Financial Markets’ Weekly Recap, December 19-23

The dollar fell against most currencies in volatile and weak trading on Friday after data indicated a slight slowdown in inflation in the United States, which boosted expectations of the Federal Reserve raising interest rates at lower rates and improved investors’ appetite for risk.

The personal consumption expenditures price index rose 0.1 percent last month, after rising 0.4 percent in October. In the 12 months through November, that index increased 5.5 percent, after rising 6.1 percent in October.

Excluding volatile food and energy prices, the personal consumption expenditures price index increased 0.2 percent after a 0.3 percent increase in October. The so-called core personal consumption expenditures price index rose 4.7 percent year-on-year in November, after rising 5 percent in October. The US central bank follows the personal consumption expenditures price indices in order to make monetary policy decisions.

The S&P 500 and the Dow Jones rose during the day, while commodity-sensitive currencies such as the Australian, New Zealand and Canadian dollars, which are highly sensitive to risk sentiment, rose against the greenback. Investors also sold safe-haven US Treasury notes, driving up yields.

The Federal Reserve is widely expected to raise interest rates by only 25 basis points at its next meeting, in January, after several big increases.

In its latest trading, the euro rose 0.2 percent against the dollar to $1.0616.

The currencies of Australia, New Zealand and Canada rose against the US dollar. The Australian dollar rose 0.4% to $0.6710, and the New Zealand dollar rose 0.6% to $0.6287. Against the Canadian dollar, the dollar fell 0.4 percent to 1.3599 Canadian dollars.

The Canadian dollar also benefited from data showing the Canadian economy grew 0.1% in October versus September, with a further 0.1% increase in gross domestic product likely in November, according to Statistics Canada data.

But against the yen, the dollar rose 0.4 percent to 132.89 yen. However, the Japanese currency is set to post a weekly decline of 2.7 percent after the Bank of Japan revised its main policy for the bond market earlier this week.

In a tough year for global markets, the dollar rose nearly 9 percent as the US central bank raised interest rates sharply to curb inflation, drawing investors back into the country’s fixed-income assets.

But the dollar index has fallen more than 8 percent since hitting a 20-year peak in September, after a sharp slowdown in US inflation raised hopes that the central bank would soon end its tightening cycle.

The dollar index was little changed at 104.35.

Wall Street

The S&P 500 closed higher on Friday as investors weighed inflation data against higher interest rates and fears of a recession, while energy stocks jumped on higher oil prices.

A Commerce Department report showed that US consumer spending rose slightly in November, while inflation continued to slow, but not enough to dissuade the US Federal Reserve from continuing to raise interest rates next year.

The Standard & Poor’s 500 Index rose by 22.72 points, or 0.59 percent, to close at 3,845.11 points.

The Nasdaq Composite Index rose 21.88 points, or 0.19 percent, to 10,495.93 points.

The Dow Jones industrial average rose 178.71 points, or 0.54 percent, to 33,206.20 points.

Europe

The pan-European STOXX 600 settled on Friday in weak trading before the holiday, after a turbulent week in which hopes for an improvement in the economic outlook outweighed fears of recession and aggressive monetary policies of central banks.

The Stoxx 600 closed little changed, but recorded a weekly increase of 0.6 percent.

After making early gains during the week, the index recouped a small part of last week’s staggering 3.3% loss, which came as a result of growing fears of a recession after the US Federal Reserve and European Central Bank signaled a protracted cycle of interest rate hikes.

These fears were exacerbated and hurt expectations of a momentum before the end of the year, after the release of US data on Thursday revealed the resilience of the economy.

But upbeat business results from Nike and FedEx this week and improving consumer confidence in the United States and the eurozone have given rise to some hope that the economic slowdown caused by sharp interest rate increases may not be as bad as feared.

Data on Friday showed that sentiment among Italian businesses and consumers rose in December, although the manufacturing sector was more pessimistic.

Mining stocks rose 0.8 percent as copper prices rose on lower inventories and hopes for an economic recovery next year.

The index of industrial companies added 0.3 percent, and the index of banks rose after it recorded a decline in the previous session.

The interest rate-sensitive technology sub-index fell 0.6 percent, paring gains in the main index.

Oil

Oil prices rose about $3 when settling on Friday, marking gains for the second week in a row, after Moscow said it might cut crude production in response to the price ceiling imposed by the Group of Seven on Russian crude.

Brent crude rose $2.94, or 3.6 percent, to settle at $83.92 a barrel.

US West Texas Intermediate crude rose $2.07, or 2.7%, to settle at $79.56 a barrel.

Russia’s exports of Baltic oil could fall 20 percent in December compared to the previous month after the European Union and Group of Seven countries imposed sanctions and capped Russian crude prices, according to dealers and Reuters calculations.

Russian Deputy Prime Minister Alexander Novak told state television on Friday that Russia may cut oil production by between five and seven percent in early 2023 in response to the price cap imposed by Western countries on its crude oil and refined products.

Crude oil demand and production may decline over the next few days due to the shutdowns caused by a massive winter storm sweeping across a large swath of the United States. Many of the largest US refineries have been closed due to the severe cold, while production operations have been halted in Texas and North Dakota.

And futures contracts for gasoline and low-sulfur diesel rose 5 percent, in anticipation of lower refinery output and higher demand for heating fuel.

Gold

Gold prices rose on Friday, ahead of a long weekend, as data showed a slowdown in US inflation, albeit woefully insufficient for the Federal Reserve to push to slow the pace of interest rate hikes.

The spot gold price rose 0.2 percent to $1,796.53 an ounce by 1922 GMT, and US gold futures rose 0.5 percent to $1,804.2.

Gold rose about 0.2 percent during the week, its best performance in three weeks.

US consumer spending rose 0.1% in November after rising 0.4% in October, while inflation slowed further.

Gold prices fell more than 1% on Thursday after US gross domestic product data showed a faster recovery than previously estimated, which could make the Federal Reserve more keen to tackle inflation.

Gold prices are heading down for the second year in a row, by about 2 percent.

The spot silver price rose 0.6 percent to $23.70 an ounce, platinum jumped 4.3 percent to $1019.72, and palladium rose 3.6 percent to $1741.75. The three metals are heading towards achieving weekly gains.

Turkish Lira

The Turkish lira fell to a new record low of 18.7 against the dollar on Friday, extending its losses this year, which exceeded 29 percent, despite Ankara’s efforts to implement new policies to tighten control over the local currency exchange rate.

The lira fell 44 percent in 2021, mainly due to a series of large interest cuts, despite high inflation.

The currency became less affected by monetary policy decisions due to a program to protect lira deposits from currency depreciation and the government’s indirect sales of foreign exchange to the market.

The lira has remained relatively stable since August, despite interest rates being cut again this year by 500 basis points to 9 percent, despite inflation approaching 85 percent.