Oil hit a 3-week-high. Tensions between China and Taiwan are rising again

In the US, the Personal Consumption Price Index (PCE) rose by 0.1% last month after rising 0.4% in October. The latest data signaled that the PCE index was slowing, reinforcing expectations for a smaller interest rate hike by the Federal Reserve and improving investor appetite for risk. At the close of the stock market on Friday, the Dow Jones Index (US30) increased by 0.53% (+0.86% for the week), and the S&P 500 Index (US500) added 0.59% (-0.23% for the week). The NASDAQ Technology Index (US100) was up 0.21% on Friday (-1.96% for the week).

Holiday sales in the US rose by 7.6% despite inflationary pressures. Consumer spending accounts for nearly 70% of US economic activity, but Americans remain resilient. But problems began to appear, as higher prices for necessities are taking a larger share of total wages. The US durable goods orders fell by 2.1% in November, compared to an expected 0.6% decline.

According to CEBR (Center for Economic and Business Research), higher borrowing costs to fight inflation will cause several economies to contract next year. The report adds that the battle against inflation is not yet won. Analysts expect central banks to stick with their stance in 2023 despite the economic costs. The price of reducing inflation to a more comfortable level is the worst growth prospect for many years. The findings are more pessimistic than the International Monetary Fund's latest forecast. CEBR takes its baseline data from the IMF's World Economic Outlook and uses an internal model to forecast growth, inflation, and exchange rates.

Equity markets in Europe traded flat last week. German DAX (DE30) gained 0.19% on Friday (+0.04% for the week), French CAC 40 (FR40) lost 0.20% (+0.52% for the week), Spanish IBEX 35 (ES35) was down 0.01% (+1.84% for the week), British FTSE 100 (UK100) closed on Friday up by 0.05% (+1.92% for the week).

Britain's turbulent year is coming to an end, and there are a few signs that 2023 will be more optimistic. Signs of a painful economic downturn in the UK continue to pile up. The options market is also showing skepticism, with traders still gloomy about the long-term outlook. Opportunities for growth next year may be limited by divergent central bank policies, as the Bank of England looks increasingly dovish compared to comparable banks. In addition, the UK economy is wobbly, budget deficits are skyrocketing, and double-digit inflation has caused the steepest drop in living standards in recorded history, curbing spending and causing the worst industrial turmoil in decades. The housing market also looks vulnerable. Yield spreads between two- and 10-year swaps tied to the overnight rate, an indicator of recession risks, also point to a longer recession in the UK than in other major economies.

Oil prices rose to a three-week high on Tuesday as China's latest easing of COVID-19 restrictions raised hopes for fuel demand, and concerns that winter storms in the United States are affecting energy production continue to support prices. Cold freezing temperatures and a heavy snowstorm on Friday left thousands of homes in the United States without power, which not only increased heating and electricity prices but also increased the death toll. Airlines canceled about 2,700 flights in the United States after weather disrupted airports across the country.

Parts of the Asian market did not trade yesterday. Japan's Nikkei 225 (JP225) gained 0.65%, China's FTSE China A50 (CHA50) fell by 0.45%, Hong Kong's Hang Seng (HK50) ended Friday down by 0.44%, India's NIFTY 50 (IND50) rose by 1.17%, and Australia's S&P/ASX 200 (AU200) ended the day down by 0.63%.

On Monday, Bank of Japan (BOJ) Governor Haruhiko Kuroda denied the possibility of a short-term exit from the super-soft monetary policy but expressed hope that the growing labor shortage will force firms to raise wages. Kuroda said the Bank of Japan's decision last week to widen the permissible range around its yield target was aimed at boosting the effect of its super-soft policy, not a first step toward canceling a massive stimulus program. The BoJ will aim for sustained and stable price targets accompanied by wage increases while continuing to ease monetary policy under yield curve control.

China sent 71 warplanes and 7 ships toward Taiwan. Of these, 43 planes also crossed the middle line of the Taiwan Strait, an unofficial buffer zone between the two sides. Taiwan's official Central News Agency said it was the largest incursion by the Chinese Air Force to date. The White House said the United States was concerned about Chinese military activity near Taiwan, which it called "provocative" and "destabilizing," adding that it could lead to miscalculation and undermine regional stability. China, for its part, is showing strength in response to the US defense bill, which authorizes increased security cooperation with Taiwan.

China infected 248 million people with COVID-19 in December. And last week, a new daily infection record was set, with 37 million Chinese infected in 24 hours. But despite such a surge in illness, Beijing and Shanghai returned to work on Monday. China raised its estimate of gross domestic product (GDP) growth in 2021 to 8.4% from 8.1% previously, the National Bureau of Statistics said Tuesday.

In the commodities market, futures on gasoline (+11.24%), WTI crude (+6.57%), cocoa (+6.55%), BRENT oil (+6.24%), sugar (+4.53%), coffee (+4.5%), cotton (+3.93%), platinum (+3.09%), wheat (+2.79%) and palladium (+2.69%) showed the biggest gains by the end of the week. Futures on natural gas futures (-24.02%) and orange juice futures (-3.35%) showed the biggest drop.

S&P 500 (F) (US500) 3,844.82 +22.43 (+0.59%)

Dow Jones (US30) 33,203.93 +176.44 (+0.53%)

DAX (DE40) 13,940.93 +26.86 (+0.19%)

FTSE 100 (UK100) 7,473.01 +3.73 (+0.050%)

USD Index 104.33 -0.11 (-0.10%)

• – Japan Unemployment Rate (m/m) at 01:30 (GMT+2);
• – Japan Retail Sales (m/m) at 01:30 (GMT+2).

by JustMarkets, 2022.12.27

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.