in airline fares. As the day progressed, however, enthusiasm over the CPI data waned, and on Friday producer prices were reported to rise by 0.3% in the month which exceeded expectations slightly. Producer prices increased by 0.8% year-over-year, which is still well below the 2% Federal Reserve’s overall consumer inflation target. July marked the first annual increase in the PPI in more than a year.

The better-than-expected economic growth is perhaps the factor that drove the most notable shift in market and investor sentiment. The notion that the economy may avoid a recessionary period and may likely grow above trend this year seems to have been embraced by the markets. The Fed’s own GDP-Now forecasting tool is pointing to third-quarter U.S. GDP growth of a notable 4.1%. Towards the later part of 2023 to early 2024, some form of a rolling downturn could be possible. Parts of the economy, like manufacturing and housing, may stabilize while other economic segments, such as services, may soften. We may avoid a traditional hard recession of consecutive quarters of negative growth while still seeing a cooling in growth to below trend,

Metals and Mining

When opportunity costs are rising, few investors will prefer to hold an aggressive position in gold when they can get a 4% yield in short-term money markets, which explains the current weak investor demand in the gold market. Investors could expect to earn practically risk-free returns with short-term treasury bills with the growing expectations that the U.S. economy will see a soft landing. However, gold should not be written off as irrelevant as there is one segment of the marketplace that continues to accumulate gold. Central banks continue to buy gold because their faith in the U.S. dollar continues to weaken, despite demand being down from record levels since last year. Gold is a direct vote against the dollar, and fund managers expect central bank gold demand to continue to support gold prices and possibly drive them higher toward the end of the year.

Precious metals were generally down for the week. The spot price of gold ended at $1,913.76 per troy ounce, down by 1.50% from the previous week’s close at $1,942.91. Silver closed at $22.69 per troy ounce, a loss of 3.98% from its close last week at $23.63. Platinum’s spot price ended this week at $916.07 per troy ounce, down by 1.07% from last week’s close at $925.95. Palladium bucked the trend to end at $1,299.07 per troy ounce, gaining 3.07% over last week’s close at $1,260.35. The three-month LME prices of base metals have also gone down. Copper, which ended the previous week at $8,611.00, closed this week at $8,386.00 per metric ton, down by 2.61%. Zinc, previously priced at $2,485.00, closed this week at $2,457.00 per metric ton, down by 1.13%. Aluminum, which ended the week earlier at $2,230.00, ended this week at $2,204.00 per metric ton for a loss of 1.17%.  Tin, previously priced at $28,023.00, closed this week at $26,885.00 per metric ton for a decline of 4.06%.

Energy and Oil

As physical tightness was felt across all continents, backwardation in Brent and WTI futures continued. However, a large U.S. inventory build and China’s uncertain outlook have capped oil prices. ICE Brent was trading at $86.44 per barrel and WTI maintained below $83 per barrel as of Friday morning. The market sentiment was sought to be influenced by international organizations as the IEA lowered its 2024 demand forecast by 150,000 barrels per day (b/d) even as OPEC raised its oil demand outlook over the next year. OPEC reiterated its upbeat forecast, announcing that it expects its global crude consumption to rise by 2.25 million b/d. This compares to a growth of 2.44 million b/d this year, concurrently increasing this year’s GDP growth forecast to 2.7% from 2.6%. Price stagnation has continued to prevail over the market at the moment.

Natural Gas

Global liquefied natural gas (LNG) import capacity is expected to grow by 16%, or 22.8 billion cubic feet per day, from 2023 to 2024, compared to 2022. Import capacity, also known as regasification capacity, grew as three countries (Germany, the Philippines, and Vietnam) began importing LNG for the first time in the first seven months of 2023. Antigua and Barbuda, Australia, Cyprus, and Nicaragua are expected to begin LNG importation for the first time by the end of next year, while several other countries are in advanced stages of developing LNG import capacity. Asia will lead the growth in global regasification capacity, accounting for 52% of the total capacity additions in 2023-2024. Europe will account for 38% and other countries for 10%.

For this report week beginning Wednesday, August 2, and ending Wednesday, August 9, 2023, the Henry Hub spot price rose by $0.48 from $2.43 per million British thermal units (MMBtu) to $2.91/MMBtu. The last time the Henry Hub traded above $2.90/MMBtu was when it traded at $3.08/MMBtu on January 25, 2023. The price of the September 2023 NYMEX contract increased by $0.482, from $2.477/MMBtu at the start of the report week to $2.959 at the end of the week. The price of the 12-month strip averaging September 2023 through August 2024 futures contracts rose by $0.308 to $3.472/MMBtu.

International natural gas futures prices ascended for this report week. The weekly average front-month futures prices for LNG cargoes in East Asia increased by $0.07 to a weekly average of $10.98/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $1.42 to a weekly average of $10.35/MMBtu. The corresponding prices for the same week last year (the week from August 3 to August 10, 2022) were $44.61/MMBtu in East Asia and $59.16/MMBtu at the TTF.

World Markets

In Europe, stocks ended little changed. The pan-European STOXX Europe 600 Index moved sideways while major stock indexes in the region were mixed. Germany’s DAX fell by 0.75%, the UK’s FTSE 100 Index declined by 0.53%, while Italy’s FTSE MIB dropped by 1.09%. France’s CAC 40 Index, on the other hand, climbed by 0.34%. The lackluster trading week was attributed to increasing concerns about a potential economic slowdown in China and the Italian government’s decision to seek a windfall tax on bank profits. As investors weighed the possibility that inflationary pressures might remain elevated, European government bond yields rebounded from intraweek lows. The yield on the benchmark 10-year German government bond rose above 2.50%, while Swiss and French bond yields range-traded within a narrow margin. The benchmark 10-year U.K. government bond yield ticked higher as expectations were raised that the Bank of England would continue to tighten monetary policy on the back of strong economic growth data.

Japan’s equities markets climbed over a holiday-shortened week. The Nikkei 225 Index gained approximately 0.9% while the broader TOPIX Index rose by about 1.3%. A favorable backdrop was provided by optimistic earnings forecasts from some major Japanese companies. Meanwhile, tourism-related shares were boosted by news that China would soon approve the resumption of Japan-bound group tours for its citizens. The yield on the 10-year Japanese government bond (JGB) dipped to 0.58% from a nine-year high of 0.65% attained at the end of the preceding week. The yen weakened to about JPY 144.6 against the U.S. dollar, from around JPY 141.7 the week before. The currency continues to be weighed down by Japan’s interest rate differential with the U.S. as the Bank of Japan (BoJ) maintains its ultra-accommodative stance.

China’s stock markets retreated as investor sentiment reacted to mounting evidence that the country’s recovery may have already peaked. The Shanghai Stock Exchange Index slumped by 3.01% while the blue-chip CSI 300 plummeted by 3.39%. The Hong Kong benchmark Hang Seng Index lost 2.38%. According to China’s inflation data, consumer and producer prices fell in tandem for the first time since November 2020, highlighting the weak demand throughout the economy. The CPI slid by 0.3% in July year-on-year and moved into contraction territory for the first time since February 2021. The PPI fell by 4.4% year-on-year which was worse than expected, but slowed down from its June decline of 5.4%. The data reinforced concerns that China’s economy had entered a deflationary period, which offset optimism about the government’s latest efforts to shore up demand. The State Council announced last month new measures to boost consumer spending which temporarily spurred hopes of stronger demand.

The Week Ahead

The important economic data expected to be released in the coming week include retail sales data, leading economic indicators, and the FOMC minutes from the July meeting.

Key Topics to Watch

• U.S. retail sales
• Retail sales minus autos
• Import price index
• Import price index minus fuel
• Empire State manufacturing survey
• Business inventories
• Minneapolis Fed President Kashkari speaks
• Housing starts
• Building permits
• Industrial production
• Capacity utilization
• FOMC minutes of July meeting
• Initial jobless claims
• Philadelphia Fed manufacturing survey
• U.S. leading economic indicators

Markets Index Wrap Up

Stock Markets

In the week just ended, all major indexes ended down on news that Fitch, one of the “Big Three” credit rating agencies, downgraded the U.S. debt rating from AAA to AA+. The Dow Jones Industrial Average (DJIA) is down by 1.11% while the DJ total stock market index fell by 2.19%. The broad-based S&P 500 declined by 2.27% and the technology-heavy Nasdaq Stock Market Composite plummeted by 2.85%, suffering the heaviest losses for the week. The NYSE Composite fared slightly better although it came down by 1.79%. CBOE Volatility, which tracks risk perception, rose by 28.28%. This week’s downgrade was only the second in the history of the U.S., the first being the decision by Standard & Poor’s in August 2011. The unexpected development was the first negative surprise in a long time and draws the market’s attention to the worsening fiscal outlook of the country. Fitch said that its decision “reflects governance and medium-term fiscal challenges.”

The week was busy with corporate earnings releases. Investors were particularly keen on news of performances by mega-caps Amazon and Apple which were announced after trading on Thursday. Amazon performed better than expected driven by the strength of its core retail business and causing it to rally by more than 9% on Friday’s opening bell.  On the other hand, Apple disappointed on a mixed report that showed that its services business continued to excel but iPhone sales were lower than expected. The communications company traded down by 3%.

U.S. Economy

In the closely-watched monthly nonfarm payroll report issued by the Labor Department, hiring appears to have slowed from its faster pace at the start of the year. In July, employers added 187,000 jobs which is roughly the same as June’s downwardly revised 185,000 jobs and lower than expectations. While the labor market data still showed health over the past two months, there is an evident slowdown from the first five months of the year when an average of 287,000 jobs were added per month. Unemployment this week was reported at 3.5%, a slight improvement from the 3.6% reported for the prior month. Wage growth was unchanged from June which was 4.4% over the 12-months.

Results of the Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics were released earlier in the week. They showed a modest drop in the number of job openings in June, although layoffs fell for a third straight month. Coming in better than expected was ADP’s private employment survey, although it did show that hiring slackened to 324,000 from 455,000 in June. In other developments, the Institute for Supply Management (ISM) manufacturing Purchasing Managers’ Index was reported at 46.4, slightly lower than the consensus expectation of 46.9. This is the ninth straight month that the manufacturing PMI came in under 50, the borderline indicator for contraction. Meanwhile, treasury yields jumped higher, with the yield on the benchmark 10-year U.S. Treasury note increasing from 3.95% at the end of the previous week to nearly 4.20% early on Friday. Following the release of the jobs report, yields decreased to about 4.05%.

Metals and Mining

The markets for precious and base metals hardly moved this week when the financial markets were surprised late Tuesday when Fitch downgraded the U.S. Long-Term Foreign-Currency Issuer Default rating. Fitch said in its announcement that it sees the U.S. general government deficit rising to 6.3% and 6.9% of GDP in 2024 and 2025, respectively. When U.S. sovereign debt was last downgraded by S&P in 2011, a rally drove gold prices above $1.900 an ounce, a record high at the time. This time, however, gold prices hardly moved from their support as they continued to move sideways within a steady range. This is because the fear in the marketplace is not as palpable as it was in 2011 when the global economy was still recovering from the 2008 financial crisis. This time growth has been robust so far as the world economy emerges from the coronavirus pandemic and the labor market remains strong.

The spot prices in precious metals moved sideways for the week. Gold came down slightly by 0.85%, from its previous week’s close at $1,959.49 to this week’s close at $1,942.91 per troy ounce. Silver slid slightly by 2.92%, from its closing price last week of $24.34 to its closing price this week of $23.63 per troy ounce. Platinum ended this week at $925.95 per troy ounce, down by 1.35% from last week’s closing price of $938.64. Palladium inched up this week to $1,260.35 per troy ounce, 0.84% higher than last week’s closing price of $1,249.86.  The three-month LME prices for base metals hardly did any better. Copper ended the week at $8,611.00 per metric ton, down by 0.59% from last week’s close at $8,662.50. Zinc closed this week at $2,485.00 per metric ton, down slightly by 0.50% from the previous week’s $2,497.50 close. Aluminum ended this week at $2,230.00 per metric ton, higher by 0.36% from last week’s close at $2,222.00. Tin ended the week at $28,023.00 per metric ton, down by 2.49% from the earlier week’s close at $28,740.00.

Energy and Oil

For the sixth straight week, oil prices have been set by the coordinated supply-side management of Saudi Arabia and Russia, and this will continue to prevail as the two OPEC+ heavyweights extend their production and export cuts into September. Friday’s attack on Russia’s Black Sea oil terminals and swelling backwardation appears to set the scenario for further upside on the price of crude as Brent has moved above $85 per barrel, the highest level since March. In a press release published by Saudi Arabia’s news agency SPA, the KSA has pledged to extend its voluntary production cut of one million barrels per day until next month, suggesting that we may see further cuts should they prove necessary. Meanwhile, Russia pledge to reduce crude oil exports by 300,000 barrels per day in September, down from 500,000 barrels per day in August. The report was released less than one hour after Riyadh’s announcement of its production cut extension, suggesting close coordination between the two pronouncements.

Natural Gas

For this report week starting Wednesday, July 26, and ending Wednesday, August 2, 2023, the Henry Hub spot price fell by $0.18 from $2.61 per million British thermal units (MMBtu) to $2.43/MMBtu. The August 2023 NYMEX contract expired Thursday at $2.492/MMBtu, down by $0.17 from the start of the week. The September 2023 NYMEX contract price descended to $2.477/MMBtu, down by $0.22 for the week. The price of the 12-month strip averaging September 2023 through August 2024 futures contracts decreased by $0.16 to $3.164/MMBtu.

The international natural gas futures prices declined this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia declined by $0.21 to a weekly average of $10.91/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, descended by $0.75 to a weekly average of $8.92/MMBtu. In the week last year corresponding to this week (i.e., the week from July 27 to August 3, 2022), the prices were $43.97/MMBtu in East Asia and $59.54/MMBtu at the TTF.

World Markets

The pan-European STOXX Europe 600 Index closed 2.44% lower, mostly in response to higher U.S. bond yields and a host of disappointing European earnings reports that dampened investor appetite for riskier assets. Following suit and registering lower weekly performance were major country stock indexes. France’s CAC 40 Index declined by 2.16%, Italy’s FTSE MIB lost 3.10%, and Germany’s DAX slumped by 3.14%. The UK’s FTSE 100 Index dropped 1.69%. As resilient economic data suggested that a global recession may be avoided, European government bond yields broadly climbed. The yield on the 10-year German government bond climbed to its highest level since March. After the Bank of England (BoE) raised borrowing costs for a 14^th consecutive time, the yield on the benchmark 10-year government bond in the UK stabilized below 4.5%. The BoE raised its key interest rate by 0.25% to 5.25%, the highest it has been in the last 15 years. The central bank warned that rates were likely to remain elevated for some time. It stated that “the MPC (Monetary Policy Committee) will ensure that the Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target.” The BoE predicted that the inflation rate will fall at a faster rate than its May forecast, to 4.9% by the end of 2023.  Economic growth will likely remain hardly changed at 0.5% for 2023 and 2024.

Japanese stocks softened in reaction to the U.S. sovereign credit rating downgrade by Fitch that adversely affected global investor risk appetite. The Nikkei 225 Index charted a 1.7% loss for the week while the broader TOPIX Index followed suit, ending lower by 0.7%. Japanese stock markets fell despite the support provided domestically by a strong corporate earnings season. Many companies saw output recover post-pandemic and benefitted from the weak yen and rising prices. The yield on the 10-year Japanese government bond (JGB) increased to a nine-year high of 0.65%, from 0.55% where it ended the previous week. This was in response to the July monetary adjustment by the Bank of Japan (BoJ) to effectively allow interest rates to rise more freely. The yen weakened to about JPY 142.6 against the U.S. dollar, from around JPY 141.1 the preceding week, given the BoJ’s continued commitment to its accommodative position and Japan’s wide interest rate differential with the U.S. Speculation was rife that Japan’s Ministry of Finance may likely intervene in the foreign exchange markets to prop up the value of the yen.

Chinese stocks advanced as Beijing’s supportive stance offset investor concerns regarding the latest batch of disappointing economic data. The blue-chip CSI 300 advanced by 0.7% while the Shanghai Stock Exchange Index rose by 0.37%. The State Council, China’s cabinet, announced new measures that aimed to revive consumption. The wide-ranging policies concentrated on easing restrictions on consumption in several sectors, among which are autos, real estate, and services. Local regions were likewise encouraged to provide subsidies for home appliance purchases and home renovation materials in rural areas. There was no mention, however, of any direct cash support for customers to bolster spending which is among the measures called for by some analysts. In the meantime, China’s official manufacturing Purchasing Managers’ Index (PMI) climbed to 49.3 in July in line with expectations. It remains below the 50-point threshold between expansion and contraction, which was consistent over four consecutive months. The non-manufacturing PMI weakened to 51.5 which was lower than expected, from 53.2 in June. New home sales by China’s top 100 developers dropped by 33.1% in July from one year earlier, extending declines for a second month in a row.

The Week Ahead

The consumer price index (CPI) and producer price index (PPI) inflation data and the trade balance are among the important economic data scheduled for release in the coming week.

Key Topics to Watch

• Consumer credit
• NFIB optimism index
• Philadelphia Fed President Harker speaks
• U.S. trade balance
• Richmond Fed President Barkin speaks
• U.S. wholesale inventories
• Initial jobless claims
• Consumer price index for July
• Core CPI for July
• CPI (year-over-year)
• Core CPI (year-over-year)
• Treasury budget
• Producer price index for July
• Core PPI for July
• PPI (year-over-year)
• Core PPI (year-over-year)
• Consumer sentiment (prelim)

Markets Index Wrap Up

Stock Markets

The major indexes were up this week as investors perceived that inflation was easing, the Federal Reserve may be ending its restrictive cycle, and economic growth remains resilient. The Dow Jones Industrial Average (DJIA) recorded its 13^th consecutive daily gain on Wednesday, its longest winning streak since 1987, before closing on Friday with a 0.66% weekly gain. The total stock market inched up 0.97% for the week, while the S&P 500 Index gained 1.01%. Technology tracker Nasdaq Stock Market Composite outperformed with a rise of 2.02%. and the NYSE Composite climbed by 0.46%. The indicator of perceived risk, CBOE Volatility, dipped by 1.99%.

The Nasdaq’s relatively strong performance may be attributed to the continued market enthusiasm this year surrounding AI (artificial intelligence), the market’s stellar performance of late is due to a trifecta of better macro trends, namely: economic growth resilience, continued inflation moderation, and the forthcoming end to rate hikes by the Fed and other global central banks. Despite the investor optimism, trading this week was relatively muted as the summer vacation season diverted some of the attention from the Federal Reserve Policy meeting, some high-profile corporate earnings reports, and the release of economic data. Growth stocks easily outperformed their value counterparts.

U.S. Economy

The release of the second-quarter U.S. GDP report was the focus of this week’s economic news. The key growth indicator surprised on the upside. The annualized GDP growth was 2.4%, exceeding the estimate of 1.8%, and accelerated from the previous quarter’s 2% growth rate. Underlying this resilience was the strength in business investment and a rebuild of inventories among companies. Notably, personal consumption, a primary economic driver, was 1.6%. This figure exceeded expectations of 1.2%, although it indicated some economic cooling when viewed against the first quarter’s 4.2% annualized growth rate.

Despite some indication of slowing, the GDP data did not show signs of an imminent downturn or recession. More likely, the economy may undergo what analysts refer to as a “rolling recession” where parts of the economy (e.g. manufacturing) may be bottoming and recovering while other parts (e.g. services) may yet have to soften. Thus, although the economy may further descend towards the end of the year, the occurrence of a hard recession seems unlikely.

This quarter’s GDP report appears to paint the picture of progressively moderating inflation even as growth continues to accelerate. The headline GDP price index dipped to an annualized 2.2% against an expected 3% and well below the previous quarter’s 4.1% reading. The Fed’s preferred inflation indicator, core PCE inflation, also slowed in June to 4.1% year-over-year. This is below expectations of 4.2% and the previous month’s 4.6% reading. The slowdown in both inflation and core inflation is a welcome development for the Fed. It is a sign of easing price pressures even while growth remains solid.

Metals and Mining

A historic shift became evident from the results of a new investor survey from State Street Global Advisors that was recently released. A surprising trend in the gold market emerged showing Millennials as having the highest percentage of gold (17%) in their investment portfolio. Both Baby Boomers and Generation X hold approximately 10% of their portfolio in gold. The interest of Millennials in this asset class represents an unprecedented untapped potential. Gold was hitherto perceived as an outdated, archaic asset, viewed as an investment tool for the older generation, a dwindling customer base. The revelation that gold is attracting a larger, younger, and increasingly affluent investor pool may point to the prospect of the greatest generational transfer of wealth in history. A New York Times article published in May made an in-depth analysis of this trend and noted that an expected $84 trillion will be passed down from the older generations to the Millennials and Generation Xers through 2045. The affinity of these generations for gold may provide strong support for the growth of this asset class.

This past week, the precious metals spot market continued its consolidation. Gold closed at $1,959.49 per troy ounce, 0.12% lower than the previously weekly close at $1,961.94. Silver ended this week at $24.34 per troy ounce, down by 1.10% from the previous week’s close at $24.61. Platinum ended this week at $938.64 per troy ounce, a drop of 2.82% from the previous closing price of $965.84. Palladium closed the week at $1,249.86 per troy ounce, a loss of 3.51% from the closing price of $1,295.34 a week earlier. On the other hand, the three-month LME prices of base metals generally moved up. Copper, formerly at $8,485.50, closed this week at $8,662.50 per metric ton, up by 2.09%. Zinc, which ended the previous week at $2,383.50, closed this week at $2,497.50 per metric ton, higher by 4.78%.  Aluminum, which closed last week at $2,201.00, ended this week at $2,222.00 per metric ton which is higher by 0.95%. Tin, which last week was priced at $28,715.00, rose by 0.09% to close this week at $28,740.00 per metric ton.

Energy and Oil

The GDP readings for the second quarter showed the U.S. economy’s resiliency and underlying strength and accounted for the recent rally in oil prices. Investors became optimistic about the possibility of a soft landing in the upcoming recession. The prospects of Chinese refiners suddenly buying significantly less than they do now due to China’s hoarding of crude is perceived as a negative factor in the upcoming months, however, analysts view this as exerting little downside impact on ICE Brent. The latter ended this week around $83 to $84 per barrel and posted another week-on-week gain. China oil stockpiles shot through the roof, boosted by all-time high imports of Russian crude and doubling of Iranian flows year-on-year. As a result of this hoarding, China has amassed almost 1 billion barrels in crude inventories, the highest level of stocks in almost three years, potentially drawing from them in the second half of this year.

Natural Gas

For this report week starting Wednesday, July 19, to Wednesday, July 26, 2023, the Henry Hub spot price rose by $0.10 from $2.51 per million British thermal units (MMBtu) at the beginning of the report week to $2.61/MMBtu at the end of the report week. The price of the August 2023 NYMEX contract increased by $0.062 from $2.603/MMBtu to $2.665/MMBtu throughout the report week. The price of the 12-month strip averaging August 2023 through July 2024 futures contracts ascended by $0.118 to $3.259/MMBtu.

International natural gas futures price movements ended mixed this report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia declined by $0.10 to a weekly average of $11.13/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, rose by $1.00 to a weekly average of $9.67/MMBtu. In comparison, for the same week last year (that is, the week from July 20 to 27, 2022), corresponding prices were $39.96/MMBtu in East Asia and $53.64/MMBtu at the TTF.

World Markets

Despite the Federal Reserve and the European Central Bank (ECB) announcing interest rate hikes, the pan-European STOXX Europe 600 Index and the major indexes (Italy’s FTSE MIB, France’s CAC 40, Germany’s DAX, and the UK’s FTSE 100) all realized gains over the past trading week. Investor sentiment turned optimistic in light of the dovish tone adopted by the global monetary policymakers. Reports from China early in the week that authorities there are considering adopting additional measures to boost the world’s second-largest economy gave additional incentive for investors to take positions in the market. Eurozone bond yields rose on concerns that Japanese yields may rise and prompt an exodus of Japanese investors from that market, but as the week wore on, yields steadied. For instance, the yield on Germany’s 10-year sovereign bond rose above 2.56% before closing the week at about 2.49%. Similar volatility was experienced by Swiss and French bonds. UK government bond yields likewise ended higher. Annual inflation in the euro area was reported at 5.5% in June, down from 6.1% in May but still higher than the ECB’s target of 2%.

Japan’s stock markets advanced over the past week. The Nikkei 225 Index was up by 1.4% while the broader TOPIX Index gained 1.3%. Investors were pleasantly surprised when the Bank of Japan (BoJ) tweaked its monetary policy. The BoJ announced that it would increase its flexibility around its yield curve control (YCC) target. The central bank likewise revised its forecast for consumer price inflation upward in fiscal 2023, as was generally expected. The yield on the 10-year Japanese government bond (JGB) climbed to 0.55% – its highest level in around nine years – from 0.48% where it was at the end of the previous week. The move was on the back of the BoJ’s recent monetary policy tweak and in anticipation of further normalization. The yen strengthened to approximately JPY 139.8 versus the U.S. dollar, from JPY 141.8 the week before.

Chinese stocks rallied in response to Beijing’s indications that it will provide more stimulus to support the economy. The blue-chip CSI 300 surged by 4.47% while the Shanghai Stock Exchange Index gained by 3.42%. The Hong Kong benchmark, Hang Seng Index advanced by 4.41%. China’s top decision-making body, the Communist Party’s Politburo led by President Xi Jinping, pledged to boost domestic consumption with its new stimulus package in response to a flagging recovery from the pandemic lockdowns that ended in December. Officials also announced support for the ailing real estate sector after the Politburo’s most recent meeting during which it set policies addressing economic concerns for the rest of 2023. No specific policy measures were announced, however, other than signaling a pro-growth stance. As China continues to struggle with weak demand, economists lowered their growth forecasts for the country’s gross domestic product for the year. GDP is expected to expand by 5.2% in 2023, down from the previous estimate of 5.5%. Growth from 2024 is expected to be 4.8%. The revisions were made in response to China’s announcement that its economy grew at a slower-than-expected pace in the second quarter due to weakening domestic and external demand.

The Week Ahead

Among the important economic data that were scheduled for release this week are labor market, manufacturing, and services data.

Key Topics to Watch

• Chicago Business Barometer
• Fed senior loan survey
• S&P final U.S. manufacturing PMI
• Job openings
• ISM manufacturing
• Construction spending
• ADP employment
• Initial jobless claims
• U.S. productivity (prelim)
• S&P final U.S. Services PMI
• ISM services
• Factory orders
• U.S. nonfarm payrolls
• U.S. unemployment rate
• U.S. hourly wages
• Hourly wages year over year

Markets Index Wrap Up