North American News
US equity close: Mixed bag as tech lags. Second weekly decline of the year
- Closing changes for the day and the week
Daily changes:
- S&P 500 +0.2%
- Nasdaq Comp -0.6%
- DJIA +0.5%
- Russell 2000 +0.2%
Weekly changes:
- S&P 500 -1.1%
- Nasdaq Comp -2.4%
- Russell 2000 -3.4%
US January federal budget deficit $39.0 billion vs $63 billion expected
- Deficit data for the US government
- Prior was -85.0B
Fed’s Harker: Get rates above 5% and then pause
- Fed’s Harker speaking
- Fed is increasing its odds for getting to a soft landing
- Get the Fed funds rate to 5% and then pause
- His base case scenario is that there is not a recession
- Unsure about how far funds rate have to go above 5%
- Fed does not need 50 basis point hikes right now
- Not concerned wage issues will spill into inflation
- We do not need to keep raising rates at the pace we were
The Fed comments are not panicking after the stronger-than-expected jobs report. The game plan to get rates to 5% – 5.25% seems to be the central tendency (although the door remains open for something more).
US December CPI revised to +0.1% m/m from -0.1%
- US December CPI data
The BLS released benchmark revisions:
- Revisions reflect updated seasonal adjustment factors
- Ex food and energy +0.4% vs +0.3% previously
UMich December US prelim consumer sentiment 66.4 vs 65.0 expected
- Consumer sentiment data from the University of Michigan
- Prior was 64.9
- Current conditions 72.6 vs 68.0 expected (prior 68.4)
- Expectations 62.3 vs 62.9 expected (prior was 62.7)
- One-year inflation expectations 4.2% vs 3.9% prior
- 5-year inflation expectations 2.9% vs 2.9% prior
Commodities
Gold bears pile in, threatening to crack the 50-DMA, eyeing $1830
- Gold price extended its losses in the session, down by 0.22%.
- The University of Michigan’s Consumer Sentiment improved, while inflation expectations jumped for 2023.
- Gold Price Forecast: Daily close below the 50-EMA could expose Gold to further selling pressure.
Gold price remains firm at around $1860 after hitting a week-to-date new low of $1852.45 on Friday due to speculations that the US Federal Reserve would raise rates by 25 bps in the next couple of meetings, as money market futures showed. A bid in the US Dollar and US Treasury bond yields reaching fresh 5-week highs capped Gold’s advancement. At the time of writing, XAU/USD is trading at $1858.68, above its opening price by 0.20%.
Rising Gold prices in the second half of the year to pull up Silver too – Commerzbank
Silver has dropped back again this year. But strategists at Commerzbank expect increasing Gold prices to lift Silver too.
Supply deficit likely to shrink on Silver market
“Global demand is likely to decrease as compared with its record high last year. Growing supply is anticipated at the same time: mining production is expected to reach its highest level since 2016 and the supply of scrap Silver to post the highest level in a decade.”
“As these two effects combined will probably mean that the supply deficit this year will not be even half as high as it was last year, the Silver Institute sees little potential for pronounced price rises this year. With its cautious prediction of an average price of $23 this year, it is more sceptical than we are.”
“We expect rising Gold prices in the second half of the year to pull up the Silver price too.”
Oil in focus as Russia cuts supplies
- WTI crude up $1.68 to $79.73 today
Crude oil prices are up more than 2% today after Russia said it planned to reduce crude production by 500K bpd in March.
As of today, we are fully selling the entire volume of oil produced, however, as stated earlier, we will not sell oil to those who directly or indirectly adhere to the principles of the ‘price cap’,” Novak said in a statement. “In this regard, Russia will voluntarily reduce production by 500,000 barrels per day in March. This will contribute to the restoration of market relations.”
“We believe the decision is not completely a voluntary one … as market factors likely forced the Russian side to make this decision,” said UBS analyst Giovanni Staunovo.
For now, the cuts are only for March but developments will be worth watching closely. Russia is facing heavy sanctions for the war in Ukraine and the cuts could also be a sign that parts and technology are in limited supply. It could also mean they want to put a squeeze on the world oil market and the countries participating in the Russian oil price cap.
In any case, it’s worth watching closely especially with all signs pointing to an imminent escalation in the war.
WTI crude futures settle at $79.72
- Up $1.66 or 2.13%
The price of WTI crude oil futures are selling at $79.72. That’s up $1.66 or 2.13%
The high price reached $80.33. That was the highest level since January 30. The low price was at $77.47. For the week, crude oil is up $6.94 or 8.49%. Ever since the biggest one we gained going back to early October.
EU News
European equity close: A soft finish to ensure a negative week
- European stocks down around 1% on the day
There were new highs in several European indexes yesterday but for the second day in a row there was also some heavy selling intraday. That was a sign of looming weakness and it manifest today, though not dramatically.
On the day:
- Stoxx 600 +1.3%
- German DAX -1.4%
- Francis CAC -0.9%
- UK’s FTSE 100 -0.5%
- Spain’s Ibex -1.5%
- Italy’s FTSE MIB -0.9%
On the week:
- Stoxx 600 -0.7%
- German DAX -1.1%
- Francis CAC -1.5%
- UK’s FTSE 100 -0.3%
- Spain’s Ibex -1.3%
- Italy’s FTSE MIB +1.3%
ECB’s Schnabel: Further rate hikes will help bring inflation back to our target
- Comments from the ECB’s Isabel Schnabel
- Tackling inflation is our top priority. We have hiked interest rates at a record pace and are starting to shrink our bond holdings. And we will stay the course in raising interest rates to bring inflation back to our 2% target in a timely manner.
- Further rate hikes will help bring inflation back to our target, which – given nominal wages – will increase real wages
- Fighting high inflation we are supporting the sustainable growth of the euro area economy. The war has made us all worse off, but we’re doing our best to limit the consequences
- We need to counter high inflation by tightening monetary policy. At the moment, new lending operations, even if green, are not in line with our price stability mandate. Bringing inflation back to target is our best contribution to the green transition.
- We and many other forecasters underestimated the persistence of inflation caused by energy price shocks, supply chain disruptions and strong demand. We are doing everything we can to bring inflation back to our 2% target in a timely manner.
- Housing costs matter for people’s expenditures but are only partly included in the inflation index. In our strategy review we recommended to better reflect housing costs in the future
Other News
Russia plans to fix Urals crude differential at -$20 to brent – report
- That would put Russia into a price floor situation
Russia is planning to fix the differential for its main crude export — urals — to minus $20 from brent. Currently brent is trading at $86 so that would put it at $66.
Crucially, $66 is well-above the $60 price cap set by Europe and G7 nations. So far that price cap doesn’t appear to be a problem but it could if/when crude prices rally.
The move by Russia may indicate some annoyance at wide differentials to its crude and customers asking for deep discounts. Fixing it, I suspect, is an aim to secure longer-term sales agreements and prices that are favorable to importers, likely in India and China.
Brent is up $1.81 to $86.32 after Russia today said it would curb March exports by 500k bpd.
Cryptocurrency News
Bitcoin continues to send worrisome signals for the risk trade
- Bitcoin down 0.8% today
I don’t like the look of the bitcoin chart and when you’re trading crypto there isn’t much else to go on.
There was a weeks-long period of consolidation around $23,000 in an impressive rally from $17,000 but there was a false breakout to $24,000 and yesterday it broke below the range. The selling has continued today, albeit at a modest pace. It’s down another $280 to $21,550.
The bulls will be hoping that the mid-January highs now act as support and that idea has some traction today as it flattens out. Like all markets, bitcoin will be watching Wednesday’s US CPI report and hoping for good news on the inflation front. If prices are high enough to convince the market that 5.50% Fed funds are coming then expect another selloff that pressures the $20,500 to $20,000 zone. That will need to hold or we will see another day like yesterday.
As for broader markets, the weakness in bitcoin has been a forerunner for risk aversion in the past, especially in tech stocks. There’s also a three-candle reversal in TSLA brewing after a 100% climb from the bottom.
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