Analytics, 08 January 2023
Week 01 in Brief
North America
It was a good close of the week for wall street stocks after the December jobs report and an economic activity survey showed signs that inflation may be cooling, sending equities in the US higher. Analysts speculated that the Federal Reserve’s interest rate hikes are having their intended effect and the Fed was likely to go slow on interest rates this year.
How did the major indices perform?
On Friday:
- The Dow Jones Industrial Average increased 700.53 points, or 2.13%, to close at 33,630.61.
- The S&P 500 ended up 86.98 points, or 2.28%, to 3,895.08.
- The Nasdaq Composite added 2.6%, which equates to 264.05, to end at 10,569.29.
For the week:
- The Dow and S&P 500 each closed the week up 1.5%.
- The Nasdaq advanced 1%.
What drove the U.S. market?
- Market movements were mainly due to The Labor Department’s final jobs report of 2022 showing the U.S. economy added 223,000 payrolls last month while the unemployment rate fell to 3.5%. Economists had expected readings of 200,000 and 3.7%, respectively.
- Stocks rose again when the ISM’s non manufacturing purchasing managers’ index showed that the services industry contracted in December, a sign that the Fed’s rate hikes may be working to slow the economy.
- All 11 S&P 500 sectors traded up as stocks rallied Friday afternoon.
- Materials posted the biggest gain, adding 3.4%. Health care lagged the other 10 sectors but was still up 1%.
- All but one sector were on pace to close the week higher than where each started. Communication services were poised for the biggest gain despite trailing Friday, on track to finish the week up 3.8%. Health care was the sole sector on pace to close the week lower, at 0.1% down.
- Tesla reversed a more than 5% slump Friday following news that the electric vehicle maker would lower prices on some models of cars in China.
- Later in the day, however, Tesla rose with the broader market. It was up 1.85% at midday.
How did the European markets perform?
- European markets tracked Wall Street higher as investors digested Inflation in the eurozone dropping for a second consecutive month in December. Headline inflation, which includes food and energy costs, came in at 9.2% year-on-year in December. It follows November’s headline inflation rate of 10.1%, which represented the first slight contraction in prices since June 2021.
- The pan-European Stoxx 600 index closed 1.1% higher provisionally, marking a 3.4% rise for the week — its best performance since mid-November.
- All sectors were in the green. Basic resources led gains with a 2.5% rise, as chemicals and energy stocks both rose around 1.9%.
- The European basic resources sector jumped 2.5%, leading the sectoral advance as China-exposed miners rallied amid higher copper prices. Energy stocks gained 1.8%, boosted by rising oil prices.
- In the corporate sector, Sodexo stock fell 3.5% after the French catering and food services group confirmed its guidance for the year 2023 even as it beat expectations for its first-quarter sales.
- Shell rose 1.7% after the oil major said earnings from its natural gas trading operations were likely to have risen significantly in the fourth quarter of last year, despite a sharp output drop due to plant outages.
How did Asian markets perform?
- Asian equities were mostly higher on Friday as investors seemed optimistic about China’s post-Covid recovery and the potential opening up of its borders
- Japan’s Nikkei and mainland China shares all ended the week in the green but Hong Kong’s Hang Seng slipped, with profit-takers dragging down its tech stocks.
- Tokyo’s Nikkei share average reversed early losses to end higher, as investors bought back beaten-down stocks with the yen weakening against the dollar.
- The Nikkei rose 0.59% to close at 25,973.85, after opening lower following Wall Street’s weak finish overnight. The index lost 0.46% for the holiday-shortened week. The broader Topix index was up 0.37%, or 6.86 points, to 1,875.76.
- China stocks logged a five-day winning streak on investors’ expectations that the economy would soon emerge from its Covid woes and stage a robust recovery in 2023.
- Foreign investors bought a net 20 billion yuan ($2.9 billion) of Chinese stocks via the Stock Connect Scheme this week, the biggest weekly purchase amount since December 2.
- China’s blue-chip CSI 300 Index closed up 0.3%, while the Shanghai Composite Index rose 0.08%, or 2.42 points, to 3,157.64
- The Hang Seng Index dropped 0.29%, or 60.53 points, to 20,991.64 but the Shenzhen Composite Index on China’s second exchange edged up 0.17%, or 3.38 points, to 2,040.53.
- For the week, the CSI 300 Index gained 2.8%, while the Hang Seng benchmark advanced 6.1% to touch a six-month high.
Bonds and Commodities
- Bond prices rallied with stocks, sending yields down after two key economic reports signaled inflation may be cooling off as the Fed raises interest rates.
- The yield on the benchmark 10-year Treasury was down by 16.2 basis points at 3.56%. The 2-year Treasury yield fell 18.9 basis points to 4.264%. The yield on the 30-year Treasury was down 11.8 basis points at 3.68%.
- The spread between the 10-year Treasury and the 3-month Treasury, a key inversion that signals a recession, is the largest since 1982.
- Oil prices were little changed on Friday as the market balanced a weaker U.S. dollar and mixed U.S. jobs reports, but both crude benchmarks ended the first week of the year lower due to global recession concerns.
- Brent futures fell 12 cents, or 0.2%, to settle at $78.57 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 10 cents, or 0.1%, to settle at $73.77.
- For the week, both Brent and WTI were down over 8%, their biggest weekly dives to start the year since 2016. Both benchmarks had gained about 13% during the prior three weeks.
- Spot gold jumped 1.9% to $1,867.18 per ounce by afternoon Friday, their highest since June 13 last year. Prices have gained about 2.1% in the week, the most since the week of Dec. 2.
- U.S. gold futures settled up 1.6% at $1,869.7.
Currencies
- A softer dollar boosted the euro , which climbed 1.2% to $1.0644. The yen also climbed against a weaker dollar, jumping 0.9% to 132.070 on the greenback.
- Bullion also benefited from declines in the dollar.
- The Indian rupee ended the session at 82.72 per dollar, compared with its previous close of 82.5550, and gave up most of Thursday’s gains of 0.31%. For the week, the currency ended largely unchanged.
Next week
Next week, market watchers can expect the latest consumer inflation figures, as the Bureau of Labor Statistics (BLS) will release the Consumer Price Index (CPI) for December on Thursday.
Corporate earnings season kicks off next week, with earnings reports expected from big banks and the financial sector. JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and BlackRock are scheduled to report on Friday. Other major companies, including Taiwan Semiconductor Manufacturing Company, UnitedHealth Group, and Delta Air Lines will also report earnings next week.
The University of Michigan’s Consumer Sentiment Index (MCSI) will provide an update on consumer confidence on Friday.