The US economy expanded by an annualised 2.6% quarter-on-quarter in the fourth quarter of 2022, slightly below initial estimates of a 2.7% expansion, taking total US gross domestic product (GDP) to 2.1% for 2022. In the final quarter of 2022, consumer spending rose 1%, missing the 1.4% that markets expected, as spending on services was noticeably less than initially estimated. In addition, spending on goods dipped by 0.1%, less than initial estimates of a 0.5% decline, with jewellery leading the fall. The number of Americans filing for unemployment benefits rose by 7,000 from the previous week to 198,000 for the week ending 25 March, slightly above expectations of 196,000. While surpassing expectations, the result remained at historically low levels, in line with the hot payroll figures for February and the US Federal Reserve’s (Fed’s) outlook of low unemployment.
Consumer confidence in the euro area dipped to -19.2 in March. Consumers were less optimistic about the general economic situation in their individual countries and the region as a whole, while their intentions to make major purchases improved. Consumers’ views on their household’s past financial situation and the future financial situation remained stable.
Industrial profits in China plunged by 22.9% year-on-year in the first two months of 2023, as factory activity struggled to recover from the slump caused by pandemic disruptions. The decline followed a 4.0% fall in 2022. Profits of state-owned industrial firms decreased after rising last year, while private sector profits declined even further. Among the 41 industries surveyed, 28 suffered losses.
EQUITIES TRADE BROADLY STRONGER
US stock futures tied to the three major indices gained nearly 0.5% on Thursday, putting Wall Street on track to extend gains from the previous session as investors shift their focus back to the Federal Reserve’s future policy path amid easing concerns about a banking crisis. A flurry of Fed speeches and economic releases this week – including the highly anticipated core PCI (payment-card industry) price index, due today – will offer insight into the likely future path of interest rate hikes. On the corporate side, Faraday Future Intelligent Electric jumped more than 25% in premarket trading after the company said it had begun production of its first luxury electric car.
Equities in London gained for a fourth straight session on Thursday, driven by gains in the real estate and utilities sectors. With the banking crisis showing signs of calming down, investors pivoted back to riskier assets. Increased speculation that a peak in interest rates is near also contributed to improved sentiment and risk appetite. Property developer Unite Group and technology company Ocado Group were the top gainers on the FTSE 100, up roughly 3% each. In other corporate news, SSE lifted its annual earnings expectations, bolstered by the strong performance of its flexible generation plant, with share prices of the British power company advancing nearly 2.5%.
European stocks gained over 1% Thursday afternoon, with both the pan-European STOXX 600 and Germany’s DAX 40 hitting their strongest levels since 9 March, as investors digested key inflation data, coupled with an ease of concerns around the recent banking turmoil. The latest Consumer Price Index (CPI) reports showed inflationary pressures in both Germany and Spain cooling sharply in March, with rates of inflation falling to seven and 20-month lows, respectively. The readings, however, remain well above the European Central Bank’s (ECB’s) target of 2%. Investors now await eurozone price data due today for further cues on the Central Bank’s next moves. Among single stocks, shares of retail giant H&M rallied after reporting a surprise operating profit for the December to February period, while wind turbine maker Vestas climbed after it won a tender in Brazil. Banks and real estate shares were also among the best performers.
The Nikkei 225 Index fell 0.36% while the broader TOPIX Index dropped 0.61% on Thursday, retreating from two-week highs following profit taking. Positive news involving China’s technology sector, expectations that major central banks would soon pause interest rate hikes and easing concerns about the recent banking turmoil boosted risk sentiment globally.
COMMODITIES REMAIN CAUTIOUS
West Texas Intermediate Crude futures traded around $74.00/barrel on Thursday as signs of a recovery in demand offset a smaller-than-expected drop in Russian supplies. The latest International Energy Agency report indicated that US crude inventories unexpectedly declined by 7.489 million barrels last week, the highest number since November 2022, defying expectations for a 0.092 million barrel rise. In addition, a dispute involving Kurdish authorities halted exports of around
400,000 barrels a day from the Ceyhan port in Turkey. In contrast, reports showed that Russia’s crude production declined by about 300,000 barrels a day in the three weeks of March, roughly
200,000 barrels less than the targeted cuts.
Gold steadied around $1,965/ounce on Thursday after posting losses in the previous two sessions, as investors continued to monitor risks to the global financial system. US banks’ top regulator, who appeared before Congress this week, indicated that failures at Silicon Valley Bank were due to poor risk management, rather than broader systemic problems across the financial sector. Meanwhile, the White House is reportedly preparing for federal banking regulators to impose new rules on mid-size banks. Traders now look ahead to core US personal consumption expenditure data for clues on the Fed’s next move as well as remarks from several Fed officials.
Copper futures eased to the $4.05/pound mark from the three-week high of $4.12/pound touched on 23 March as persistent woes in the global banking sector continued to weigh on prices for key base metals. Concerns that the Fed will defy market expectations and refrain from cutting interest rates this year also pressured projections for industrial demand. On the flip side, threats of low supply kept copper prices nearly 7% higher year-to-date. Mining exports from major producer Peru sank almost 20% annually in January due to the widespread protests, while inventories at the Shanghai Futures Exchange tumbled 36% since their peak in February. The depletion of stocks worldwide drove key commodity trader, Trafigura, to forecast that copper prices will reach a record high this year, while supply and demand imbalances led investment bank, Goldman Sachs, to expect a global shortage of visible copper inventories by September.
DOLLAR WEAKENS ON INTEREST RATE SPECULATION
The dollar weakened against a basket of major currencies on Thursday, with the US Dollar Index depreciating toward the 102 mark as investors reassessed the outlook for monetary policy. The financial turmoil, which started earlier in March with the collapse of two regional banks, prompted investors to reprice expectations of future monetary tightening by the Fed. Money markets are now pricing a pause in interest rate hikes in May, with rate cuts expected soon after that. All eyes now turn to a critical measure of US inflation, personal consumption, and several speeches from Fed officials this week. The most pronounced selling activity was against the euro and the British pound.
The euro soared back above $1.08, moving closer towards a seven-week high of $1.0929 touched on 22 March, as worries over global banking turmoil and recession eased, following news on Monday that regional US lender First Citizens Bancshares bought all of Silicon Valley Bank’s deposits and loans. At the same time, investors await key euro area inflation data due today. The euro will likely continue to appreciate against the dollar as the policy divergence between the ECB and the Fed is set to widen.
Sterling also gained, to trade at $1.23, not far from a seven-week high of $1.234 touched on 23 March, after Bank of England (BoE) Governor, Andrew Bailey, said on Monday that further monetary tightening would be required if signs of persistent inflationary pressure became evident. He also said there were “big strains” in the global banking sector but added that banks in Britain were resilient and able to support the economy. Last week, the BoE raised its key bank rate for an eleventh consecutive time to 4.25%. Recent data showed that Britain’s inflation unexpectedly accelerated to 10.4% in February, well above the bank’s target of 2%.
The pound started the day trading at 1.2360/$ and 1.1360/€.
*Please note the Weekly Wrap will not be published on Friday 7 April 2023, due to the Easter holidays.
Written by Citadel Global Director, Bianca Botes
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