Financial Markets’ Weekly Recap

Data from the German statistics office confirmed on Friday that the country’s economy contracted slightly in the third quarter compared to the previous three months. The initial estimate, published in late October, indicated a contraction of 0.1 percent, which has now been substantiated.

Ruth Brand, head of the Statistics Office, commented, “After the weak economic growth we witnessed in the first half of 2023, the German economy began the second half of the year with a slight decline in performance.”

Germany has faced economic challenges throughout the year, with factors such as rising energy costs, weak global demand, and high interest rates contributing to its status as one of the weakest economies in Europe.

In the second quarter, the German economy grew by 0.1 percent following stagnation in the first three months of the year. The adjusted GDP contracted by 0.4 percent year-on-year in the third quarter.

The statistics office noted a 0.3 percent decrease in private consumer spending, which constitutes about two-thirds of gross domestic product. However, government consumer spending saw a 0.2 percent increase, marking the first rise in over a year.

The German Central Bank’s monthly economic report on Monday predicted another contraction in the fourth quarter, with signs of slight improvement expected early next year.

Forex

The dollar fell on Friday as investors bet that US interest rates had peaked, while the yen rose after Japan’s core consumer prices grew, boosting expectations that the Bank of Japan may soon roll back monetary stimulus.

With US markets closed on Thursday due to the Thanksgiving holiday and a shorter trading session today on the occasion of Black Friday, currencies are trading in a limited range as liquidity is expected to remain weak.

The dollar index, which measures the performance of the US currency compared to six currencies, fell 0.077 percent to 103.69 points, remaining close to the lowest level in two and a half months at 103.17, which it touched earlier in the week.

During the month, the index fell 2.8 percent and is on track to record its weakest monthly performance in a year amid growing expectations that the Federal Reserve has finished raising interest rates and may begin lowering them next year.

Markets reduced their expectations that the Federal Reserve would cut interest rates in 2024. According to the CME Group’s FeedWatch service, there is a 25 percent chance that the US central bank will cut interest rates at its monetary policy meeting in March 2024, compared to a 33 percent chance. last week.

The Japanese yen stabilized at 149.57 against the dollar after rising following data showing Japan’s core consumer price growth increased slightly in October after declining the previous month.

This reinforced investors’ expectations that inflation may prompt the Bank of Japan to pull back on monetary stimulus soon.

The Japanese currency slowly moved away from its lowest level in 33 years at 151.92 against the dollar, which it touched at the beginning of last week, and rose 1.5 percent during the month.

The euro stabilized at $1.0909 after data confirmed preliminary estimates published in late October and showed that the German economy contracted slightly in the third quarter compared to the previous three months.

The pound sterling rose for the second day in a row, 0.2 percent to $1.2559, after data on Thursday showed that British companies returned to growth in November, raising hopes that Britain would avoid a recession.

Oil

Oil prices experienced a decline on Friday as the geopolitical risk premium, driven by the release of some hostages in Gaza, eased. However, prices recorded weekly gains for the first time in over a month, setting the stage for an upcoming OPEC+ meeting to decide on production cuts in 2024.

Brent crude futures contracts settled at $80.58 per barrel, marking a decrease of 84 cents, or one percent. Similarly, US West Texas Intermediate crude saw a decline of $1.56, or two percent, from Wednesday’s close, settling at $75.54. There was no settlement for West Texas Intermediate crude on Thursday due to the Thanksgiving holiday in the United States.

Both contracts achieved their first weekly gains in five weeks. This comes as OPEC+ prepares for a meeting where production cuts are a key discussion point, addressing recent concerns about oil demand and supply growth, particularly from non-OPEC producers.

OPEC+—comprising the Organization of the Petroleum Exporting Countries and allies, including Russia—surprised the market by postponing its meeting from November 26 to the 30th after facing challenges in reaching a consensus on production levels.

According to three OPEC+ sources, the group is nearing a compromise with African oil producers on production levels for 2024.