Week in Review: 9-13 January 2023

Summary:

The week was marked by the release of the Consumer Price Inflation data in the US. The stock markets remain on a slightly positive note, while investors await the results of this earnings season and the FED decision and speech early next month.

The annual inflation rate in the US slowed for a sixth straight month to 6.5% in December of 2022, the lowest since October of 2021, in line with market forecasts. Inflation seems to have peaked at 9.1% in June of 2022 but it still remains more than three times above the Fed's 2% target. Energy cost increased 7.3%, well below 13.1% in November, as gasoline cost dropped 1.5%, following a 10.1% surge in November. Also, fuel oil cost slowed (41.5% vs 65.7%) while electricity prices rose slightly faster (14.3% vs 13.7%). A slowdown was also seen in food prices (10.4% vs 10.6%) while cost of used cars and trucks continued to decline (-8.8% vs -3.3%). On the other hand, the cost of shelter increased faster (7.5% vs 7.1%). Compared to the previous month, the CPI edged 0.1% lower, the first decline since May of 2020, and beating forecasts of a flat reading.

The University of Michigan consumer sentiment for the US rose to 64.6 in January of 2023 from 59.7 in December, the highest since April and beating market forecasts of 60.5, preliminary estimates showed. Both current conditions (68.6 vs 59.4) and expectations (62 vs 59.9) improved to their highest since April. Year-ahead inflation expectations receded for the fourth straight month, falling to 4.0% in January from 4.4% in December, the lowest since April 2021. Long-run inflation expectations were little changed from December at 3.0%, again staying within the narrow 2.9-3.1% range for 17 of the last 18 months.

Next week, in the US, the spotlight will be taken by retail sales, producer price inflation, several housing indicators, and earnings reports for several big corporations.

Economic data source: Trading Economics

 

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A Walk Around the Markets

 

OIL

 

Source: Trading Economics

 

WTI crude futures traded near $78 per barrel on Friday and were on track to gain about 6% this week, underpinned by an improving demand outlook in China and hopes for less aggressive interest rate hikes from the US Federal Reserve. China ramped up crude purchases this week after Beijing issued new import quota, and consumption is expected to surge to a record this year following the country’s exit from its zero-Covid policy, as observed by Bloomberg. Meanwhile, US inflation eased further in December, reinforcing expectations that the Fed will slow the pace of interest rate hikes and supporting a rally in risk assets. Concerns about the impact of sanctions on Russian supply also lent optimism to bulls, as European Union curbs aimed at Russian fuel product sales are due to take effect in February. Elsewhere, OPEC+ decided in December to stick with their policy of restricting global supplies by 2 million barrels per day, a move due to run through the end of 2023.

Natural Gas

 

Sources: Trading Economics

US natural gas futures were trading around $3.5/MMBtu, closing in on their lowest level since June 2021, as soaring domestic production offset prospects of a recovery in demand amid colder weather. US natural gas production is likely to grow more than 2% this year to a record daily average of 100.3 billion cubic feet, the Energy Information Administration said. At the same time, EIA data showed that utilities unexpectedly injected 11 bcf into storage last week. Adding to the bearish tone, the Freeport LNG export plant in Texas, forced to go offline in June following a fire, again delayed the restart to the second half of January, leaving more supply on the domestic market. Traders worry the plant will only be back online during the first or second quarter due to the need for further work to satisfy federal regulators. US natural gas prices are down more than 20% since the beginning of 2023, the worst start of a year on record.

 

US Stock Markets

 

Source: Trading Economics

Major US stocks closed in the green on Friday, after investors digested new economic data and parsed a slew of earnings releases from big banks. The Dow closed 0.3% higher and reported its best week since November. The S&P 500 added 0.4% while the Nasdaq 100 gained 0.7%, its longest winning rally since 2021. JPMorgan Chase, the US largest bank, kicked off the fourth-quarter earnings reporting season with upbeat results. However, the bank warned that it is setting aside $1.4 billion in anticipation of a mild recession. Also, Bank of America JPMorgan Chase, Wells Fargo, and Citigroup advanced. Meantime, Tesla declined 0.9% after slashing prices for its vehicles sold in the US. For the week, the Dow added 1.6%, while the S&P 500 and Nasdaq 100 added 1.7% and 3.1%, respectively.

 

Bitcoin

 

Source: Trading Economics

Bitcoin US Dollar traded at 20874 this Sunday January 15th, increasing 1063 or 5.37 percent since the previous trading session. Looking back, over the last four weeks, Bitcoin gained 23.98 percent. Over the last 12 months, its price fell by 51.58 percent. Looking ahead, we forecast Bitcoin US Dollar to be priced at 18791 by the end of this quarter and at 13975 in one year, according to Trading Economics global macro models projections and analysts expectations.

 

 

Gold

 

Source: Trading Economics

Gold traded near $1,900 an ounce on Friday and was on track to notch its fourth straight weekly gain, as data showed that US inflation eased further in December, fueling bets that the Federal Reserve will slow the pace of interest rate hikes. The annual inflation rate in the US slowed for a sixth straight month to 6.5% in December, in line with market forecasts. That was also the lowest reading since October 2021 and follows a 7.1% rise in November. Markets are now betting that the central bank would downshift to a smaller 25 basis point rate hike in its next meeting after delivering a half-percentage point increase in December. Meanwhile, investors remain cautious following a drumbeat of hawkish remarks from Fed officials this week. Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion.

 

 

Silver

 

Source: Trading Economics

Silver prices hovered above $23.5 per ounce, remaining close to their eight-month highs of $24.1 touched on December 20th and in line with the strong momentum for bullion assets, as expectations grew for an eased monetary tightening, and supply threats loomed on the horizon. Inflation rate in the United States slowed for the sixth consecutive month in December, raising hopes for a less aggressive Federal Reserve tightening and supporting demand for silver as an industrial input for goods with high electricity conduction needs, which was reflected in the sharp rebound of solar energy equities. On the supply side, shortage concerns drove the commodity to outperform gold and palladium in 2022. COMEX inventories levels saw an aggressive decline in the period, and London Bullion Market Association stockpiles fell considerably amid outflows to India.