[av_revolutionslider id=’32’ av_uid=’av-a1kbp3p’]
30 January 2023
- China’s central bank plans to introduce three new lending instruments to support the economy. The credit facility to support carbon emission reduction will be extended until 2024, the credit facility to support clean coal use will be extended until 2023 and the credit facility to support the transport and logistics sector will be extended until June 2023.
- According to the central bank, the move will “precisely and effectively implement prudent monetary policy, guide financial institutions to increase support for green development and other areas.”
- The central bank of the world’s second-largest economy already expanded its structural tools in 2020, when it was hit by the expansion of the coronavirus and supply chain restrictions. According to its data, outstanding loans made through these instruments amounted to nearly 6.45 trillion yuan ($950.98 billion) at the end of 2022. There may yet be further expansion of support for troubled sectors by China’s central bank in the near future.
Indices
Stocks in the US have returned to growth over the past week. Investors have been responding positively to some upbeat macro data and there is growing hope among them that the economy will see a soft landing and avoid a recession.
Good macro data also helped most European equity indices, with investors here also expecting a slowdown in monetary tightening. The pan-European STOXX Europe 600 ended the week 0.67% higher, France’s CAC 40 climbed 1.45% Germany’s DAX added 0.77% and the UK’s FTSE 100 Index posted a loss of -0.07%.
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US30 +1.81% |
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US100 +4.71% |
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US500 +2.47% |
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GER40 +0.77% |
Commodities
The price of oil fell last week after two weeks of gains, in which it added almost 12%. The main reason was expectations of rising supply from Russia. It is selling its oil at a significant discount of around $30 per barrel compared to Brent and is trying to export as much as possible. The main buyers of Russian oil remain China and India, which bought up to 1.2 million barrels of Russian crude in December and is even reselling it.
The price of natural gas continues to fall, reaching $2.8 per mmBtu (million metric British thermal units) at the end of the week. In the last 6 weeks, the price of gas has fallen by more than 57% due to the unusually warm weather. The main question is whether the price of gas will attack its historic lows of June 2020, when it fell to below $1.5 per mmBtu.
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Gold +0.07% |
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Silver -1.50% |
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BRENT -1.39% |
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NATGAS -6.12% |
Forex
The EURUSD pair reached the psychological 1.0900 level during the week, but ultimately failed to hold it. As the ECB is expected to raise interest rates by 0.50% and the Fed by 0.25% in the coming week, the interest rate differential should decrease and the EURUSD pair could continue to rise towards the 1.1000 level.
Against the Japanese Yen, the USD managed to strengthen slightly during the week, but the USDJPY pair is still in a long-term downtrend. However, if it manages to hold the 129.5 level for longer, the trend may change.
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EUR/USD +0.11% |
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USD/JPY +0.22% |
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GBP/USD +0.03% |
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USD/CAD -0.53% |
Macro
On Tuesday, S&P Global released data on the PMI in both the services and manufacturing sectors as well as a composite figure. In the US, while the numbers beat expectations, they still remain below the 50 level, indicating a contraction, the numbers for the Eurozone surprised by rising above the 50 level raising hopes that the bloc might avoid a recession. In the UK, composite PMI numbers fell to their lowest level in two years.
Also a relatively big surprise was the strong growth in Durable Goods Orders, and above expectations were the preliminary numbers regarding US GDP, which grew by 2.9% in the last quarter beating consensus estimates of around 2.6%.
On Friday, data was released on the Federal Reserve’s preferred gauge for inflation, the Core Personal Consumption Expenditure (PCE) Price Index for December, which rose at an annualized rate of 4.4% (+4.7% in November), the lowest reading in 14 months. Headline PCE inflation was 5%, which is still above the Fed’s 2% inflation target, but it is a reassurance to the Fed that it will slow the pace of interest rate hikes.
What to watch out for this week
- Most of the investors’ attention this week will be focused on Wednesday and Thursday, when the US Fed, the ECB and the Bank of England will decide on monetary policy settings.
- The Fed is expected to slow its pace of hikes for the second time and rates are expected to rise by 0.25%. A lot of attention will be paid to the subsequent press conference, which could indicate the next direction, or if the rate hikes will eventually be terminated.
- For the ECB, a 0.50% rate hike is expected on Thursday, but even here the focus is more likely to be on the subsequent press conference, which should show whether ECB chief Christine Lagarde remains hawkish.
- The BoE is expected to hike rates for the 10th straight time, and by as much as 0.50%. Inflation may have slowed in December, but is still above 10% year-on-year, a long way off target.
- The US will also await Friday’s NFP data, the economy is expected to have created 185,000 jobs in January, a slowdown from 223,000 the previous month, while the unemployment rate is expected to rise to 3.6%.
- JOLTs Job Openings data will still be released on Wednesday, as well as the PMI from ISM.
- In Europe, we’ll still see preliminary GDP data on Tuesday, which should show a softer contraction on a quarterly basis. Then on Wednesday, inflation data will be released, which is expected to slow from 9.2% to 9.1% on a year-over-year basis, with a 0.3% month-over-month decline.
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