19.12.22 - 23.12.22
Results of the previous week
The markets were relatively calm over the week before Christmas. The main US indices spent most of the week within rather narrow ranges and ended trading without any significant changes. The final data on the US economic growth rate turned out better than preliminary estimates, increasing by 3.2% compared to the previous quarter. The results have somewhat eased the market's concerns regarding the Fed interest rate's impact on key industries.
But the pound has suffered losses against the US dollar. The reason lies in the GDP growth rate report coming out of the UK. The economy has suffered from rising energy prices and a higher-than-expected inflation rate. The country's GDP grew by 1.9% against a forecast of 2.4%.
Brent crude oil price is gradually reaching the level of $83.50. It was caused by a change in expectations regarding the balance of supply and demand in the energy market. On the one hand, the easing of restrictions related to COVID-19 in China gives reason to expect an increase in demand. On the other hand, the introduction of price caps on Russian oil provokes fears of production cuts in Russia. All together, these two factors suggest a future shortage in the energy market.
Key events of the current week
The US. The Dallas Fed's Texas Manufacturing Outlook Survey
In the absence of more significant macroeconomic statistics, the manufacturing index from the Dallas Fed could spark movement in markets. For seven months, the indicator has reflected a worsening situation in the state's industrial sector. But the rate of decline in the industry is expected to slow down somewhat, which would be met with optimism, especially since the US Federal Reserve is reducing its pace of rate hikes amid improving inflation. So, if the report is in line with or beats the forecast, US indices could gain support. The S&P 500 could return to the 3918.40 mark.
The US. New jobless claims
The US labour market situation remains extremely important to the Fed. Of course, the regulator is currently putting inflation at the centre of its rate decisions, but until recently, employment data were one of the main triggers. Employment is important for the service-oriented US economy because it indirectly predicts the situation in the service sector, which contributes around 75% of US GDP. If the data reflect an increase in jobless claims for the week, one would expect the key non-farm payrolls report to be weak. This could spell bad news for the dollar, in which case,GBP/USD could return to somewhere around the 1.2170 mark.
The US. EIA crude oil reserves data
According to the latest data, crude oil reserves in the US have decreased. The persistence of such dynamics in one of the world's largest energy consumers could be another reason for oil prices to rise. Energy prices are being pushed by expectations of increased demand from China as it eases its COVID-19 restrictions. The expectation that Russia will cut production in response to price caps adds to these worries, so there may be an imbalance in energy supply and demand. If the report shows a decline in US reserves, Brent crude oil (BRN) may continue to move toward $87.15.
The next digest will be published on 10 January 2023.
Merry Christmas and Happy New Year!