According to the Arab Federation of Capital Markets, stock markets were on course for their best week in months, over the previous week, as Wall Street has been enjoying a July rebound, fueled by a rally in tech stock, while the US dollar held off recent record highs after the European Central Bank (ECB) raised rates for the first time in more than a decade. In fact, risk sentiment among investors has remained volatile, as treasury yields picked up during the week before dropping again on Friday on weak economic data. On another hand, oil prices fell more than $3 a barrel on Thursday on higher U.S. gasoline stockpiles and after a European Central Bank (ECB) rate hike stoked demand worries, while returning oil supply from Libya and the resumption of Russia’s gas flows to Europe eased supply restraints. However, gold prices bounced back on Friday on eased US dollar and after hitting the lowest levels since March 2021.
10-year yield down to two-week low on weak economic data
U.S. Treasury yields retreated further on Friday as weak economic data and a significant interest rate hike from the European Central Bank fueled concerns about an economic slowdown and dampened investor sentiment. A preliminary reading on the U.S. PMI Composite output index, which tracks activity across the services and manufacturing sectors, fell to 47.5, its lowest level in more than two years, indicating contracting economic output. In parallel, initial jobless claims climbed to 251,000 for the week of July 16, to the highest in eight months, indicating that the U.S. economy is slowing as rising interest rates and high inflation weigh on spending power. As such, the yield on the benchmark 10-year Treasury note dropped to 2.893% while the yield on the 30-year Treasury bond fell to 3.062%. It is worth mentioning that the yield on the benchmark 10-year Treasury note climbed above 3% on Wednesday as investors continue to assess the uncertainty around growth, inflation, and the path of monetary policy, alongside a new wave of corporate earnings reports, leading to fluctuations in risk assets in recent sessions.
The euro headed for its best week since May on Friday after the European Central Bank (ECB) raised borrowing costs more than expected overnight in its first rate hike since 2011. In fact, the ECB raised interest rates by a bigger-than-expected 50 basis points, its first hike in 11 years and ending a policy of negative interest rates that had been in place since 2014. As such, the euro was trading at $1.02 and on course for its biggest weekly rise against the dollar since late May, after having dipped below parity last week. Accordingly, the US dollar index, which measures the greenback against six major peers, with the euro the most heavily weighted, edged 0.1% higher to 106.7, following a 0.4% slide on Thursday. It’s on course for a 1.3% drop since last Friday, its first losing week in four.
In parallel, Asian stock markets were on course for their best week in months. Japan’s Nikkei rose 0.24% on Friday and was on course to make gains for a seventh successive day and the best week since March. U.S. stocks closed with net gains over the last week, as more companies joined big banks in reporting earnings that beat forecasts, offering relief to investors worried about higher inflation and a tightening Fed hitting the corporate bottom line. In fact, investors seem to be welcoming the latest earnings season with fresh optimism despite nagging concerns about inflation, recession, and rising interest rates. As such, the Dow Jones increased by 2.0%, the S&P 500 by 2.5%, and Nasdaq 100 by 3.4% last week.
Oil prices declining on concerns of weakening global demand
Oil prices declined on Thursday as weakened demand in the United States has weighed on the market this week, on concerns that an expected increase in interest rates in the US, the world’s biggest oil user, may limit fuel demand growth. Brent crude futures for September settlement to near $102 a barrel, while US West Texas Intermediate (WTI) crude futures for September delivery to $94.1 a barrel. WTI has been bashed after data showed that U.S. gasoline demand had dropped nearly 8% from a year earlier in the midst of the peak summer driving season, hit by record prices at the pump. In fact, the market tone is likely to remain bearish amid worries that interest rate hikes would slash global fuel demand and that the resumption of some Libyan crude oil output would ease tightness in global supply.
In parallel, the price of natural gas in the US has risen by nearly half in the past month, as drought and the war in Ukraine continue to bite and millions of Americans turn up their air conditioners in a heatwave. Natural-gas futures jumped 48% this month, including 10% on Wednesday, to $8 per million British thermal units (btu). The rise has come as other energy costs, including oil, have begun to drop from their June peaks. In parallel, Gazprom resumed, on Thursday, gas shipments through the Nord Stream 1 pipeline to Germany after a 10-day shutdown. Deliveries remain at just 40% of full capacity, however, raising the prospect of gas rationing over the coming winter, knowing that gas prices in Europe have now jumped by around 40%.
Gold prices bouncing back from lowest levels since March 2021 as dollar slips
Gold prices lost ground for the second successive day in early trading on Thursday, dragging prices to the lowest levels since end-March 2021, before bouncing again, gaining over 1% on Thursday, benefiting from some safe-haven interest amid economic concerns as the dollar eased. Spot gold was up at $1,714 per ounce after hitting $1,680 per ounce. But overall, gold has declined over $380 since early March as the dollar’s recent rally added to headwinds from aggressive rate hikes, which decrease the opportunity cost of holding the non-yielding asset and dim its safe-haven lure. In fact, gold remains caught between elevated inflation, growing concerns over a recession, and a flight to safety on the one hand, but sharp rate hikes, a strong USD, and seasonally weak demand on the other.
Cryptos
In cryptocurrencies, Bitcoin bounced to nearly $24,000 on Monday, hitting its highest level in more than a month as the cryptocurrency market held out hope that the contagion over the past few weeks is nearing its end. In fact, the price crash has brought the downfall of several high-profile companies in the space, most notably hedge fund Three Arrows Capital and crypto lender Celsius, both of which have filed for bankruptcy. These collapses have caused contagion across the industry and seen other associated companies come under pressure. Other cryptocurrencies also bounced, with ether up to above $1,600 over the week. It is worth mentioning that the bullish sentiment was helped by a rally in stock markets in Europe and Asia, as cryptocurrencies have been closely correlated with equity market trade since a rise in stocks lift sentiment in the crypto market.
