After strong retail sales data and CPI data allowed for potential future US Central Bank rate hikes, the US dollar continued to rise. However, stock indexes gained yesterday along with the dollar, which is unusual because typically these two financial instruments have an adverse correlation. The S&P 500 Index (US500) and the Dow Jones Index (US30) both saw gains as the stock market came to an end. The NASDAQ US100 Technology Index increased by 0.92%.

The retail sales growth in January was the greatest in almost two years, up 3% over the previous month, according to the US Commerce Department. This shows that despite the central bank’s strict tightening drive to curb demand, consumer spending is still strong. The longer-term outlook may favour further FOMC rate rises and higher interest rates due to a healthy job market, rising wage pressures, and strong consumer spending. This situation may deteriorate sentiment and hurt equities, particularly in the tech industry. The likelihood of a gentle landing for the economy is still strong, though.

Yesterday, Analog Devices (ADI) reported quarterly earnings that exceeded Wall Street expectations, causing its shares to increase by 7% to a 52-week high. As a result of better-than-anticipated fourth-quarter performance and a rise in video game orders, Roblox (RBLX) saw a 26% increase in price. Additionally, after the company’s quarterly earnings exceeded analysts’ expectations, Airbnb (ABNB) offered a positive outlook.

On Tuesday, European stock markets were mainly up. On Wednesday, the German DAX (DE30) increased by 0.82%, the French CAC 40 (FR40) increased by 1.21%, the Spanish IBEX 35 (ES35) increased by 0.42%, and the British FTSE 100 (UK100) ended the day up by 0.55%.

Last week, the US added 16.3 million barrels to its crude oil reserves, bringing them to 471.4 million, much above predictions of 1.2 million barrels. Black gold prices jumped Wednesday despite the rise in stockpiles, as the International Energy Agency (IEA) increased its prediction for oil demand in 2023 by 500,000 BPD to roughly 102 million BPD. The IEA also warned that a coalition of OPEC+ countries may try to reduce output in order to keep oil prices stable. 

Originally, it was anticipated that gold would surpass $2,000 per ounce in the first three months of this year, continuing the upward trend from April 2022. The US job market and GDP growth are solid, increasing the chance of a longer tightening cycle, which supports the currency and government bonds. However, this did not occur. The dollar and government bond rates have an inverse relationship with gold and silver, therefore, “precious metals” are now under pressure.

The majority of Asian markets were down yesterday. The Nikkei 225 index of Japan (JP225) fell by 0.37%, the FTSE China A50 index of China (CHA50) fell by 0.77%, the Hang Seng index of Hong Kong (HK50) dropped by 1.43%, the NIFTY 50 index of India (IND50) rose by 0.48%, and the S&P/ASX 200 index of Australia (AU200) dropped by 1.06%.

Amid a worldwide recession, Japan’s trade imbalance increased to a record high in January. Equipment used in the manufacture of microchips was one of the sharpest breakdowns in export growth, which indicates a decline in worldwide demand for technology. Export growth slowed significantly to 3.5%. As the cost of imports increased due to expensive energy sources, imports continued to expand by double digits, rising to 17.8% from a year earlier. Japan’s exports have also been impacted by China’s shift in viral policies as a result of a rapid increase in COVID cases following the cancellation of the COVID-Zero policy that disrupted the whole nation. More over half of Japan’s total exports are sent to China and other Asian nations.

Next week, the Reserve Bank of New Zealand is anticipated to increase interest rates by another 0.5%, reaching 4.75%. It is less than the 75 basis point rise that the RBNZ had anticipated in its monetary policy statement from November, albeit it is still a sizable increase. The persistent pressures of inflation are the major cause of the rate increase. Rate reductions won’t start until 2024, when the rate is anticipated to peak at 5.25%.

The numbers on the Australian job market have let economists down. While job creation fell by 11.5K, the unemployment rate rose from 3.5% to 3.7%. Australia’s economic numbers raise the issue of how long the RBA will be able to remain hawkish.

S&P 500 (F) (US500) 4,147.60 +11.47 (+0.28%)
Dow Jones (US30) 34,128.05 +38.78 (+0.11%)
DAX (DE40) 15,506.34 +125.78 (+0.82%)
FTSE 100 (UK100) 7,997.83 +43.98 (+0.55%)
USD Index 103.84 +0.61 (+0.59%)