According to the Arab Federation of Capital Markets, over the previous week, global equity markets were in the red and U.S. Treasury yields fell on Thursday before picking up on Friday, as uncertainty over the pace of interest rate hikes prevailed among investors after the Federal Reserve’s meeting minutes showed officials were determined to combat rising prices, and on concerns about an approaching recession, even though Fed officials indicated in the minutes of their July meeting that they would adopt a less aggressive stance if inflation starts to retreat. In parallel, U.S. benchmark gas prices have rallied by 70% since the end of June, hitting over a week their highest level since August 2008 at above US$ 9.6 per million British thermal units, following heatwaves this summer and expected natural gas shortages this winter.
10-year Treasury yields moving higher on jobless claims drop
U.S. Treasury yields moved higher on Friday, by about 9 basis points at 2.97%, while the yield on the 30-year Treasury bond traded up 7 basis points to 3.21%, as the initial US jobless claims dropped slightly by 2,000 claims to 250,000, hovering around nine-month high as the labor market shows signs of cooling, according to a report released by the department’s Bureau of Labor Statistics last week. However, US bond yields ticked down on Thursday, cooling off after rising during the previous session, following the release of the Federal Reserve Open Market Committee’s July meeting minutes on Wednesday, indicating that the Fed would continue raising rates until inflation slows noticeably, although the central bank could soon slow its tightening pace.
In parallel, the U.S. dollar index hit a five-week high and posted its biggest weekly gain since April 2020 on Friday, as Federal Reserve policymakers continued to talk about the need for further interest rate hikes to battle inflation ahead of their key Jackson Hole symposium next week. In fact, San Francisco Fed President Mary Daly said rate hikes of 50 or 75 basis points in September would be a “reasonable” way to tame inflation and she signaled that the Fed could continue to ramp up rates into 2023. As such, the US dollar index rose to above 108 on Friday, its highest since mid-July. The index recorded a 2.0% increase over the week, its best weekly performance since June 12.
The US dollar went up to 136.4 yen for the first time since July 28, while the Sterling sank to $1.183, its weakest since July 20 and its biggest weekly fall of 2.5% since May 6. In parallel, the euro plunged to $1.004, the weakest since July 15, with a 2.2% drop since last Friday, its worst week since July 8. In fact, the recession in the 19-nation Eurozone is now more likely than not, with Germany, Europe’s largest economy, emerging as the region’s weak spot, with its outsized industrial base extremely suffering from surging energy costs and a persistent shortage of supplies.
On another note, Wall Street witnessed a choppy week of trading with a broad slide for stocks at the end of the week that left the major indexes in the red for the week, as Friday marked the heaviest selling for the market, including the S&P 500’s biggest decline in more than seven weeks, after a solid run of four weekly gains, when Amazon, Apple, and Microsoft all fell and were the biggest drags on the S&P 500 and Nasdaq. In fact, all three US major indexes registered losses for the week. The S&P 500 fell about 1.2%, Nasdaq 100 slid by 2.4% in their first weekly declines after four weeks of gains while the Dow Jones lost about 0.2% for the week. It is worth mentioning that the strong market rally in July and early August followed better-than-expected company earnings and signs that the economy is slowing, possibly setting the stage for less aggressive rate hikes.
Oil prices dipped back on Friday on worries about global economic slowdown
Oil prices gained about 3% on Thursday, on strong U.S. economic data boosting optimism for an improving crude demand outlook along with robust U.S. fuel consumption, offsetting the fears that slowing economic growth in other countries could weaken demand. However, after two days of gains, oil prices dipped again on Friday, as investors weighed again worries about a global economic slowdown, that could diminish fuel demand, as lasting recession fears and a possible increase in output by OPEC+ will likely limit an oil price upside. As such, Brent crude futures fell to near $96 per barrel after settling higher on Thursday, dropping by 2.0% on a weekly basis, while U.S. West Texas Intermediate crude was at $90.3 a barrel, following a 2.7% increase in the previous session. It is worth mentioning that oil prices hit a six-month low on Wednesday, to $93.6 per barrel, as a steeper-than-expected drawdown in U.S. crude stocks outweighed concerns over rising Russian output and exports as well as recession fears. In fact, US crude stocks fell by 7.1 million barrels in the week to Aug. 12 to 425 million barrels, as per Energy Information Administration (EIA) data.
Europe’s benchmark gas prices surged by 14% in just three days, between Monday and Wednesday of last week, jumping by 6% on Wednesday, at a new record of 236 euro per megawatt-hour, to continue the upward trend from recent weeks, as gas demand for power generation is high amid heatwaves and Russian pipeline supply remains at low levels, while the EU struggles to fill gas storage ahead of the winter that would see energy and gas rationing, industries shutting down production, and households paying high prices for heating and electricity. It is worth mentioning that Russian Gazprom announced on Friday that a key Russian natural gas pipeline will shut down for three days of maintenance at the end of this month, raising economic pressure on Germany and other European countries. In parallel, US natural gas prices have skyrocketed to levels unseen since August 2008, with September natural gas settled at $9.6 per million British thermal units on Friday, as the summer spike is being driven in part by high demand as scorching temperatures through much of the country force Americans to crank up the air conditioning.
Gold prices falling to a three-week low on robust US dollar
Gold prices fell to a three-week low on Friday for the first weekly drop in five, as a stronger dollar and higher US bond yields along with prospects of more rate hikes by the U.S. Federal Reserve, dampened the safe haven appeal of gold. Spot gold was down by 2.9% at $1,762 per ounce on Friday, after falling to its lowest since July 29 at $1,753 earlier in the session. Spot silver fell by 7.9% to $19.1 per ounce, for its biggest weekly percentage fall since late January. Platinum plunged by 7.3% to $889 per ounce and palladium slipped 4.1% to $2,129. Meanwhile, the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose slightly to 989.0 tons on Friday from 985.8 tons on Thursday.
Cryptocurrencies
In parallel, it was a very red week for cryptocurrencies. After three weeks of gains, Bitcoin plunged by 12.1%, its biggest decline in two months, to be traded at $21,310 on Friday, as the fears about inflation and the likelihood of continued monetary hawkishness by the U.S. Federal Reserve had stimulated the decline in crypto prices and other riskier assets. Ethereum, the world’s second-largest cryptocurrency by market capitalization, tumbled by 12.7% to below $1,600 on Friday, this massive downturn comes in spite of a run of good news in recent weeks, mainly boosted by anticipation of its upcoming “merge” upgrade when the network is expected to transition from the energy-intensive proof-of-work (PoW) consensus mechanism to the greener proof-of-stake (PoS) mechanism.
