Weekly market recap 16 January 2023 - FTMO®

Slide WEEKLY MARKET RECAP Your weekly global financial markets newsletter Market weekly Recap

16 January 2023

  • The example of Wells Fargo, one of the largest mortgage lenders in the US, shows that the mortgage market in the US is not looking too promising after the rapid rise in interest rates. Last week, it unveiled a plan to curb its activities in this market by limiting mortgage lending to its own customers and by ending its lending capital to other banks that sell mortgages (Correspondent lending business).
  • Mortgage lending has been one of the bank’s biggest profit generators in recent years, with the Correspondent lending business accounting for up to 40% of its mortgage volume. Kleber Santos, CEO of the Consumer Lending division, said the bank realises that its mortgage business is too big and wants to reduce risk. “We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus,” said Santos.
  • It’s not good news for borrowers either. In fact, other traditional banks are also pulling out of the mortgage business and BofA or JPMorgan, for example, have already withdrawn from this market segment after the financial crisis. The gap in the market is being filled by non-bank institutions that are not as regulated as banks, which increases the risk for consumers.

Indices

In the second week of the new year, US stocks managed to strengthen as well, posting their best weekly result since last November. While Thursday’s inflation brought increased volatility to the markets, Friday’s start to earnings season, which saw some big banks perform well, meant a positive end to the week.

European equities also performed well, helped by macroeconomic data pointing to a brief and muted recession. The pan-European STOXX Europe 600 ended the week 1.88% higher, Germany’s DAX climbed 3.26%, France’s CAC 40 Index added 2.37% and the UK’s FTSE 100 Index gained 1.88%.

US30
+2.00%
US100
+4.54%
US500
+2.67%
GER40
+3.26%

Commodities

After the price of natural gas following Russia’s invasion of Ukraine last February skyrocketed from $4.5 per mmBtu, or million metric British thermal units, to nearly $10 in August, few probably expected the price to be at 19-month lows and trading below $3.5 per mmBtu by mid-January 2023. This is due to both the unexpectedly warm weather in Europe and the very large inventories of the commodity, which rose by a record 11-bcf (billion cubic feet) in the first week of January. It was the first ever gas storage build during a January month. “Until there are better agreements among all the significant weather forecast models on the February outlook, the gas market will likely view any winter outbreaks with skepticism,” Houston-based energy trading consultancy Gelber & Associates said in a note on Friday to its clients.

Gold, on the other hand, climbed close to its nine-month high and the important psychological threshold of $1,950-an-ounce last week, benefiting from receding inflation and a weakening dollar. “Gold prices are rising as Wall Street grows confident that the Fed is almost done with raising rates,” said Ed Moya, analyst at online trading platform OANDA. “Non-interest bearing gold is loving the slide in bond yields and that could continue as earnings come in softer-than-expected.”

Gold
+2.93%
Silver
+1.88%
BRENT
+8.67%
NATGAS
-6.04%

Forex

The EURUSD pair has been rising since mid-September last year, when it went below parity for a while. Then last week it managed to close above 1.0800 for the first time since last April. The dollar was not helped by inflation data, which indicated a 0.25% rise in interest rates at the next Fed meeting instead of the 0.50% initially expected. “If the pair advances above 1.0870, the bullish stance will gain adepts. Other resistance levels to watch are 1.0950 and 1.1020 ahead of the aforementioned 1.1106 level,” said Valeria Bednarik, Chief Analyst at FXStreet.

The Japanese yen also made interesting gains against the dollar, and the USDJPY pair traded at its lowest since last May on Friday, closing below the 128 level. These moves were not so much due to a change in central bank policies, but rather to expectations of their next moves. The US Fed is expected to end its rate hike cycle and Japan is also expected to change its approach. “We expect USD/JPY to register a 120-125 handle this quarter,” think economists at TD Securities.

EUR/USD
+1.73%
USD/JPY
-3.17%
GBP/USD
+1.11%
USD/CAD
-0.34%

Macro

The most anticipated news in a week relatively poor in important data was December inflation in the US. It slowed as expected on an annual basis from 7.1% to 6.5%, with core inflation falling from 6.0% to 5.7%. In the end, the biggest upset was the 0.1% decline in prices for the month of December alone.

Also relatively positively received were data on weekly jobless claims, that fell to a three-month low of 205,000 and the University of Michigan’s preliminary reading of consumer sentiment that jumped much more than expected and reached its highest level since April.

In Europe, data showed that Germany’s economy grew by 1.9% last year after growing by 2.6% in 2021.

Unemployment in the Eurozone remains as expected at 6.5%, while GDP growth in the UK surprised, with the economy growing by 0.1% in November despite expectations of a 0.2% contraction.

What to watch out for this week

  • Next week will be influenced by the US national holiday, but we will certainly see some interesting data. The main news in the US will probably be retail sales for December. After posting the biggest drop in November in 2022 (-0.6%), another significant drop (forecast -0.8%) would point to a cooling US economy caused by rising interest rates.
  • In addition to retail sales, production inflation data will also come out in the US, which is expected to fall 0.1% for December. Existing home sales are then expected to fall 5.4% to a seasonally adjusted annual rate of 3.95 million for December, which would be the first time since June 2020 that it has been below 4 million.
  • On Wednesday, investors will await the results of the Bank of Japan meeting, which is expected to possibly change its yield curve regulation policy, which would indicate a possible phasing out of stimulus measures. So far, the BoJ has always managed to surprise the markets, so we can expect an unexpected outcome here as well.
  • In particular, final inflation data will come from Europe, namely in Germany (expected to fall from 10.0% to 8.6%), the UK (slowing from 10.7% to 10.6%) and also for the whole Euro Area (falling from 10.1% to 9.2%).
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