Week in Review: 23-27 January 2023

News Highlights

 

On the 5th of December 2022, the EU started enforcing an embargo on Russian crude oil exports. The sanctions were supposed to curtail revenues and at the same time dissuade European shippers from moving fossil fuels to the rest of the world. One month later, an Investigate Europe and Reporters United investigation finds the move is having limited impact: Moscow still profits highly from exports and European firms still facilitate much of the trade.

(Source: Investigate Europe)

 

German Chancellor Olaf Scholz announced on Wednesday that they would be providing Ukraine with Leopard 2 tanks. The German government’s statement said that: “The training of the Ukrainian crews is to begin quickly in Germany. In addition to training, the package will also include logistics, ammunition and maintenance of the systems.” The tanks could be operational in Ukraine in about three months.

The announcement was matched by the United States. On Wednesday, President Joe Biden said that he was providing 31 M1 Abrams tanks to Ukraine. The plan for incorporating Abrams tanks will likely be more complicated as they need to cross the Atlantic Ocean and their systems are considered more complex. 

Russian ambassador to Germany Sergei Nechaev said in a statement Wednesday that Berlin’s decision was “extremely dangerous” and takes the conflict “to a new level of confrontation.”

(Source: CNN)

 

China’s population fell in 2022 to 1.411 billion, down some 850 thousand people from the previous year, according to China’s National Bureau of Statistics. The last time China’s population decreased was in 1961, during a famine that killed tens of millions of people across the country.  A falling population is likely to exacerbate China’s problems with an aging workforce and will certainly drag on growth.

(Source: CNN)

 

Economic Data Releases

Durable goods orders in the US, which measure the cost of orders received by manufacturers of goods meant to last at least three years, soared 5.6 percent month-over-month in December of 2022. It was the sharpest gain since July 2020 and well above market forecasts of a 2.5 percent increase.

The US economy expanded an annualized 2.9% on Q4 2022, following a 3.2% jump in Q3 and beating forecasts of 2.6%. Consumer spending rose 2.1%, below 2.3% in Q3 and forecasts of a 2.5% increase. Spending on goods jumped 1.1% led by motor vehicle and parts and spending on services slowed. Exports fell 1.3%, led by nondurable goods and imports went down 4.6%. Also, fixed investment declined faster (-6.7% vs -3.5%). Residential investment continued to contract (-26.7% vs -27.1%), led by new single-family construction and brokers' commissions. Considering full 2022, the GDP expanded 2.1%.

Core Personal Consumption Expenditures Price Index, in the US, which exclude food and energy, went up by 0.3% month-over-month in December of 2022, compared to a 0.2% increase in the prior month and in line with market estimates. The annual PCE rate, the Federal Reserve’s preferred gauge of inflation, fell to 4.4% from 4.7% in November, marking the slowest increase in 14 months.

Personal income in the United States went up 0.2 percent from a month earlier in December of 2022, following a downwardly revised 0.3 percent increase in November and in line with market expectations. It was the smallest gain since April.

Personal spending in the US dropped 0.2% month-over-month in December of 2022, worse than market forecasts of a 0.1% fall, and following a revised 0.1% decline in November. High-interest rates and rise in inflation levels started to impact consumer behavior. Adjusted for inflation, personal spending dropped 0.3%.

Economic data source: Trading Economics

A Walk Around the Markets

 

OIL

 

Source: Trading Economics

 

WTI crude futures reversed earlier gains and fell more than 1% to below $80 per barrel on Friday, as prospects of still strong Russian supply offset better-than-expected Q4 US GDP numbers and hopes of continued demand recovery in top crude importer China. Oil loadings from Russia's Baltic ports are set to rise by 50% from a month earlier in January as sellers try to meet strong demand in Asia and benefit from rising global energy prices. Traders noted that Urals and KEBCO crude oil loadings from Ust-Luga over Feb. 1-10 may rise to 1.0 million tonnes from 0.9 million in the plan for the same period of January. Meanwhile, OPEC is expected to maintain current oil production levels when they meet next, keeping supply tight. For the week, the US oil benchmark is down more than 2%.

Natural Gas

 

Sources: Trading Economics

US natural gas futures extended losses to below $3/MMBtu, the lowest since May 2021 as milder weather has reduced heating demand and production remains strong. Natural gas production in the seven major onshore producing regions in the Lower 48 states that excludes Alaska and the Gulf of Mexico is estimated to have increased by 7.4 Bcf/d or 8.4% year-over-year for January 2023. In 2022, total US natural gas production is projected to have increased by 4.3 Bcf/d based on EIA data, and reach the highest on record. Also, more gas is set to stay on the domestic market as it may take until February, March, or even later for the Freeport LNG plant to fully restart the operations and production to go back to full capacity. The facility, which shut in a fire on June 8, 2022, said on Monday it had finished repairs and asked US regulators for permission to restart it. US natural gas prices are down more than 70% since their 14-year high of $10/MMBtu hit in August.

 

US Stock Markets

 

Source: Trading Economics

The Dow finished marginally higher on Friday, while the S&P 500 and the Nasdaq 100 were up 0.2% and 0.9% respectively, as investors weighed a batch of economic data ahead of next week’s Federal Reserve meeting. The US Core PCE inflation, the Fed's preferred inflation measure, increased by 4.4% in December and marked its smallest annual rise since October 2021, paving way for smaller Fed hikes. Meantime, US personal spending fell by 0.2% for the second consecutive month in December, due to higher borrowing costs. On the corporate side, American Express soared 10.5% and Visa gained almost 3%, while Intel and Silvergate Capital plunged 6.4% and 3.7%, respectively. Meantime, Tesla soared 11% and marked 31% weekly gain on its firm quarterly reports. For the week, the Dow added 1.6% and the S&P 500 was up almost by 2% while Nasdaq 100 gained 3.3%. Next week, investors await earning results for Meta on Wednesday, and Apple, Google, and Amazon on Thursday.

 

 

 

 

 

Bitcoin

 

Source: Trading Economics

Bitcoin US Dollar traded at 23211 this Sunday January 29th, increasing 121 or 0.52 percent since the previous trading session. Looking back, over the last four weeks, Bitcoin gained 40.03 percent. Over the last 12 months, its price fell by 38.81 percent. 

 

Precious Metals: Gold and Silver

Source: Trading Economics

 

Spot gold prices erased gains from the session and dropped to the $1,920 per ounce mark, extending the retreat from the nine-month high of $1,945 touched on January 25th as investors further digested the latest economic data for hints on whether the Federal Reserve will maintain its hawkish stance.

Source: Trading Economics

Spot silver prices hovered close to the $24 per ounce mark through the first month of the year, briefly touching a nine-month high of $24.4 on January 16th.

 

Source: Goldmoney, Alasdair Macleod

Gold and silver have been consolidating their gains since last September, with gold showing a continuing upward bias. Silver is tracking sideways. Comex turnover in both metals was healthy, with Open Interest rising noticeably, but both levels are still moderate.

The chart for silver shows a rise in Open Interest of less than 14,000 contracts since November, which has led to a rise of 13.5% in the price. With the gold/silver ratio now at 81.2, there is substantial upside potential in the price, assuming the underlying bull trend resumes.

 

 

Upcoming

Next week, there will be central banks meetings in US, UK, and Euro Area. The US non-farm payrolls report will be released. Also, investors will follow inflation and GDP growth rates for major European economies including Germany, France, and Italy.

 

 

 

Opinion Section

The influx of Western tanks into the conflict has the potential to change the outcome of the war. But in a destructive military war, nobody wins. When was it the last time that you heard about peace negotiations? That is what we need, not more weapons to escalate the war.

In the meanwhile, the US and European economies are slowing, with mixed indicators. During this year we will see the outcome of the current monetary policy tightening. After months of pessimism in the second half of 2022, now the commentary on mainstream media is that of a soft landing. Earnings results haven't been that bad, but profit margins are shrinking and the increasing re-financing costs of many companies may jeopardize their future. So...Sit down, relax, and don't try to predict. If you do, be careful!