Stock Markets

Trading during the week was light ahead of the Christmas weekend and typically light holiday season market activity before the New Year. The major indexes were mixed, with the Dow Jones Industrial Average chalking up a 0.86% gain and the total stock market down by 0.26%. The Nasdaq Stock Market Composite dipped 1.94%, despite recording its best daily gain since November on Wednesday. The S&P 500 Index slid by 0.20% and the NYSE Composite rose by 1.13%. CBOE Volatility came down by 7.74%. Over the past week, hawkish comments from the Federal Reserve and other global central banks appear to weigh heavily on the markets. Jitters of an impending recession ran through the equities market after former New York Fed President William Dudley commented on Monday that optimistic markets could end in more aggressive central bank tightening.

As U.S. oil inventories came in well below consensus expectations, energy stocks outperformed other sectors. Underperforming all sectors were consumer discretionary shares, plummeting as a result of a steep decline in Tesla following that company’s announcement of increased price discounts. On Thursday, chipmaker Micron Technology reported falling global demand, triggering a sell-down of semiconductor stocks. Bond trading ended early on Friday. Next week’s trading week will be shortened as both the equity and bond markets will be closed on Monday in observance of the Christmas holiday.

U.S. Economy

Positive economic growth signals during the week may have set off new fears of future interest rate hikes. On Thursday, the Commerce Department raised its third-quarter economic growth estimate from 2.9% to 3.2% due to increased revenues in healthcare spending and investment in equipment and intellectual property. Simultaneously, weekly jobless claims modestly fell while continuing claims recorded their first weekly drop since October. Personal incomes rose by 0.4% since October which is slightly above expectations. Spending, however, increased by only 0.1%, which is relatively flat when adjusted for inflation, indicating that Americans cut back on purchases of autos and other goods. The personal consumption expenditure (PCE) price index also inched up by 0.1% in November, for a year-over-year increase of 5.5%, the lowest since October 2021. This probably contributed to a Friday mid-morning rally in the markets. The 12-month rise in the core PCE index (excluding food and energy) fell to a four-month low of 4.7%. The core PCE index is considered the Fed’s preferred inflation gauge.

Housing data was mixed as existing home sales fell slightly less than expected in November, although new home sales rose 5.8% in contrast to consensus expectations of a roughly 4.7% drop. Forward-looking data were less encouraging, as building permits slumped to 10.6% and hit their lowest levels since June 2020. Durable goods orders came down by 2.1% in November, their biggest decline since April 2020. The reduction was, however, caused by an unexpected plunge in highly volatile aircraft orders. The Conference Board’s index of consumer confidence reversed two months of declines and registered 108.3, indicative of consumer resilience. The reading was much higher than expected and its best level since April. It was noted, however, that the expectations index remained around 80 which is typical of recession levels.

Metals and Mining

One week before the start of the new year, gold is down by just 1% year-to-date after a highly volatile year that saw gold prices rise higher than $2.000 per ounce in the spring and touch lows slightly above $1,630 per ounce in the fall. February Comex gold futures closed Friday at approximately $1,809 per ounce, an increase of 0.5% on the week. Gold may have established a robust price bottom in 2022 at the $1,800 level, and looks primed to be a top performer in 2023 when it could move to challenge or exceed $2,000.

This week, gold closed at $1,798.20 per troy ounce, 0.29% higher than the week-ago price of $1,793.08. Silver, which was $23.22 one week ago, ended at $23.73 per troy ounce this week, for an increase of 2.20%. Platinum rose by 3.27% from its price last week of $994.53 to this week’s price of $1,027.01 per troy ounce. Palladium came from $1,720.75 to end this week at $1,754.28 per troy ounce for a gain of 1.95%. The three-month LME prices of the base metals ended sideways. Copper rose by 1.00% from the previous week’s price of $8,266.50 to this week’s price of $8,349.50 per metric tonne. Zinc began at $3,018.00 and closed at $2,965.00 per metric tonne for a loss of 1.76%.  Aluminum, which was priced at $2,375.00 one week ago, ended this week at $2,389.50 per metric tonne for a slight increase of 0.61%. Tin rose 1.70% from its week-ago price of $23,535.00 to this week’s close at $23,934.00 per metric tonne.

Energy and Oil

Oil prices pushed higher this week due to a supportive weekly report from the Energy Information Administration (EIA) and worries about the big freeze likely to force production shut-ins. News of better-than-expected third-quarter economic performance in the U.S. has, however, raised prospects of further monetary policy tightening through interest rate hikes. Concerns about a possible economic slowdown weighed on oil prices, both the WTI and Brent rallied on Friday morning with the return of more bullish sentiment before the Christmas holidays.

Natural Gas

For the report week starting Wednesday, December 14, and ending Wednesday, December 21, 2022, the Henry Hub spot price fell by $0.46 from $6.60 per million British thermal units (MMBtu) at the start of the week to $6.14/MMBtu at the end of the week. The price of the January 2023 New York Mercantile Exchange (NYMEX) contract decreased by $1.098, from $6.430/MMBtu at the beginning of the week to $5.332/MMBtu at the week’s end. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts declined $0.618 to $4.872/MMBtu. International natural gas futures price movements were mixed for the report week. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.96 to a weekly average of $34.42/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 $7.47 to a weekly average of $34.99/MMBtu.

World Markets

European share prices rose amid signs of slowing inflation and more positive consumer confidence. The pan-European STOXX Europe 600 Index closed higher by 0.64%, together with major European indexes. France’s CAC 40 Index rose by 0.81%, Italy’s FTSE MIB Index gained 0.80%, and Germany’s DAX Index ticked up by 0.34%. The UK’s FTSE 100 Index ascended by 1.92%, partly supported by the depreciation of the British pound against the U.S. dollar. Weakness in the pound provides some strength to equities since many of the listed companies are multinationals that generate significant revenues overseas. Business and consumer confidence in Germany and Italy improved in December, In the U.K., the economy contracted more than initially estimated in the third quarter, for which September growth figures were revised lower.

In Japan, stock markets fell over the week. The Nikkei 225 Index came down by 4.69% while the broader TOPIX Index descended by 2.68%. The Bank of Japan (BoJ) announced that it would revise its policy of yield curve control (YCC), allowing 10-year Japanese government bond yields to rise as high as 0.50% which is double its previous implicit cap of 0.25%. The timing of this announcement was a surprise, as most market participants had not expected a shift in the BoJ’s YCC until next year. In light of this move, the JGB yield ended the week at approximately 0.40%, sharply up from 0.25% one week earlier. The policy adjustment by the BoJ impacted currencies, with the yen strengthening to JPY 132.55 against the U.S. dollar, from the previous week’s exchange rate of JPY 136.71 to the greenback.

In China, the coronavirus once again reared its head as new cases weighed on the country’s growth forecasts. The Shanghai Composite Index plummeted by 3.85% while the blue-chip CSI 300 sank by 3.19%. In Hong Kong, the benchmark Hang Seng Index inched up by 0.7%. The resurgence of COVID-19 and China’s ongoing property market slump prompted the World Bank to cut its China economic growth forecast for this year and the next, The Bank projected China’s economy to grow by 2.7% this year and 4.3% next year, compared to its previous forecast of 2.8% and 4.5% for 2022 and 2023 respectively. The World Bank released its report China: Domestic and External Conditions are Leading to a Weakened Economic Outlook dated December 20, 2022. In it, the Bank noted that China’s economy remains “subject to significant risks, stemming from the uncertain trajectory of the pandemic, of how policies evolve in response to the COVID-19 situation and the behavioral responses of households and businesses.”

The Week Ahead

Economic reports scheduled in the coming week include the home price index and jobless claims.

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

In the week just concluded, equities fell by more than 2.0% as market sentiment went southward in reaction to a more hawkish Federal Reserve meeting and weakening retail-sales data, despite higher than consensus November CPI inflation data. The Dow Jones Industrial Average (DJIA) dipped by 1.66% as the total stock market index fell by 2.04%. The broader S&P 500 declined by 2.08% while the Nasdaq Stock Market underperformed even more with a 2.72% loss and the NYSE Composite slid by 1.78%. CBOE Volatility came down slightly by 0.92%. As inflation comes under control, the economy is likely to soften in the months ahead and may require less restrictive policy. This tends to create a more volatile market in the near term on its way to greater stability in the long term.

In the meantime, fears intensified over the unexpectedly higher interest rates imposed by the Fed. This pushed the S&P 500 lower for the second straight week, returning it to the levels it had last visited about six weeks ago. Almost all sectors in this index registered sharp dives, except for energy shares which were sustained by a partial increase in oil prices. Additional volatility was sparked by the expiration of approximately $4 trillion in options contracts on Friday. Trading in exchange-traded funds (EFTs) approached record levels by midweek, suggesting that investors were moving in and out of stocks in general in reaction to broader economic signals.

U.S. Economy

The release of data regarding the Consumer Price Index on Tuesday indicated that headline inflation increased only by 0.1% from October to November, resulting in a year-on-year gain of 7,1%. This remains well above the long-term Fed inflation target of 2%, but optimistically, it is the lowest level since December 2021. Core inflation, which excludes food and energy, rose 0.2%, slightly below consensus expectations. This was largely driven by housing costs which are already showing signs of cooling. In 2023, policymakers expect the federal funds rate to expand to about 5%.

The 50-basis-point increase announced by the Fed this week fell in line with expectations, which should be a positive development given that the four previous meetings set 75-basis-point increases. Fed Chair Jerome Powell rattled the markets with his announcement that further aggressive rate hikes are expected. Thursday’s data on retail sales dropped 0.6% in November, contrary to the small increase expected by analysts in the post-Thanksgiving Black Friday and Cyber Monday sales season. Sales in the preceding two months were also revised downward.

Also, this past week, the Bank of England (BoE) and the European Central Bank (ECB) raised their policy rates by 0.50%. This brought the BoE’s and ECB’S target rates to 3.5% and 2.0% respectively. These central banks, like the Fed, announced that further rate hikes are likely into the New Year since inflation rates remain well above their targets. Some analysts see the global economy falling into a downturn in the first semester of 2023, with Europe likely to enter into a deeper recession that the U.S. due to its exposure to oil and energy markets and continuing decline in consumer confidence. Against this scenario, the global central banks may likely halt their rate-hiking policies, possibly by the end of the first quarter. The pause in rate increases may be taken to alleviate the pressure on the economy and determine whether inflation will continue to further slow down.

Metals and Mining

The precious metals prices continue to remain steady with gold holding on to the $1,800 per ounce support level. It appears that the gold market is taking the Fed’s hawkish stand in stride even as equities corrected sharply on the central bank’s signal that the key interest rate will peak at above 5% in 2023. There are a few reasons why gold is showing relative resiliency in light of the Fed’s announcement. One possibility is that investors are growing less worried about inflation and shifting their concern to a possible recession. A slowing U.S. economy is suggested by the disappointing holiday retail sales data announced this week. Another likelihood is that although the Fed continues in its restrictive policy, much of this information is already discounted in the current gold prices. The U.S. dollar also appears to have peaked as the Fed begins to slow the pace of its rate hikes.

Gold moved slightly downward by 0.24%, from the previous week’s price at $1,797.32 to this past week’s close at $1,793.08 per troy ounce. Silver followed suit with a correction by 1.07%, sliding from the week-ago price of $23.47 to this week’s close at $23.22 per troy ounce. Platinum began at $1,027.58 at the end of the week earlier and decreased to $994.53 per troy ounce this week for a loss of 3.22%. Palladium, which closed at $1,956.76 a week ago, ended at $1,720.75 per troy ounce this week, descending by 12.06%. The three-month LME prices for base metals also lost some ground. Copper closed at $8,266.50 per metric tonne this week, down by 3.24% from the previous week’s price of $8,266.50. Zinc, which formerly was priced at $3,240.50, lost 6.87% of its value week-on-week to end at $3,018.00 per metric tonne. Aluminum ended this week at $2,375.00 per metric tonne, down by 4.25% from the week-ago price of $2,480.50. Tin began at $24,290.00 and ended this week at $23,535.00 per metric tonne, down by 3.11%.

Energy and Oil

The price of oil has experienced its much-awaited rebound from its crash the week before, however, the downside pressures remain very much active. The BoE and the ECB hiked interest rates on Thursday, halting the upward momentum of oil prices that had been accumulating. Some hope to bulls may be provided by the ongoing halt in Keystone deliveries as it has created a tightness in the oil supply to the continent that has had a relatively secure year up to now. The traditional 2022 volatility may be expected in light of the uncertainty remaining to hover over China’s post-Covid reopening for the rest of the year. In the meantime, the International Energy Agency forecasts that next year will see further growth in oil demand by 1.7 million barrels per day. The push will be driven by China as it rebounds from this year’s contraction, adding 1 million barrels per day and reaching a new all-time high of 101.6 million barrels per day.

Natural Gas

For the report week spanning Wednesday, December 7, to Wednesday, December 14, 2022, the Henry Hub spot price rose by $2.07 from $4.53 per million British thermal units (MMBtu) to $6.60/MMBtu. The price of the January 2023 NYMEX contract rose by $0.707, from $5.723/MMBtu last Wednesday to $6.430/MMBtu week-on-week. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts, rising $0.458 to $5.490/MMBtu. International natural gas futures price movements were mixed. The weekly average front-month futures prices for liquefied natural gas (LNG) cargoes in East Asia increased by $0.48 to a weekly average of $33.46/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 $0.50 to a weekly average of $42.46/MMBtu.

World Markets

European shares plunged after central banks in the region signaled that interest rates would need to be further raised and for longer periods than the markets previously expected. The pan-European STOXX Europe 600 Index closed the week 3.28% lower than the week previously in local currency terms. Major stock indexes mirrored this trend, with Germany’s DAX Index sliding 3.32%, France’s CAC 40 Index dropping 3.37%, and Italy’s FTSE MIB Index slipping 2.43% for the week. The UK’s FTSE 100 Index lost 1.93%. The ECB raised its key interest rate by 50 basis points to 2.0%. The increase was better than the 75-basis point hike in two previous rate increases. Nevertheless, ECB President Christine Lagarde said that the rate “will still rise significantly at a steady pace to reach levels that are sufficiently restrictive” for inflation to be reined in to reach the central bank’s target of 2%. Furthermore, the ECB indicated that it planned to shrink, by an average of EUR 15 billion per month, the portfolio accumulated as part of its Asset Purchase Programme. This will begin next March and run through the end of the second quarter of 2023.

Japan’s equities market lost ground over the week. The Nikkei 225 Index declined by 1.34% while the broader TOPIX Index declined by 0.58%. Investors lost their appetite for risk as a result of the Fed adopting a more hawkish stance on their monetary policy than was expected. There were concerns that continued monetary tightening by the major central banks could nudge the economy into a recession. The government finalized its tax revision package; meanwhile, the latest PMI data highlighted the divergence between a shrinking manufacturing sector and an expanding services sector. The yield on the 10-year Japanese government bond (JGB) generally remained unchanged week-on-week at 0.25%. It remains at the level at which the Bank of Japan (BoJ) implicitly caps JBG yields, in response to ongoing speculation that the BoJ may abandon its policy of yield curve control by early 2023. At its December 19-20 meeting, the central bank is widely expected to leave its monetary policy setting unchanged. The yen weakened to approximately JPY 137.1 against the greenback, from around JPY 136.5 per U.S. dollar the week before. The currency has come under pressure from the Fed’s restrictive policies.

As with their European and Japanese counterparts, Chinese stocks succumbed to selling pressure as weaker-than-expected economic data weighed on investor sentiment. The Shanghai Composite Index descended by 1.22% and the blue-chip CSI 300 Index dipped by 1.1%, reversing several weeks of gains. Investors got their cue from remarks made by Vice President Liu He indicating that Beijing is considering new measures to support the real estate industry, thus lifting property stocks. However, a trio of key economic indicators came in weaker than expected for November, weighed down by pandemic-related disruptions. Industrial production rose by 2.2% year-on-year in November, the softest growth since May. Retail sales declined by 5.0%, and fixed asset investment for the year through November likewise came short of forecasts. While China had recently begun to lift its more burdensome coronavirus restrictions, the country’s economic reopening is expected to be volatile. Recent reports described China’s economic activity as being depressed since the possibility of coronavirus cases spreading has discouraged the resumption of normal economic activity. Rising infections have left many businesses impacted by labor shortages.

The Week Ahead

Scheduled for release in the coming week are the leading economic indicators and the core PCE deflator.

Key Topics to Watch

• NAHB home builders’ index
• Building permits (SAAR)
• Housing starts (SAAR)
• Current account deficit
• Consumer confidence index
• Existing home sales (SAAR)
• Initial jobless claims
• Continuing jobless claims
• Real gross domestic product revision (SAAR)
• Real gross domestic income revision (SAAR)
• Real final sales to domestic purchasers (SAAR)
• Chicago Fed national activity index
• Index of leading economic indicators
• PCE price index
• Core PCE price index
• PCE price index (year-on-year)
• Core PCE price index (year-on-year)
• Real disposable income (SAAR)
• Real consumer spending (SAAR)
• Durable goods orders
• Core capital equipment orders
• UMich consumer sentiment index (late)
• UMich 5-year inflation expectations (late)
• New home sales (SAAR)

Markets Index Wrap Up

Stock Markets

In the week just ended, stocks fell for all major indexes, halting the rally that began in mid-October. Ironically, the current pessimism hinges on the perception of coming economic weakness driven by evidence of ongoing economic strength in the economy itself. These data consist of elevated wage gains, robust job growth, and resilient consumer spending trends, all leading to the likelihood that the Federal Reserve’s attempts to control inflation are not likely to slow down. The economy will likely decline as collateral damage from continuing aggressive rate hikes. The Dow Jones Industrial Average (DJIA) lost 2.77% and the Dow Jones Total Stock Market Index fell by 3,60%. The S&P 500 Index descended 3.37%, while the Nasdaq Stock Market Composite declined 3.99%, and the NYSE Composite fell by 3.02%. The CBOE Volatility Index ascended by 19.78%, suggesting that investors see greater risk in the stock market.

Not everything is bleak in the future of equities. The markets have rallied impressively in the past weeks as stocks rose approximately 11% since October. Bonds have likewise rebounded as interest rates fell significantly from their peak two months ago. The negative prognosis about the economy notwithstanding, the gains in both stocks and bonds are most welcome and provide opportunities for gains even in a pessimistic market. While the declines may be the function of technical factors, it is some concern that the S&P 500 Index recorded its worst return in five weeks even as the small-cap Russell 2000 Index suffered its worst week since late September. The decline in the S&P 500 is a breakdown of its 200-day moving average following the rally. Within this market, the sectors that performed best were health care, consumer staples, and utilities which comprise the defensive stocks. Energy shares sharply fell due to international oil prices descending to their lowest levels since January. Communication services stocks also underperformed due to weakness in Google’s parent Alphabet. Financial shares dropped as a result of negative outlooks offered by several bank executives.

U.S. Economy

The Institute for Supply Management’s (ISM’s) index of services sector activity, which was expected to slightly decrease, defied expectations and rose to 56.5, close to its highs over the past several months. This is a positive indication because readings over 50 suggest expansion in the activity of the services sector. The ISM observed that there is a particular rise in business activity, particularly in real estate and food services and accommodation.

On Friday, the producer price inflation (PPI) data were released, providing a modest surprise on the positive side. The PPI figures rose 7.4% year-over-year, an improvement over consensus expectations of approximately 7.2%, causing stock futures to plunge sharply. The details of the report appear to broadly confirm a continued deceleration in trend inflation, particularly for consumer goods. On the same day as the release of the PPI report, the University of Michigan published its preliminary survey of consumer sentiment for December. The survey results added to the implications from hard data that there is general stability in the near-term outlook for the U.S. consumer. Long-term inflation expectations are unchanged at 3%, which is at the higher end of the historical range for this data, however, short-term inflation expectations had descended further.

The yield on the benchmark 10-year U.S. Treasury note reached close to the three-month intraday low on Wednesday. It closed higher at the end of the week, driven by the PPI data and news that China is easing its strict pandemic restrictions. The strong surge in yields was tempered by the weaker-than-expected unit labor cost data and comments by Russian President Vladimir Putin regarding the mounting risks of nuclear engagement.

Metals and Mining

Some follow-through buying in the gold market is materializing after November’s massive rally. Gold prices end the week close to their four-month high above $1,800 per ounce. While it is not entirely clear of risks, many investors and analysts are considering gold to now be a “buy the dip” asset. It is a marked change from the summer sentiment of gold being a “sell the rally” asset. The short squeeze in November was followed by gains in December, suggesting that gold prices are now in neutral territory for the year with a slight 1% loss. This compares favorably against the S&P 500 which is charting a year-to-date loss of 17%. Most gold investors still consider 2022 a disappointing year, because even in light of the significant rise in inflation, the performance of gold was lackluster. Although gold is an inflation hedge, the headwinds of a strong U.S. dollar overcame the inflation effect as the Federal Reserve was compelled to raise interest rates at the fastest pace in more than four decades. This fact notwithstanding, gold has performed its role as a portfolio diversifier.

Gold moved sideways for the week, beginning at $1,797.63 and ending hardly changed at $1,797.32 per troy ounce (a slide of 0.02%). The same is true with silver which moved up by 1.43% from $23.14 to $23.47 per troy ounce. Platinum, which ended the previous week at $1,019.11, closed trading this week at $1,027.58 per troy ounce, a modest rise of 0.83%. Palladium ended the week before at $1,901.40 and this past week at $1,956.76 per troy ounce, up by 2.91%. The three-month LME prices of base metals ended mostly up. Copper, which was $8,336.00 the week before, closed at $8,543.00 per metric tonne this week for a slight increase of 2.48%. Zinc rose by 5.23% from the week-before close at $3,079.50 to this week’s ending price of $3,240.50 per troy ounce. Aluminum began at $2,485.00 and ended this week at $2,480.50 per metric tonne, sliding 0.18% for the week. Tin, which closed at $23,331.00 one week before but ended this week at $24,290.00 per metric tonne, inched up by 4.11% for the week.

Energy and Oil

The news for the week provided reasons to expect an uptick in oil prices, but due to thin liquidity, the surge did not materialize. The easing of coronavirus restrictions in China should have hinted at a strong economic recovery that will increase demand, and a U.S. oil spill halting pipeline deliveries from Canada would have added to concerns of constricting supply. Additionally, there is a massive queue of tankers that is unable to pass the Turkish Straits, halting deliveries in some areas.  A protracted disagreement between Turkish authorities and maritime insurance providers had cast a shadow over the launch of the Russian oil price cap this week, and almost two dozen tankers were stalled on their southbound voyage out of the Black Sea for not having the required P&I insurance documents. Oil prices will likely be unable to close the year on a renewed growth trajectory. It is unlikely that investors who realized profits over the year will risk taking a position in this uncertain environment. Brent may be stalled at $75 to $78 per barrel for longer than expected.

Natural Gas

For the report week beginning Wednesday, November 30, and ending Wednesday, December 7, 2022, the Henry Hub spot price dropped by $2.27, from $6.80 per million British thermal units (MMBtu) at the start of the week to $4.53/MMBtu by the week’s end. The price of the January 2023 NYMEX contract descended by $1.207, from $6.930/MMBtu to $5.723/MMBtu week-on-week. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts slid by $0.677 to $5.032/MMBtu. Also, this report week, international natural gas futures prices increased. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia climbed by $1.97 to a weekly average of $32.98/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 $2.94 to a weekly average of $42.95/MMBtu.

World Markets

Renewed fears of a recession sent European shares southward as central banks further tightened monetary policy to bring inflation under control. The pan-European STOXX Europe 600 Index closed the week 0.94% down in local currency terms. The trend was replicated by major indexes in the region. Italy’s FTSE MIB Index dropped by 1.40%, Germany’s DAX Index descended by 1.09%, and France’s CAC 40 Index dipped by 0.96%. UK’s FTSE 100 Index slid by 1.05% for the week. Economic data revised growth in the eurozone economy to 0.3% from 0.2% sequentially in the third quarter, boosted by increases in household spending and business investment.

In Japan, modest positive returns over the week were realized by the country’s stock markets. The Nikkei 225 Index rose 0.44% and the broader TOPIX Index increased by 0.39%. To some extent, investor sentiment was impacted by economic data showing that the Japanese economy contracted less than first estimated in the third quarter of 2022. Market gains were capped, however, by uncertainty about the trajectory of U.S. monetary policy. the yield on the 10-year Japanese government bond (JGB) closed the week unchanged at 0.25%, although it touched 0.26% briefly due to speculation that the Bank of Japan (BoJ) may abolish its JBG yield cap as soon as next year. The yen slid from JPY 134.3 to about JPY 136.2 against the U.S. dollar week-on-week, due to the continued divergence in the monetary policies of the U.S. Federal Reserve and the BoJ. The Fed is widely expected to continue increasing interest rates while the BoJ has consistently affirmed that it will continue with its ultra-loose policy position.

Chinese equities climbed on the back of Beijing’s rapid easing of coronavirus pandemic restrictions, in turn bolstering investor sentiment despite expectations that infections will rise in the coming months. The Shanghai Composite gained 1.6% and the blue-chip CSI 300 Index ascended 3.3% in its biggest weekly gain since early November. Chinese officials released a 10-point guideline for their new COVID prevention and control measures. These included a vaccination program for the elderly, home quarantine for people with mild symptoms, and reducing mass testing requirements in many cities. In high-risk areas, if no new cases appeared for five consecutive days, lockdowns will be lifted. Analysts and investors remain cautious, however, that China’s quick shift from zero-COVID policies might increase business uncertainty and hamper the economy further if infections and deaths begin to increase.

The Week Ahead

The CPI index, retail sales growth, and jobless claims are among the important economic data scheduled for release this week.

Key Topics to Watch

• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• Federal budget (compared with Nov. 2021)
• NFIB small-business index
• Consumer price index
• Core CPI
• CPI (year-on-year)
• Core CPI (year-on-year)
• CPI excluding shelter (3-month rolling annualized rate)
• Import price index
• Federal funds rate announcement
• SEP median federal funds rate for end of 2023
• Fed Chair Jerome Powell news conference
• Initial jobless claims
• Continuing jobless claims
• Retail sales
• Retail sales excluding motor vehicles
• Empire state manufacturing index
• Philadelphia Fed manufacturing index
• Industrial production index
• Capacity utilization rate
• Business inventories
• S&P U.S. manufacturing PMI (flash)
• S&P U.S. services PMI (flash)

Markets Index Wrap Up

Stock Markets

Global stock markets have recorded their first back-to-back monthly gains in more than a year. Major U.S. equities ended higher, driven by investor optimism that the Federal Reserve may soon slow the pace of interest rate hikes. The Dow Jones Industrial Average (DJIA) gained 0.24% and its total stock market index climbed 1.20%. The S&P 500 Index added 1.13% while the Nasdaq Stock Market Composite increased by 2.09%. The NYSE Composite rose by 1.03%, and the CBOE Volatility Index fell by 7.02%. In the S&P 500 Index, growth stocks outperformed their value counterparts while the technology sector posted solid gains. The DJIA, despite rising only incrementally, closed more than 20% above the low it hit in September 2022 thereby entering bull market territory on the last day of November. The strong rally by equities markets on the final day of November was in reaction to the speech delivered by Federal Reserve Chairman Jerome Powell that signaled the likelihood of smaller interest rate hikes going forward. He admitted that the central bank was aware that it may take time for the effects of monetary policy to filter through to the economy. With this realization, the Fed may slow the pace of rate increases as early as the Federal Open Market Committee’s (FMOC’s) meeting that will take place by mid-December 2022.

U.S. Economy

In his speech before members of the Brookings Institution, Powell focused on the jobs market. He stated that the labor demand would likely need to soften for the Fed to bring inflation under control. Based on data released by the Bureau of Labor Statistics, the number of job openings fell by about 353,000 to 10.3 million, slightly below the consensus estimate of 10.4 million available job positions. The U.S. economy added 263,000 jobs as shown by the nonfarm payrolls data. This exceeded the consensus estimate for the pace of additional jobs to fall to 200,000. Job gains were in the sectors of leisure and hospitality, health care, and government. Employment declined in the retail, transportation, and warehousing industries. The unemployment rate was unchanged at 3.7%.

In other economic news, consumer confidence and manufacturing activity demonstrated signs of weakening. Sequentially in October, consumer spending rose by 0.8%, but when adjusted for inflation this increase falls to 0.5%. The core personal consumption expenditure price index, which includes volatile food and energy costs, grew 5% year-over-year. This slowed down from the 5.2% inflation rate recorded in September. On the other hand, consumer confidence slipped in November based on the Conference Board’s metric. The survey providing this basis registered an increase in inflation expectations and, therefore, an increased reluctance among households to purchase big-ticket items over the next six months. The purchasing manager’s index (PMI) of the Institute for Supply Management slid to levels indicative of a contraction in activity for the first time since May 2020, as demand was weighed down by the uncertain economic environment.

Metals and Mining

The gold and silver markets came to life as the prices of the precious metals rallied to their highest in months. Both metals ended the week at their significant support levels, silver above $23 and gold at about $1,800 per ounce. The week constituted a significant reversal in the monthly chart. Gold ended November with a 7.5% gain following seven consecutive months of losses. Silver, on the other hand, gained 14% in November. The price action has turned bullish, in addition to which gold has held to its critical support level for three months in a row. It suggests that investor sentiment is certainly changing, but there remains some uncertainty that the bulls are going to be sustained. Investors are sitting on the sidelines, prepared to buy upon confirmation of the reversal.

Gold gained 2.43% week-on-week, from $1,754.93 to $1,797.63 per troy ounce. Silver added 6.39%, from the previous week’s close at $21.75 to this week’s close at $23.14 per troy ounce. Platinum ascended 3.61% from its earlier close at $983.56 to its recent close at $1,019.11 per troy ounce. Palladium began at $1,847.69 and ended this week at $1,901.40 per troy ounce for an increase of 2.91%. The three-month LME prices of base metals tracked the trend of the precious metals’ spot prices. Copper, which ended the previous week at $8,008.00, ended the week at $8,336.00 per metric tonne, for a gain of 4.10%. Zinc began at $2,920.50 and rose to end the week at $3,079.50 per metric tonne, climbing 5.44% week-on-week. Aluminum rose by 5.19%         from the previous week’s price of $2,362.50 to close the week at $2,485.00 per metric tonne. Tin, which ended the week earlier at $22,231.00, ended this week at $23,331.00 per metric tonne, for an increase of 4.95%.

Energy and Oil

The OPEC+ meetings were customarily held physically; their purpose was to revisit the group’s production strategy as the oil community carefully analyzed the post-meeting statements. The meeting switched from a physical gathering in Vienna to an online conference call, suggesting to many analysts that the most likely outcome will be a rollover of production quotas. As a result, there are no drastic moves expected on Sunday. It is a given that the EU has tentatively agreed to an oil price cap level for crude. EU member states have tentatively agreed to a $60 per barrel oil price cap on Russian seaborne oil which comes into effect on December 5. The agreement comes with an automatic adjustment mechanism that will keep the cap at 5% below the market price. Because of this, there is a possibility that OPEC may spring a surprise at its next meeting. On the other hand, OPEC+ has been supported by rumors of China’s reduction of its COVID restrictions and lockdowns, which led oil prices to close the week with a significant gain.

Natural Gas

This report covers the week beginning Wednesday, November 23, to Wednesday, November 30, 2022. The Henry Hub spot price rose $0.34 from $6.46 per million British thermal units (MMBtu) at the beginning of the week to $6.80/MMBtu at the end of the week. The December 2022 NYMEX contract expired Monday at $6.712/MMBtu, down by $0.60 from the preceding Wednesday. The January 2023 NYMEX contract price decreased to $6.930/MMBtu, lower by $0.78 for the week. The price of the 12-month strip averaging January 2023 through December 2023 futures contracts fell by $0.15 to $5.709/MMBtu. International gas futures prices rose during the report week. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia rose by $2.95 to a weekly average of $31.01/MMBtu. Natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, ascended $4.07 to a weekly average of $40.01/MMBtu.

World Markets

European shares climbed for the seventh straight week as investors gained optimism from the receding inflation rates. There is greater confidence that central banks are likely to slow the rate of their interest rate increase, gradually loosening their tight monetary policies. China’s announcement that it would be relaxing its strict coronavirus measures was also well-received and helped to improve market sentiment. The pan-European STOXX Europe 600 Index closed the week higher by 0.58% in local currency terms. The major country stock indexes were mixed. Italy’s FTSE MIB Index dipped 0.39%, Germany’s DAX Index moved sideways, and France’s CAC 40 Index ascended 0.44%. The UK’s FTSE 100 Index climbed 0.93%. European government bond yields dropped in reaction to data showing that euro area November inflation slowed more than expected. The market also reacted to comments by U.S. Fed Chair Jerome Powell indicating that the Fed may slow the pace of its rate increases. The announcement fueled a broader rally in bond markets, causing a decline in Italian, French, and Swiss yields. The 10-year gilt yields in the UK hardly changed.

Japan’s stock market returns were negative for the past trading week. The Nikkei 225 Index lost 1.79% while the broader TOPIX Index plummeted by 3.17% due to exports suffering as a result of a strong yen. Investors generally directed their attention toward COVID-related developments in China as government authorities suggested that they will begin to ease the strict coronavirus containment measures they had been implementing. There were also expectations among investors that the U.S. Federal Reserve will likely slow the pace of interest rate hikes, further raising investor sentiments. The yield on the 10-year Japanese government bond was hardly impacted by developments during the week prior and remained broadly unchanged at 0.25% as it traded around the implicit policy cap of the Bank of Japan (BoJ). Simultaneously, the yen rose to about JPY 134.5 from JPY 139.1 against the U.S. dollar, its strongest level in more than three months. The move was in anticipation of the Fed shifting to a more dovish stance.

Chinese stocks rallied amid indications that the U.S. Federal Reserve is poised to lower the pace at which it was hiking interest rates, and that Beijing was inching closer to fully reopening the economy after months of pandemic lockdowns. The blue-chip CSI 300 Index surged by 2.5% during the past week’s trading, the best weekly gain it had in a month. Early in the week, however, markets plunged on reports that civil unrest broke out in major cities nationwide over the weekend. The unrest was sparked by a fire in Urumqi, the capital of Xinjiang province, that killed 10 people purportedly locked in their residences due to coronavirus restrictions. After the incident, Beijing expressed intentions of moving away from its zero-tolerance approach to coronavirus control, lifting investor sentiments.

The Week Ahead

Productivity, jobless claims, and the producer price index are among the important economic data being released this week.

Key Topics to Watch

• S&P U.S. services PMI (final)
• ISM services index
• Factory orders
• Trade deficit
• Productivity (SAAR) revision
• Unit labor costs (SAAR) revision
• Consumer credit (level change)
• Initial jobless claims
• Continuing jobless claims
• Producer price index final demand
• UMich consumer sentiment index (early)
• UMich 5-year inflation expectations (early)
• Wholesale inventories revision

Markets Index Wrap Up

Stock Markets

The holiday-truncated trading week produced gains in the major stock benchmarks. The Dow Jones Industrial Average (DJIA) climbed 2.39% while the Dow’s total stock market index likewise gained 1.98%. The S&P 500 Index added 2.02%, outperforming the technology-heavy Nasdaq Stock Market Composite which inched upward by 0.73%. The NYSE Composite advanced by 2.51%. Expectedly, the CBOE Volatility index plunged by 14.33%. For the first time in two months, the S&P 500 Index closed the week above 4,000. The market rally was fueled by favorable earnings reports in the retail and technology sectors. There are also indications that the Federal Reserve is increasingly amenable to loosening its policy and slowing the pace of rate hikes that it had pursued in recent months. Investors had overcome concerns early in the week regarding the potential repercussions of a fresh round of COVID-related lockdowns in China on global economies. Trading was light going into the Thanksgiving holiday.

U.S. Economy

The inflationary trend, and the Federal Reserve’s response to try to rein it in, appear likely to continue to drive markets in the months ahead. There is still no clear indication as to how far the Fed will need to hike interest rates further before inflation is brought under control. Investors, however, are of the view that the end of the tightening cycle is closer than the beginning, There is a stronger expectation that inflation will soon trend downward over the months to come, potentially shifting the market environment and lifting some of the pressure from investment portfolios.

The bond market was characterized by decreasing yields of longer-maturity Treasury debt by more than shorter maturities. This has led to a further inversion of the yield curve as bond prices and yields move in opposite directions. Municipal bonds traded higher from the start of the week through Wednesday, assisted by a continued pullback in interest rates and limited issuance in the course of the short trading week. Nevertheless, the bonds sector lagged U.S. Treasuries at the broad market level, prompted by the underperformance of long-maturity principals. While bonds typically move in the opposite direction to stocks to provide a buffer against stock-market losses, the quickly rising interest rates and demand concerns indicated that bonds entered into a bear market almost simultaneously as equities. Bonds, therefore, afforded little protection to the stock-market declines.

Metals and Mining

The price of gold continued to prove its resilience as it closed the week slightly above the $1,750 per ounce support level. The Federal Reserve provided a lifeline to the precious metal after the minutes from its November monetary policy meeting were perceived to have a more dovish undertone. A majority of the participants in the meeting saw that slowing the pace of rate increases will soon be justified by pending inflation rate slowdowns. The message advanced by the meeting is helping to strengthen expectations that the U.S. central bank will adjust interest rate hikes down to 50 (rather than 75) basis points starting next month. While the gold market is holding fast to the current support levels, precious metal investors still appear reticent to advance their bullish bids. The lack of confidence is not unjustified because past pivot rumors that have circulated through the summer have burned some investors who untimely entered the market. Despite the strong headwinds, however, gold continues to outperform the broad market and continues to remain an effective portfolio diversifier.

Gold ended this week at $1,754.93 per ounce, 0.24% higher than the previous week’s close at $1,750.68. Silver, which ended the week before at $20.94, closed this week at $21.75 per ounce, representing a gain of 3.87%. Platinum ended the week before at $981.87 and closed this week at $983.56 per ounce, inching upwards by 0.17%. Palladium came from $1,939.21 and ended at $1,847.69 per ounce, declining by 4.72%.  The three-mo LME prices of base metals moved down across the board. Copper closed this week at $8,008.00 per metric tonne, down by 1.26% from the previous week’s closing price of $8,110.00. Zinc descended by 2.23% from the week-ago price of $2,987.00 to this week’s price of $2,920.50 per metric tonne. Aluminum, which closed the week before at $2,391.00, ended this week at $2,362.50 per metric tonne, for a weekly loss of 1.19%. Tin came from its previous week’s price of $22,584.00 to end this week at $22,231.00 per metric tonne, a decline of 1.56%.

Energy and Oil

Oil markets are once more impacted by bearish sentiments as China’s renewed COVID lockdown once more casts a pall over the global economic recovery. As the oil price cap comes into effect in only 10 days, clarification is desperately awaited by the oil markets on the actual details of the price limit. Although the European Union convened to align on a joint oil price cap, talks collapsed as members failed to agree on the best price point.

The reports of some media players suggested that the G7-proposed oil price cap level would fall within the range of USD 65 to 70 per barrel. This figure is substantially higher than what was first assumed. The proposal of the EU to cap gas prices, reportedly at €275 per MWh, was lambasted by member states. Discontent was fueled by the lack of clarity while Germany and the Netherlands claim that any cap would only shift supply elsewhere.

China’s COVID resurgence and pending reduction in economic activity have only pushed oil prices lower over the week. China’s daily recorded COVID-19 cases had risen to an all-time high in the past week, surging to more than 31,000 and prompting the government to lock down Henan and Guangdong once again. Beijing residents were subjected to the strictest restrictions since the pandemic began.

Natural Gas

For the week beginning Wednesday, November 16, and ending Wednesday, November 23, 2022, the Henry Hub spot price ascended by $2.29 from $3.45 per million British thermal units (MMBtu) at the beginning of the week to $5.74/MMBtu at the week’s end. Regarding Henry Hub futures prices, the price of the December 2022 NYMEX contract increased by $0.335, from $5.865/MMBtu to $6.200/MMBtu through the week. The price of the 12-month strip averaging December 2022 through November 2023 futures contracts rose by $0.203 to $5.349/MMBtu. International natural gas futures price movements were mixed this report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia declined $0.85 to a weekly average of $27.06/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $0.15 to a weekly average of $34.10/MMBtu.

World Markets

In Europe, equities rose for a sixth straight week on expectations that central banks are about to slow the pace of interest rate increases. The pan-European STOXX Europe 600 Index closed the week 1.66% higher than last week in local currency terms, France’s CAC 40 rose by 0.88%, Germany’s DAX Index added 0.62%, and Italy’s FTSE MIB remained unchanged. The UK’s FTSE 100 Index advanced by 1.16%. European government bond yields softened based on speculations that the region’s monetary policy may loosen soon. A survey conducted among purchasing managers suggested that the eurozone economy teetered on the brink of contractionary territory with inflationary pressures easing. The 10-year German government bond yields were kept subdued below 2%, while in the UK, the 10-year bond yields remained steady at about 3% as hopes for smaller rate hikes were broadly offset by concerns about record issuance.

In Japan, stock markets climbed during a holiday-shortened trading week. The Nikkei 225 Index rose by 1.37% and the broader TOPIX Index ascended by 2.59%. Positive sentiment was driven by expectations that the U.S. Federal Reserve would likely adopt a more dovish monetary policy stance soon. There are indications that inflationary pressures appear to be broadening in November, amid a rise in Tokyo core consumer prices, widely recognized as a leading indicator of nationwide trends. PMI data showed the first contractions in the Japanese manufacturing sector going back to January 2021. Furthermore, a recovery in the tourism industry continued to support the services sector which stagnated nevertheless. The yield on the 10-year Japanese government bond climbed to 0.25% from 0.24% where it ended the previous week. The yen strengthened to approximately JPY 138.7 against the U.S. dollar, compared to the earlier week’s exchange rate of JPY 140.3 to the greenback. The move was in response to the anticipation of a more dovish Fed policy and the Bank of Japan’s commitment to its ultra-liberal monetary policy. Inflationary pressures continue to build in November, though, with Tokyo’s core consumer prices rising by 3.6% year-over-year, higher than consensus estimates.

Chinese shares were moderately positive for the week, as investors balanced concerns over new coronavirus restrictions against declarations by authorities that they will provide greater support towards stimulating the economy. News of additional funding for property developers further boosted market sentiment. The Shanghai Composite Index added 0.76% while Hong Kong’s Hang Seng Index gained 0.59%. The COVID situation provided headwinds to the country’s economic recovery as cases soared to record highs. Several cities were placed under broad restrictions on movement, and mass testing was resumed to track the rise of daily coronavirus cases. No city-wide lockdowns have yet been announced, but the widespread restrictions have hampered economic activities across the country. Government authorities have stated that their responses will be more targeted and less disruptive. Eight districts in Zhengzhou, the site of Apple’s largest iPhone manufacturing facilities, will be locked down for five days beginning November 25 due to the virus reaching a “critical phase” in the region. This elevated tensions after workers at Foxconn’s plant, protesting unpaid wages and poor hygiene conditions, clashed with security personnel. To provide further support to the economy, the People’s Bank of China announced on Friday that it will cut the reserve requirement ratio (RRR) by 25 basis points. This is part of a pledge by the central bank to employ monetary tools “in a timely and appropriate manner” to maintain reasonably ample liquidity.

The Week Ahead

Important economic data scheduled for release in the coming week include real GDP, job openings and quits, PCE price index, and real consumer spending.

Key Topics to Watch

• MarketWatch interviews St. Louis Fed President James Bullard
• S&P Case-Shiller U.S. home price index (SAAR)
• FHFA U.S. home price index (SAAR)
• Consumer confidence index
• ADP employment report
• Real GDP (SAAR) revision
• Real gross domestic income (SAAR)
• Real domestic final sales (SAAR) revision
• Trade in goods deficit (advance)
• Chicago PMI
• Job openings
• Quits
• Pending home sales index
• Fed Chair Jerome Powell speaks at the Brookings Institution
• Beige Book
• Initial jobless claims
• Continuing jobless claims
• PCE price index
• Core PCE price index
• PCE price index (year-on-year)
• Core PCE price index (year-on-year)
• Real disposable income
• Real consumer spending
• S&P U.S. manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Motor vehicle sales (SAAR)
• Nonfarm payrolls (level change)
• Unemployment rate
• Average hourly earnings
• Labor-force participation rate, 25-to-54-year-olds

Markets Index Wrap Up

Stock Markets

This week, the equities market gave back a modest proportion of the previous week’s stellar gains as investors try to gauge the scale of the economic slowdown. The major stock indexes saw moderate retracements. The Dow Jones Industrial Average (DJIA) slid back 0.01% and its total stock market index receded 0.97%. The S&P 500 Index declined 0.69% while the Nasdaq Stock Market Composite dropped 1.57%. The NYSE Composite inched down 0.28%, while the CBOE Volatility Index (VIX) rose 2.66%. The increase in the volatility metric generally indicates a heightened perceived risk among investors, although the current VIX value of 23.12 is still significantly below the 30-benchmark level indicating large volatility.

In this week’s trading, growth stocks underperformed value-oriented shares as the latter was supported by gains in the consumer staples sector. On the other hand, the energy sector underperformed due to European oil and natural gas inventories reaching near-peak levels. A brief sell-off on Tuesday was sparked by dispelled reports of a Russian missile strike on Polish territory. For much of the week, trading volumes remained subdued. Investors remained focused on earnings reports from prominent retailers and what they may indicate about a possible economic slowdown.

The U.S. Treasury yield curve inverted further during the week, driving the inversion level in the two-year/10-year curve segment to its deepest level in more than four decades. This is of some concern since this is typically an indicator of a coming recession, although this prognosis remains far from conclusive. James Bullard, President of the Federal Reserve Bank of St. Louis, announced that the Fed’s terminal policy should reach a minimum level of 5% and may need to reach as high as 7% for the central bank to achieve its inflation objectives. This news caused short-term U.S. Treasuries to reprice to higher levels. Meanwhile, “dip buying” in longer maturities helped push long-end yields downward since bond prices and yields are negatively correlated.

U.S. Economy

The labor market remains resilient although the manufacturing sector showed slower growth. In October, industrial production unexpectedly slowed as it was weighed down by weakness in the energy and materials sector. A gauge of manufacturing activity in the Mid-Atlantic region also plummeted to its lowest level since May 2020. Another round of massive layoffs was announced by Amazon.com in the form of a 10,000-strong job cut. The jobless claims over the previous week remained muted, however. Some 222,000 workers filed for unemployment benefits, still within the 214,000 to 226,000 tight range of jobless claims since late September.

While there were reports of flagging discretionary spending impacting some retailers, others reported better-than-expected results that offset concerns and reflected a more positive picture. The Commerce Department reported on Wednesday that retail sales excluding the volatile auto segment rose 1.3% in October, the biggest gain since May and well above consensus expectations.

Metals and Mining

Gold and silver have seen impressive rallies since the start of November. Silver prices rose 19% in the last three weeks as they briefly pushed above $22 per ounce, and gold prices rallied almost 11% to within proximity of $1,800 per ounce. While both precious metals maintain most of their gains heading into the weekend, they are still well off their highs and continue to test important support levels at $1,750 and $21 for gold and silver, respectively. While there appears a new impetus to the rise in precious metals prices, one requisite remains missing. Still sitting on the sidelines are the long-term investors in gold-backed exchange-traded funds (ETFs). Analysts note that rallies in gold and silver will remain unsustainable until these investors rejoin the market. This prospect may not occur for some time, as long as the Federal Reserve maintains its aggressive monetary policy stance.

This past week, gold fell 1.16% from the previous week’s level of $1,771.24 to this week’s end at $1,750.68 per troy ounce. Silver, which closed a week ago at $21.70, ended this week at $20.94 per troy ounce, lower by 3.50%. Platinum came from $1,033.07 a week ago and closed this week at $981.87 per troy ounce, losing 4.96%. Palladium descended 5.37% from its week-ago price of $2,049.35 to this week’s close at $1,939.21. Base metals 3-mo LME prices ended mixed for the week. Copper, which was priced one week ago at $8,271.50, ended this week at $8,110.00 per metric tonne, down by 1.95%. Zinc rose from $2,327.00 the previous week to $2,987.00 per metric tonne this week, up by 28.36%. Aluminum lost 17.09% from its previous price of $2,884.00 to its price this week at $2,391.00 per metric tonne. Tin rose 11.12% for the week, from $20,324.00 to $22,584.00 per metric tonne.

Energy and Oil

The week was replete with both negative and positive disruptive events, including the prospect of World War III, a drone missile attack on a tanker in the Middle East, and market optimism from improving inflation data suddenly cut short by a protracted coronavirus outlook in China. Concerning the covid outbreak, the situation in that country has become so dire that Chinese retailers have reportedly asked Saudi Arabia to cut already nominated December volumes, simultaneously withdrawing on other buying. China’s re-emergence was a critical consideration of the recent upswing in prices. The latest developments have caused ICE Brent prices to slip below $90 per barrel again, as would have been expected given the recent events. For the longer-term outlook, the U.S. is expected to ban fossil fuel heavy-duty cars by 2040. U.S. Energy Secretary Jennifer Granholm, speaking at the COP27 climate summit in Egypt, stated that the White House intends to sell only zero-emissions medium- and heavy-duty vehicles including buses, delivery vehicles, and trucks, by the end of the next decade.

Natural Gas

For the report week beginning Wednesday, November 9, and ending Wednesday, November 16, 2022, the Henry Hub spot price rose $2.29, from $3.45 per million British thermal units (MMBtu) at the start of the week, to $5.74/MMBtu at the end of the week. The price of the December 2022 NYMEX contract increased by $0.335, from $5.865/MMBtu to $6.200/MMBtu. The price of the 12-month strip averaging December 2022 through November 2023 futures contracts rose $0.203 to $5.349/MMBtu. International natural gas futures price movements were mixed this report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased $0.85 to a weekly average of $27.06/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 $0.15 to a weekly average of $34.10/MMBtu

World Markets

European stocks consolidated as the pan-European STOXX Europe 600 Index ended mostly higher in local currency terms. The region’s major stock indexes solidified their positions, with Germany’s DAX Index rising 1.46%, Italy’s FTSE MIB Index advancing 0.90%, and France’s CAC 40 Index ascending 0.76%. UK’s FTSE 100 Index gained 0.92%. In his Autumn Statement, UK Finance Minister Jeremy Hunt announced a round of tax increases, spending cuts, and new fiscal rules, intent on repairing the public finances and restoring Britain’s credibility in international markets. The government will raise taxes by GBP 25 billion and cut spending by GBP 30 billion by 2027-2028 to plug the fiscal hole of GBP 55 billion. The greater portion of the cutdown in public spending is scheduled for implementation after the next general election in 2024. Inflation in the UK accelerated and hit a 41-year high of 11.1% in October, more than was expected and higher than the 10.1% inflation rate registered in September. Its primary drivers were sharp increases in energy bills and food prices.

Japan’s stocks fell over the past week. The Nikkei 225 Index declined by 1.29% while the broader TOPIX Index slid by 0.54%. The rate of core consumer price inflation ascended to a 40-year high, further exerting pressure on the Bank of Japan (BoJ) which remains committed to its ultra-loose monetary policy stance. For the third quarter of the year, the Japanese economy unexpectedly contracted, weighing down investor sentiment. The yield on the 10-year Japanese government bond rose to 0.24% from 0.23% at the end of the week before. The yen weakened slightly to approximately JPY 139.8 against the U.S. dollar, compared to the prior week’s rate of about JPY 138.8 to the greenback. Core consumer prices for October rose at their fastest rate in four decades. Excluding fresh food, consumer inflation grew 3.6% year-to-year, higher than the BoJ’s target for the seventh consecutive month.

Stocks in mainland China rose modestly over the week. The Shanghai Composite Index gained 0.32% while Hong Kong’s Hang Seng Index outperformed with a rise of 3.85%. Investor sentiment struck a balance between optimism about the easing COVID restrictions and concerns over rising cases. New cases of coronavirus infections averaged 16,000 by the end of the week, with a seven-month high of over 25.000 on Thursday alone. Although the breakout was widespread, China’s National Health Commission announced that it was ending mass testing in districts not at risk of community transmission. Furthermore, plans to create new COVID-focused treatment centers were announced by the Commission. This is evidence that the government was gradually retreating from its “zero-COVID” policy, contrary to official statements. The strict official policy, together with the troubled housing sector, appeared to impact negatively on the consumer as evident in Monday’s October retail sales report. Data showed sharp year-on-year declines in almost all categories of retail sales (for instance, sales of home appliances plunged by over 14%). However, investors’ hopes were enhanced by recently announced support measures for the property sector. Officials unveiled 16 new programs to shore up the property markets, including loan extensions to both homebuyers and developers.

The Week Ahead

Among the important economic data scheduled for release in the coming week are building permits, durable goods orders, and the Markit PMI.

Key Topics to Watch

• Chicago Fed national activity index
• Durable goods orders
• Core capital equipment orders
• Initial jobless claims
• Continuing jobless claims
• S&P U.S. manufacturing PMI (flash)
• S&P U.S. services PMI (flash)
• UMich consumer sentiment index (final)
• UMich 5-year inflation expectations (final)
• New home sales (SAAR)
• FOMC minutes

Markets Index Wrap Up

Stock Markets

Investors heaved a sigh of relief at the cooler-than-expected inflation data released this week. Although this in no way guarantees that the worst is over, the market is hopeful that October could be the start of a disinflationary trend that could hopefully spill over to next year. The lower-than-expected headline consumer price index (CPI) sent stocks surging, Treasury yields declining, and a weakening in the dollar. The market reactions point to inflation as the top driver of market movements for the year, and a significant factor for consideration for Federal Reserve policy and investment strategy. There was heightened activity in the investment-grade corporate bond primary market even as the broad tax-exempt bond market traded higher.

Over the trading week just concluded, the Dow Jones Industrial Average (DJIA) rose 4.15% while the Total Stock Market Index gained 5.99%. The S&P 500 Index ascended even higher, adding 5.90%, although it was even outperformed by the Nasdaq Stock Market Composite which advanced 8.10%. The NYSE Composite Index gained 4.42% while the CBOE Volatility Index declined 8.27%, a sign of falling risk perception among investors. Furthermore, the S&P 500 Index recorded its best week since June as well as hit its best intraday level in two months. Its largest daily gain since April 2020 materialized after the release of the consumer inflation data on Thursday. Growth stocks, including technology and internet-related shares particularly, benefitted from falling bond yields which typically enhances the perceived value of future profits. An index of nonprofitable tech stocks, where a significant proportion of revenues is supposedly being invested in future growth, surged by more than 15% on Thursday.

U.S. Economy

The CPI registered an increase of 7.7% over last year, down from September’s 8.2% inflation rate and the smallest annual increase since January. More significantly, core inflation (excluding food and energy) slowed more than expected, adding only 0.3% over the month before and 6.3% from last year, compared to 0.6% and 6.7% in September, respectively. The September increase marked a 40-year high. Among the sectors where prices fell most were used cars and trucks which dropped by 2.4% in October, and apparel and medical services which also pulled back. Bucking the trend was the cost of shelter which continued to keep inflation elevated as it rose by 0.8% in October, its biggest increase in more than 32 years.

Some of the market surge may be owed to policymakers’ pronouncements regarding the economic data. Four Fed officials delivered speeches on Thursday, stating in effect that they believed the pace of rate increases should be tempered and perhaps halt at a lower terminal rate.  A more cautious tone was adopted by Federal Reserve Bank of Cleveland President Loretta Mester when she said that policy should “become more restrictive.” The results of the midterm election on Tuesday also impacted the perception of the economy’s future. Some investors appear to favor a divided government that would restrain new spending and regulation, and therefore welcomed the likelihood of a Republican majority in the House of Representatives and, possibly, the Senate.

Metals and Mining

It was an amazing week for the precious metals markets. Gold registered its best weekly performance in almost two years, with December gold futures ending the week at about $1.770 per ounce, up by 5.5% from the previous week. Several major factors appear to be driving the new bullish momentum in metals. The top concern remains to be growing fears of a recession as the inverted U.S. yield curve remains at its widest level in 40 years. Another factor influencing the rally in gold prices is the optimistic news that inflation rose at a slower rate than economists expected, possibly signaling that the Fed is close to slowing down further interest rate hikes.

A third factor that is driving the precious metal’s safe-haven appeal is the increasingly chaotic cryptocurrency market. The week took a bad turn for one of the world’s largest crypto exchanges as FTX announced Thursday night that it was filing for bankruptcy. The digital exchange went from a market value of $32 billion to basically worthless in the span of a few days. There was a significant knock-on effect as the 130 corporate entities affiliated with the exchange filed for bankruptcy. The problems in this market are seen to possibly impact broader market conditions.

The gold spot price rose 5.31% from the previous week’s close at $1,681.87 to this week’s close at $1,771.24 per troy ounce. Silver ascended 4.03% from the price the week before at $20.86 to this week’s $21.70 per troy ounce. Platinum came from $964.16 to end this week at $1,033.07 per troy ounce, a gain of 7.15%. Palladium gained 9.21% week-on-week, from $1,876.50 to $2,049.35 per troy ounce. The 3-month LME prices of base metals were mixed for the week. Copper gained 2.13% from its previous week’s closing price of $8,099.00 to this week’s price of $8,271.50 per metric tonne. Zinc began at $2,874.00 and ended at $2,327.00 per metric tonne for a weekly loss of 19.03%. Aluminum shot up by 22.44% from its earlier week’s close at $2,355.50 to this week’s $2,884.00 per metric tonne. Tin closed this week at $20,324.00 per metric tonne, up by 7.69% from the previous week’s price of $18,872.00.

Energy and Oil

Covid is once more putting its thumb on the weighing scale of oil prices, but this time in a positive way. The Covid news out of China is encouraging as the government appears to be rethinking its zero-Covid policy and easing some of its Covid restrictions. This development boosts hopes that China’s oil demand could start bouncing back, providing an impetus for oil prices to recover. The announcement of better-than-expected U.S. inflation data has also helped push back a significant oil price decline this week, bringing ICE Brent back to $96-97 per barrel. While coronavirus cases continue to surge in China, reprising and, in some cases, surpassing the 2020 contagion levels, Beijing’s shifting stance on lockdowns towards greater leniency have calmed the ripples in the oil markets and offset fears of a year-on-year drop in oil demand in the country. Although the threat of more bearish news remains, China’s move towards greater openness supports further increases in oil prices. Meanwhile, in the U.S. the Energy Information Administration (EIA) lowered its forecast for 2023 U.S. crude production growth by a significant 21%. The EIA cited inflation and supply chain constraints and expects next year’s increase to be 480,000 barrels per day.

Natural Gas

For the report week beginning Wednesday, November 2, to Wednesday, November 9, 2022, the Henry Hub spot price fell by $1.06 from $4.51 per million British thermal units (MMBtu) to $3.45/MMBtu. The closing price was the lowest daily price since December 2021. The price of the December 2022 NYMEX contract decreased by $0.403 from $6.268/MMBtu On November 2 to $5.865/MMBtu on November 9. The price of the 12-month strip averaging December 2022 through November 2023 futures contracts lost $0.205 to $5.146/MMBtu. International natural gas futures prices decreased for this report week. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased by $1.06 to a weekly average of $27.91/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, decreased by less than $0.02 to a weekly average of $33.95/MMBtu.

World Markets

European shares climbed on the news of slowing U.S. inflation, together with news of better-than-expected results this earnings season by listed firms, thus lifting investor sentiments. The pan-European STOXX Europe 600 Index closed the week 3.66% higher in local currency terms. Germany’s DAX Index jumped by 5.68%, Italy’s FTSE MIB Index rose by 5.04%, and France’s CAC 40 Index climbed by 2.78%. The U.K.’s FTSE 100 Index, on the other hand, slid 0.23% after the release of poor economic growth data eroded gains. In the bonds market, European government bond yields descended from multiweek highs on the back of weaker-than-expected U.S. CPI data that fueled a global rally in bond markets. Germany’s 10-year bond yield settled at a two-week low in response to a broad-based drop in U.S. treasury yields. However, yields remained near recent highs in Italy, France, and Switzerland, in response to still red-hot inflation data in the bloc. Weak gross domestic product (GDP) data in the U.S. weighed with a downward bias on bond yields ahead of next week’s budget. The lower GDP reading in the U.K indicates a shrinking economy and suggests an impending recession.

Japanese stocks rose over the week as the Nikkei 225 Index registered a 3.9% gain and the broader TOPIX Index ascended by 3.3%. Positive investor sentiment in the Japanese markets resulted from the lower-than-expected U.S. CPI inflation figure. This raised hopes that the U.S. Federal Reserve will begin to loosen its restrictive monetary policy and allow for a more dovish stance. The relaxation of coronavirus restrictions in China also contributed to the more optimistic Japanese outlook. The Bank of Japan (BoJ) asserted that it will continue to pursue its ultra-loose monetary policy to support the fragile economic recovery. The yield on the 10-year Japanese government bond fell to 0.23% from 0.25% even as the yen strengthened at about JPY 139.4 versus the U.S. dollar, from around JPY 146.6 towards the end of the week before. The stronger yen appears to be the result of the BoJ’s intervention in the currency markets.

Chinese equities benefitted from a surprise boost following the announcement of better-than-expected numbers in U.S. inflation. For most of the week, however, Chinese bourses trailed most other global markets due to investors’ concerns about new signs of the economy remaining fragile. The Shanghai Composite Index slid by 0.54% for the week. Some relief was provided to property stocks by news of additional support for the troubled housing market. Chinese officials ordered another USD 56 billion in loans to be extended by second-tier banks to developers. For much of the week, continuing concerns were fueled by the number of daily COVID cases reaching above 10,000 for the first time in over a year, posing the possibility of further lockdowns and a postponement of the opening of the Chinese economy. The increase in infection appeared broad-based and included Henan province, where Foxconn’s iPhone assembly plant was kept open but placed in a “closed loop” with workers living on-site. In any case, an announcement of China’s relaxation of its zero-COVID policy appears to have provided the impetus for Friday’s rally. The government is rumored to soon ease travel restrictions and other measures following President Xi Jinping’s reelection. While policy remains firmly in place, for now, Beijing announced on Friday afternoon that mandatory quarantine time for inbound travelers would be reduced, together with testing requirements.

The Week Ahead

Important economic data scheduled to be released this week include housing starts, retail sales, and leading economic indicators.

Key Topics to Watch

• NY Fed 1-year inflation expectations
• NY Fed 5-year inflation expectations
• Producer price index final demand
• Empire state manufacturing index
• Real household debt (SAAR)
• Real mortgage debt (SAAR)
• Retail sales
• Retail sales excluding vehicles
• Import price index
• Industrial production
• Capacity utilization rate
• Business inventories
• NAHB home builders’ index
• Initial jobless claims
• Continuing jobless claims
• Building permits (SAAR)
• Housing starts (SAAR)
• Philadelphia Fed manufacturing index
• Existing home sales (SAAR)
• Leading economic indicators

Markets Index Wrap Up

Stock Markets

Over the past week, the markets reversed the seeming recovery it appeared to trek just the week before. All indexes are down after the Federal Reserve hiked interest rates another 75 basis points, putting to rest speculation that the central bank was rethinking its hawkish policy and would moderate the pace of its rate hikes. The Dow Jones Industrial Average (DJIA) descended 1.40% from the week before while the Total Stock Market charted a 3.33% drop. The S&P 500 Index mirrored the Dow Jones total stock market, giving up 3.35% from the week before. The Nasdaq Stock Market Composite underperformed the general indices more, plunging 5.65%, suggesting that the technology sector and growth stocks bore the brunt of the sell-down more than the other sectors. The NYSE Composite dipped by 0.63%, and CBOE Volatility (VIX) dropping 4.66%. Typically, the VIX negatively correlates with the S&P 500, so the results this past week appear to run against previous experience, with both indicators falling by about the same percentage.

Hopes were dashed during the week that the Fed may slow down the degree to which they raise interest rates anytime soon. The fed funds rate was jacked up 0.75% at its November FOMC meeting, its fourth consecutive increase by the same percentage points. In just eight months, the fed rate shot up from almost 0% to 4.0%, an unprecedented pace in the history of the U.S. economy. Chair Powell stressed that while the pace of rate hikes may slow as soon as the December meeting, any chance that the rate-hiking may pause is still “very premature.” This shows that the Fed perceives greater risk in pausing and easing prematurely the rate hikes, than in overtightening. The message from Chair Powell provided the greatest incentive for the markets to broadly retreat last week, retracing much of the gains from the rebound last October.

U.S. Economy

The higher interest rates the country is facing can put downward pressure on consumption as well as directly impact those sectors of the economy that are more sensitive to interest-rate movements. The financial sector which includes credit card debt is the most interest-rate-sensitive industry. Aside from it, the consumer discretionary and housing markets will be impacted by rising interest rates because of the higher cost of commodities and rising mortgage rates.

Reports released also cast a mixed picture of the labor market in October. The Labor Department reported that employers added 261,000 jobs to nonfarm payrolls which outperformed consensus estimates. The department, therefore, adjusted its September jobs figures higher. Running counter to this, however, is the 3.7% rise in the October unemployment rate from 3.5% in September on the back of a decline in the labor force participation rate. While the labor market remains resilient, the unemployment rate is starting to move upward and the year-over-year gains are softening.

Metals and Mining

Over the summer, many analysts have pointed to pent-up demand building in the precious metals market. Gold prices have been in a consolidation pattern as many investors remain seated on the sidelines as they wait for the market conditions to shift. As gold prices ended up on Friday, it is still a mystery whether the precious metals market is ready to take off or this is again another feint in an unsustainable direction. The Fed’s aggressive monetary policy stance has held down investment demand for gold even as the rising interest rates have driven the dollar to 20-year highs. If Fed Chair Jerome Powell’s speech were any indicator, the central bank believes that inflation is not yet done in its ascent. In the meantime, there is renewed demand for safe-haven investments as the World Gold Council reported solid demand for gold. There is hope for global physical demand for gold to increase by 28% in the third quarter.

Precious metals spot prices were mixed for the week. Gold gained 2.25% over the past week, from the previous week’s close at $1,644.86 to the recent week’s close at $1,681.87 per troy ounce. Silver closed at $20.86 per troy ounce, which is 8.31% higher from the previous week’s close at $19.26. Platinum came from $947.97 the previous week and ended this week at $964.16 per troy ounce, recording a weekly gain of 1.71%. Palladium ended the previous week at $1,911.50 and the recent week at $1,876.50 per troy ounce, a decline of 1.83%.  The 3-mo LME prices for base metals were also mixed. Copper came from $7,764.50 the prior week and closed at $8,099.00 per metric tonne this week, locking in an increase of 4.31%. Zinc began at $2,942.00 and ended the week down by 2.31% at $2,874.00 per metric tonne. Aluminum rose by 2.97% week-on-week, from $2,287.50 the previous week to its close this week at $2,355.50 per metric tonne. Tin ended this week at $18,872.00 per metric tonne, a 0.97% increase over the previous week’s $18,690.00.

Energy and Oil

Oil prices have been pushed higher lately by a softer currency and speculation that China may be coming out of its Covid restrictions. In the longer term, however, the Federal Reserve’s hawkish pronouncements may exert downward pressure on oil prices. In the much-anticipated press conference held by Fed Chair Jerome Powell, many who expected that the Fed may soon adopt a more dovish stance were disappointed by the announcement of a 75-basis point rate hike, with the terminal rate possibly rising above current expectations. Fears that continued restrictive monetary policies may lead to a recession in the U.S. weighs on oil demand, even though it coincides with the possible opening up to China from years of self-imposed pandemic lockdowns. On the international scene, the Organization of Petroleum Exporting Countries issued a warning of an impending energy crisis. Facing annual production decline rates of four to five percent, OPEC Secretary General Haitham al Ghais called upon the global oil industry toincrease their investments in new oil projects to dispel the possibility of future energy crises, particularly since oil is still a decade away from peaking.

Natural Gas

For the report week beginning Wednesday, October 26, to Wednesday, November 2, 2022, the Henry Hub spot price fell by $0.75 from $5.26 per million British thermal units (MMBtu) at the start of the week to $4.52/MMBtu by the week’s end. Concerning Henry Hub future prices, the November 2022 NYMEX contract expired on Thursday at $5.186/MMBtu, lower by $0.42 from the preceding Wednesday. The December 2022 NYMEX contract price increased to $6.268/MMBtu, up, higher by $0.15 from the previous Wednesday to this Wednesday. The price of the 12-month strip averaging December 2022 through November 2023 futures contracts ascended $0.08 to $5.351/MMBtu.

The international natural gas futures prices were mixed throughout the report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia decreased $2.55 to a weekly average of $28.97/MMBtu, and natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands, the most liquid natural gas market in Europe, increased by $2.35 to a weekly average of $33.96/MMBtu.

World Markets

European shares rose for a third consecutive week, which investors may take as a signal by central banks that they may soon curb the pace of interest rate increases. Market sentiments were further boosted by speculation that China may soon lift its zero-Covid policies. The pan-European STOXX Europe 600 Index closed the week 1.51% higher. Major bourses followed this trend. Germany’s DAX Index gained 1.63%, France’s CAC 40 Index climbed 2.29%, and Italy’s FTSE MIB Index ascended 3.34%. The UK’s FTSE 100 Index advanced by 4.07%. European bond yields once more headed toward 11-year highs after the record inflation data for October prompted the European Central Bank to aggressively raise interest rates further. The market response was broad-based, with the yields from French, Italian, and Swiss sovereign bonds making a comeback from recent declines. The 10-year gilt yields in the UK rose after the Bank of England (BoE) raised its benchmark interest rate by 0.75 percentage point to 3% to contain inflation. This is the highest level it has been since 2008. The BoE warned that the UK faces a “very challenging” two-year recession and predicted that inflation would stay above 10% for the next six months and above 5% for the rest of 2023. The central bank forecasts that unemployment may rise to nearly 6.5% by 2025.

In Japan, stock market returns were positive for the week. The Nikkei 225 gained 0.35% and the broader TOPIX Index was up 0.86%. The positive sentiment was spurred by data indicating that Japan’s services sector expanded in October and that China was likely to reopen soon from its pandemic shutdowns. The U.S. Fed’s announcement that its hawkish monetary policy will continue dampened somewhat the positive investor sentiment. The yield on the 10-year Japanese government bond increased to 0,25% from 0.23% at the end of the previous week. The Bank of Japan (BoJ) reiterated its commitment to its ultra-loose monetary policy, but the Governor of the BoJ, Haruhiko Kuroda, hinted at a possible reassessment of the central bank regarding its policy yield curve control to arrest inflation. An increase in inflation beyond the BoJ’s 2% target and a rise in wages may compel the central bank to tweak its monetary policy. The yen weakened to about JPY 148,0 against the greenback, from approximately JPY 147.5 the week before. Authorities have intervened on several occasions to prop up the yen as it came under pressure due to the U.S. Fed’s tightening monetary policy.

China’s equities markets rallied on the expectation that the country was soon to relax its zero-tolerance policy regarding Covid-19. The broad, capitalization-weighted Shanghai Composite Index advanced by 5.3% for the week. Meanwhile, the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, surged by 6.4% for the week. Reports that surfaced in the just-concluded week stated that China was preparing to exit from its zero-Covid strategy that has adversely affected the country’s economy. In an unverified but widely circulated social media report, high-level officials had allegedly met during the prior weekend at the request of President Xi Jinping to discuss the conditional opening plan aimed at substantially opening by March in the coming year. The yield on the 10-year Chinese government bond ascended last Friday to 2.721% from 2.621% one week earlier.

The Week Ahead

This week, important economic data scheduled for release include consumer credit, CPI inflation data, and jobless claims.

Key Topics to Watch

• Consumer credit (level change)
• Cleveland Fed President Loretta Mester and Boston Fed President Susan Collins speak about women in economics
• Richmond Fed President Tom Barkin speaks on inflation
• NFIB small-business index
• New York Fed President John Williams speaks at Swiss National Bank event
• Wholesale inventories (revision)
• Richmond Fed President Tom Barkin speaks on outlook
• Fed Gov. Christopher Waller speaks on central bank digital currencies
• Consumer price index (monthly exchange)
• Core CPI (monthly change)
• CPI (12-month change)
• Core CPI (12-month change)
• CPI (3-month SAAR)
• Core CPI (3-month SAAR)
• Initial jobless claims
• Continuing jobless claims
• Federal budget (compared with year ago)
• Philadelphia Fed President Patrick Harker speaks on economic outlook
• Dallas Fed President Laurie Logan speaks on energy and the economy
• UMich consumer sentiment (early)
• UMich consumer 5-year inflation expectations (early)
• Cleveland Fed President Loretta Mester speaks
• Kansas City Fed President Esther George speaks on energy and the economy
• New York Fed President John Williams speaks

Markets Index Wrap Up

 

Stock Markets

The Dow Jones Industrial Average (DJIA) rose 5.72% and the total stock market index likewise climbed 4.15% for the week. The broad S&P 500 Index rose by 3.95%. The NYSE Composite ascended by 4.61% while the technology-heavy Nasdaq Stock Market Composite increased by 2.24%. The relative underperformance of the Nasdaq compared to the other indexes suggests that value stocks are attracting more investor action than tech and growth stocks. The CBOE volatility index fell by 13.27%.

Big Tech stocks, including Alphabet, Microsoft, Meta, Apple, and Amazon, on average declined 9% on the day of their earnings release and weighed on the markets. The mega-cap technology companies, which accounted for 20% of the S&P 500, exerted an outsized influence on the market averages. Almost 50% of the market cap, represented by 164 of the S&P 500 companies, reported results over the week. The tone of the earnings updates was not one-sided, though. Solid earnings trends were reported by several companies that rely mostly on consumer spending. Three themes dominated these stocks. First, online advertising spending continues to slow, thus weighing on the results of tech and other communication companies. Second, U.S. consumer spending is shifting more to services and less to goods. Third, strong pricing power and improving supply chains are helping support corporate profits.

U.S. Economy

Some of the improvement in market sentiment appeared to have been driven from beyond U.S. borders. Midweek, the Bank of Canada announced unexpectedly that it will raise rates by only 0.50% instead of 0.75%, sparking hopes that the Federal Reserve will follow its example. The possible continued aggressive monetary policy by the Fed and the consequent strengthening of the U.S. dollar intensified concerns that instability in the global financial system may be triggered. Optimism that the Fed may slow down its rate hikes was boosted by the report by the Commerce Department that the gross domestic product (GDP) growth rose for the first time this year. The third-quarter GDP suggested that the economy expanded by an annualized 2.6%, higher than the consensus estimate of 2.4%. Behind the reading were resilient consumer spending and business investment, together with increased government outlays. These helped offset a deep decline in residential investment, which is the first clear impact of the Fed rate hikes. In September, pending home sales declined by 10.2%, the sharpest monthly fall of the indicator since the onset of the pandemic.

Although the third-quarter GDP was positive, a look at the figures behind the metric reveals a less-than-rosy picture of the economy. The rebound was mostly due to a boost from net trade, where imports fell and exports rose. Since the global economy remains weak and the U.S dollar is nearly 20% higher from this same time last year, the surge in exports that pushed the GDP up this time around will likely fade in future quarters. The first-half GDP data appeared to have overstated the weakness in the economy while the third-quarter GDP overstated its strength. The rest of the picture is not encouraging. Consumption, which is the U.S. economy’s primary driver, slowed from 2% in the previous quarter to 1.4% this quarter. The consumption figure was helped by a rise in service spending, while goods consumption declined. As previously observed, residential investment (housing) sharply declined due to its sensitivity to interest rates. Mortgage rates have more than doubled since the year began. The positive side of this development is that as borrowing costs increase and the housing market cools, inflation can be expected to come down in the coming year.

Metals and Mining

The week began with gold performing solidly past the $1,650 per ounce price level. By the end of the week, the momentum had vanished. Rumors that the Federal Reserve will signal next week its readiness to slow its hitherto aggressive monetary policy rate hikes, weighing on the price of precious metals. While the sentiment in gold remains somewhat bullish, investors are not convinced that it will decidedly move up anytime soon. Players are likely to remain sidelined until confirmatory signals are seen. For this reason, attention is focused on next week’s FOMC meeting.

This week, gold inched downward by 0.77%, from $1,657.69 to $1,644.86 per troy ounce. Silver followed suit, dipping by $0.82 from the previous week’s $19.42 to this week’s $19.26 per troy ounce. Platinum, which closed the prior week at $934.83, ended this week at $947.97 per troy ounce, up by 1.41%. Palladium took a more substantial dip from its previous close at $2,018.50 to the more recent close at $1,911.50 per troy ounce, descending by 5.30%. The 3-mo LME prices for base metals were marginally up. Copper began from the previous week’s close at $7,624.00 and rose by 1.84% to close this week at $7,764.50 per metric tonne, an increase of 1.84%. Zinc, which ended the previous week at $2,928.00, closed this week higher by 0.48% at $2,942.00 per metric tonne. Aluminum came from $2,206.00 and ended this week at $2,287.50 per metric tonne, higher by 3.69%. Tin ended the week higher by 1.11%, closing at $18,690.00 per metric tonne from the prior week’s close at $18,484.00, an increase of 1.11%.

Energy and Oil

The oil markets sprang to life on the back of strong corporate earnings, with strong oil majors maintaining their policy of increasing dividends and ramping up share buybacks. The White House may not approve of this action taken by oil companies ahead of the midterm elections as a surge of optimism has supported the oil prices well, with ICE Brent approaching the psychological barrier at $100 per barrel. The problems that arose earlier this past week, including the widespread dumping of Chinese assets amidst Xi Jinping’s re-election and the ECB’s reluctant interest rate increase, appear to have been discounted for now. In the meantime, concerns arose about the U.S.’s distillate inventories being at their lowest level since 1982 when the EIA started collecting weekly data. It now sits at 106 million barrels, and diesel prices are expected to have a massive upside in the winter months unless the rate of diesel consumption declines.

Natural Gas

For the report week beginning Wednesday, October 19, and ending Wednesday, October 26, the Henry Hub spot price fell $0.24 from $5.50 per million British thermal units (MMBtu) at the start of the week to $5.26/MMB at the week’s end. Regarding futures prices, the price of the November 2022 NYMEX contract increased by $0.144, from $5.462/MMBtu to $5.606/MMBtu for the week. The price of the 12-month strip averaging November 2022 through October 2023 futures contracts ascended $0.122 to $5.302/MMBtu.

International natural gas futures prices descended during this report week. The weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia fell by $0.59 to a weekly average of $31.52/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 $5.69 to a weekly average of $31.61/MMBtu. The TTF prices fell below the East Asia price earlier this report week for the first time since April of this year.

World Markets

In Europe, shares rose strongly on expectations that central banks might mitigate the pace at which they increased interest rates. The pan-European STOXX Index closed the week 3.65% higher in local currency terms. The principal stock market indexes likewise surged. Italy’s FTSE MIB Index sharply rose by 4.46%, followed by Germany’s DAX Index which climbed by 4.03%, and France’s CAC 40 Index which advanced by 3.94%. The UK’s FTSE 100 charted a weekly gain of 1.12%. European government bond yields fell across the board. The yield on Germany’s 10-year government bond descended to a three-week low. Likewise, Italian bonds retreated, their 10-year yield falling to a five-week low. UK gilts enjoyed calm trading in the hopes that greater stability may be afforded by a new conservative government. Its 10-year yields dipped to a five-week low. In the meanwhile, the European Central Bank (ECB) again raised its rates by 0.75 percentage point for a second consecutive time. It indicated that it may pursue the same policy to curb inflation that is still perceived to be far too high. The euro fell below parity against the dollar.

Japanese equities ended higher for the week, with the benchmark Nikkei 225 closing above the 27,000 mark, at 27,015. The broader TOPIX index moved essentially sideways and ended at 1,899. Local markets gained early in the week on expectations that the U.S. central bank may adopt a more dovish monetary stance. However, local markets lost some ground later in the week as investors were greeted by domestic earnings reports and announcements by Prime Minister Fumio Kishida that the government will embark on a JPY 71.6 economic stimulus package. Meanwhile, the yen began the week on softer trading despite government intervention. Early Monday, the yen rallied sharply by almost 1.5%, on the back of a surge on Friday that sent the yen surging against the U.S. dollar for the most since March 2020. The currency moved sideways for most of the week, ending at JPY 146 versus the greenback. The benchmark 10-year Japanese government bonds (JGB) dipped sharply late in the week to finish at around 0.237%, from 0.251% where it began the week.

China’s stock markets pulled back on weakened investor sentiment due to new COVID-related lockdowns in several parts of the country. Some Chinese cities intensified their COVID-19 restrictions after the country reported three consecutive days of more than 1,000 new cases nationwide. Data indicated that profits at China’s industrial firms fell at a faster pace in September. The broad, capitalization-weighted Shanghai Composite Index declined by 4.05%. According to reports, major Chinese state-owned banks sold U.S. dollars in both onshore and offshore markets during the week after the yuan’s recent drop. The 10-year Chinese government bond yield descended to 2.691% from the earlier week’s 2.75% amid increasing expectations that global central banks may slow down their aggressive rate hike policies. China’s economy expanded by 3.9% in the third quarter from the same period last year, faster than the 0.4% growth in the second quarter. Exports grew 5.7% from last year in September, higher than expected but still the slowest pace since April. Imports rose by only 0.3%, way below the expected 1.0% growth expected.

The Week Ahead

This week, the important economic data due for release include the Chicago PMI, job openings, unemployment rate, and labor productivity.

Key Topics to Watch

• Chicago PMI
• S&P U.S. manufacturing PMI (final)
• ISM manufacturing index
• Jobs opening
• Quits
• Construction spending
• Motor vehicle sales (SAAR)
• ADP employment report (level change)
• Rental vacancy rate
• FOMC announcement
• Fed Chair Jerome Powell press conference
• Initial jobless claims
• Continuing jobless claims
• Foreign trade deficit
• Productivity (SAAR)
• Unit labor costs (SAAR)
• Nonfarm payrolls (level change)
• Unemployment rate
• Average hourly earnings
• Labor-force participation rate, ages 25-54

Markets Index Wrap Up

Stock Markets

Over the past week, there appeared hints of investor optimism, raising stock market indexes across the board. The Dow Jones Industrial Average (DJIA) gained 4.89% with all sectors up, bringing the total stock market index higher by 4.58%. The S&P 500 Index rose by 4.74%, while the Nasdaq Stock Market Composite surged 5.22%, suggesting that technology and growth stocks outperformed the rest of the market. The NYSE Composite ascended by 3.94%. The CBOE Volatility Index lost 7.28%, suggesting that the fear of traders may be dissipating and more positive investor sentiment may be prevailing in the market.

The improving market sentiment may be attributed to the start of the third-quarter earnings season. Over the past week, several bellwether companies have reported revenues and earnings that exceeded analyst expectations. About 73% have exceeded their earnings forecasts, exceeding the usual 70% average. This has been generally attributed to a resilient consumer base that continues to patronize local goods and services despite economic headwinds. Strong consumer spending with low delinquency rates is observed by big banks that offer retail consumer banking services.

Investors also reacted with optimism to hints that future interest rate hikes by the Federal Reserve will proceed at a more moderate pace. The rise of the S&P 500 marked its best weekly gain in four months. Within it, energy shares outperformed in a show of resilience in the face of an announcement of another release from the U.S. Strategic Petroleum Reserve (SPR). The DJIA recorded its third straight week of gains. The small real estate sector lagged, even as trading remained volatile and active.

U.S. Economy

As the stock market reaction showed, the third-quarter earnings announcement of listed companies was better than expected. These were the results of business activity covering the quarter ending on September 30, however. Moving forward, higher interest rates may have a lagged impact on the real economy. Earnings may therefore be expected to soften in the future, especially in the coming year. Some downward adjustments in 2023 earnings growth may weigh on future economic expectations. The key to sustainable improvement in the economy is for inflation to recede significantly. Globally, central banks have signified their intention to continue raising interest rates until clear and consistent evidence of falling inflation materializes.

Economic reports during the week provided mixed signals concerning the depth by which Federal rate hikes are cutting into growth. The focus of a marked pullback on Wednesday’s bourses was the weak housing market following sharp declines in housing starts and mortgage applications. Simultaneous with the market reaction is downgrades by analysts of home supply stores Lowe’s and Home Depot. An index of homebuilder sentiment likewise dropped more than expected and touched a 10-year low. However, manufacturing production increased in September by a level that exceeded expectations. Jobless claims for the week ended October 15 also fell much more than forecast to a record low since late September.

Metals and Mining

The gold market was thrown another lifeline after falling to a new two-year low, on the back of expectations that the pace of interest rate hikes may start to slow. This was announced by the Wall Street Journal, anticipating the move after the Federal Reserve’s monetary policy meeting in November. Gold prices ended the week above the short-term psychological support level of $1,650 per ounce, indicating that it may have broken back up to a higher trading range. Many gold investors have, however, been burned by false hopes and it may take some time before they would venture to one more take long-term positions in the precious metal. So far this year, rallies have been short-lived due to a prevailing regime of persistently high inflation.

Gold ended the previous week at $1,644.47 and this past week at $1,657.69 per troy ounce for a weekly gain of 0.80%. Silver began from the week-ago price of $18.28 and ended the week at $19.42 per troy ounce, gaining 6.24% for the week. Platinum gained by 3.52% from the prior week’s price at $903.06 to this week’s close at $934.83 per troy ounce. Palladium moved from its previous close at $1,995.88 to $2,018.50 per troy ounce this recent week, climbing 1.13%. The 3-mo LME prices of the base metals ended mixed for the week. Copper, which closed one week ago at $7,573.00, ended this week at $7,624.00 per metric tonne for an increase of 0.67%.  Zinc moved from its previous close at $2,901.00 to its recent close at $2,928.00 per metric tonne, ending   0.93% higher. Aluminum, formerly $2,359.50, closed at $2,206.00 per metric tonne this week for a decline of 6.51%. Tin came from $20,100.00 but ended this week at $18,484.00 per metric tonne for a slide of 8.04%.

Energy and Oil

This week, President Joe Biden announced a 15-million-barrel SPR release, constituting the remaining volume of the 180 million barrels earlier suggested. The announcement, however, failed to move the oil market. Prices continued to trend sideways in recent trading sessions. The ICE Brent maintained around the $92 per barrel level as a consequence. The U.S. outlook is becoming increasingly bearish in light of the Federal Reserve’s announcement that it will continue to raise interest rates until it gets inflation under control. The bearish sentiment has been offset somewhat by the prospect of China easing its COVID restrictions, leading possibly to higher fuel demand, and a month-on-month decline recorded for OPEC+ crude in October. OPEC’s secretary general, Haltham al-Ghais, has also announced that the oil industry requires $12.1 trillion in additional investments to meet a projected 23% increase in global energy demand by 2045. Most of the increase is expected to come from gas utilization in Asia and Africa.

Natural Gas

For the report week beginning Wednesday, October 12, and ending Wednesday, October 19, 2022, the Henry Hob spot price dipped $0.97 from $6.47 per million British thermal units (MMBtu) at the beginning of the week to $5.50/MMBtu by the week’s end. In futures, the price of the November 2022 NYMEX contract fell by $0.973, from $6.435/MMBtu to $5.462/MMBtu week-on-week. The price of the 12-month strip averaging November 2022 through October 2023 futures contracts slid $0.553 cents to $5.180/MMBtu. Domestic natural gas spot prices fell at most locations, as week-over-week price declines at major pricing hubs ranged from $0.97/MMBtu at the Henry Hub to $0.29/MMBtu at Transco Zone 6 New York.

International gas futures prices, in the meantime, declined through the report week. Weekly average futures prices for liquefied natural gas (LNG) cargoes in East Asia declined by $2.71 to a weekly average of $32.11/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 $8.53 to a weekly average of $37.30/MMBtu.

World Markets

European shares climbed when UK Prime Minister Liz Truss announced her resignation and the scrapping of her fiscal policies this week. The pan-European STOXX Europe 600 Index closed the week 1.27% higher in local currency terms. The main stock indexes followed this trend. Italy’s FTSE MIB Index surged by 3.04%, Germany’s DAX Index rose 2.36%, and France’s CAC 40 Index advanced by1.74%. The UK’s FTSE 100 Index gained 1.62%. Ahead of the European Central Bank meeting that is anticipated to add another 0.75-percentage point increase in rate hikes, European government bond yields climbed. Yields on Germany’s 10-year debt ascended to their highest levels in the last 10 years. The 10-year gilt yields in the UK surged above 4% during a week of political uncertainty and volatile trading, with data indicating that inflation jumped to a 40-7ear high in September. Furthermore, the Bank of England (BoE) confirmed that n November 1, it will begin selling bonds that it accumulated under the quantitative easing program.

Japanese stocks went through a choppy week of trading and ended lower for the week, mainly due to fears of a global recession and continued currency weakness. During a midweek rally, investors bargain-hunted for undervalued stocks that followed the recent market sell-downs. The Nikkei 225 closed the week at 26,891, 0.7% lower than its close during the prior week. The broader TOPIX index also lost ground by 0.8% to end the week at 1,882. The Japanese markets appeared to be weighed down by U.S. inflation data released during the previous week. Growing expectations that the Federal Reserve will likely announce another 75-basis-point interest hike at its November meeting have had a delayed impact on Japanese bourses. The yen also was impacted after moving below the 150 level against the U.S dollar, a 32-year low. The dollar’s increased strength by Friday’s close saw the yen testing the 151 territory (150.9 JPY/USD), prompting the Japanese Finance Minister, Shun’ichi Suzuki, to pronounce his readiness to take decisive action to protect the yen against sudden sharp moves.

China’s stock exchanges charted a loss for the week after Beijing failed to explain its delayed release of key economic data. The broad capitalization-weighted Shanghai Composite Index slid 1.1% while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, dropped 2.6%. Last Monday, the country’s statistics bureau announced that it is postponing the release of third-quarter gross domestic product (GDP) and other key indicators. This included the monthly readings of retail sales, industrial production, and fixed asset investment. The data were scheduled to be released the next day, but the bureau did not give further comment other than announcing the delay, resulting in speculation that the third-quarter GDP would miss the official growth target of 5.5% for the year. Despite the efforts of state banks to support the currency, the onshore yuan fell to its weakest closing level against the dollar since the 2008 global financial crisis. The onshore yuan closed at 7.2494 per dollar on Friday, its lowest close since January 14, 2008.

The Week Ahead

GDP and inflation data are among the important economic data to be released in the coming week, as well as consumer confidence and consumer sentiment reports.

Key Topics to Watch

• Chicago Fed national activity index
• S&P U.S. manufacturing PMI
• S&P U.S. services PMI
• S&P Case-Shiller U.S. home price index (SAAR)
• FHFA U.S. home price index (SAAR)
• Consumer confidence index
• Trade in goods (advance)
• New home sales (SAAR)
• Real gross domestic product, first estimate (SAAR)
• Real final sales to domestic purchasers, first estimate (SAAR)
• Initial jobless claims
• Continuing jobless claims
• Durable goods orders
• Core capital equipment orders
• Employment cost index (SAAR)
• PCE price index
• Core PCE price index
• PCE price index (12-month change)
• Core PCE price index (12-month change)
• PCE price index (3-month SAAR)
• Core PCE price index (3-month SAAR)
• Real disposable income (SAAR)
• Real consumer spending
• UMich consumer sentiment index (late)
• UMich consumer 5-year inflation expectations (late)
• Pending home sales index

Markets Index Wrap Up