Oil rises amid stoppage of key gas pipeline. A decline in US inflation could trigger a rally in stock indices

By JustMarkets

The Federal Reserve Bank of New York’s Microeconomic Data Center yesterday released its November 2022 Survey of Consumer Expectations, which shows that inflation expectations have declined in the short, medium, and long term. According to the report, expectations for rising home prices will continue to decline while the labor market will continue to strengthen. Household income growth expectations rose to a new high. Investors renewed their optimistic bets ahead of the release of economic data on inflation and the Federal Reserve’s interest rate decision, which is expected later this week. As the stock market closed Monday, the Dow Jones Index (US30) increased by 1.58%, and the S&P 500 Index (US500) added 1.43%. Technology Index NASDAQ (US100) gained 1.26% on Monday. All three indices closed the day in positive territory.

As a reminder, this is one of the busiest macroeconomic weeks of the year, with the four major central banks holding their final policy meetings of the year and data on US consumer inflation, which could play a major role in determining the outlook for the US interest rate and the dollar.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE30) decreased by 0.45%, France’s CAC 40 (FR40) lost 0.41%, Spain’s IBEX 35 (ES35) was down by 0.37%, Britain’s FTSE 100 (UK100) closed Monday at minus 0.41%.

UK GDP for October rose by 0.5%, up from minus 0.6% in September and ahead of the consensus forecast of 0.4%. The Bank of England and the UK Treasury have already acknowledged that the country is in recession, although technically, there have not been two consecutive quarters of negative growth so far. There has only been one-quarter of negative growth. Typically, negative economic growth during a recession leads to lower inflation, often to the point of deflation. This gives central banks plenty of room for easing and the government plenty of room to spend. But Britain’s spending is already well above its means, and its debt is too high. High inflation means that the Bank of England cannot begin easing. In fact, it may have to continue tightening, exacerbating the recession. Current market expectations call for the Bank of England to reach its peak rate of around 4% in 2023, and a rate cut is now planned for 2024.

Oil prices jumped by 3% yesterday. Oil was supported by the continued closure of the pipeline that connects Canadian oil to the US Gulf Coast. How long it will take Canada’s TC Energy Corp to clean up and restart its Keystone pipeline is still unknown. TC Energy closed the pipeline after a leak. More than 14,000 barrels of oil leaked from the pipeline last week, the largest US crude oil spill in nearly a decade. A decline in US inflation today could spark further gains in oil prices.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.21%, China’s FTSE China A50 (CHA50) was down by 0.08%, Hong Kong’s Hang Seng (HK50) fell by 2.20%, India’s NIFTY 50 (IND50) gained 0.01%, and Australia’s S&P/ASX 200 (AU200) ended Monday down by 0.45%.

According to data released Monday by the People’s Bank of China (PBOC), Chinese banks provided 1.21 trillion yuan ($173.48 billion) in new yuan loans, almost double October’s 615.2 billion yuan but below analysts’ expectations. Economists are confident that China’s central bank will focus on supporting the slowing economy. The PBOC has already cut the reserve requirement ratio for banks by 25 bps since December 5, freeing up about 500 billion yuan in long-term liquidity to support the fragile economy due to the Covid outbreak.

In Australia, the NAB business confidence index has become negative for the first time since December 2021. Orders declined from +14 in September to +5 in November, indicating a not-rosy outlook. In fact, the gap between current business conditions and business confidence is now at a record low, indicating heightened concerns about the sustainability of the economy next year. The main reasons for the decline in business confidence are high inflation and rising interest rates, which are putting pressure on consumers.

S&P 500 (F) (US500) 3,990.56 +56.18 (+1.43%)

Dow Jones (US30) 34,005.04 +528.58 (+1.58%)

DAX (DE40) 14,306.63 −64.09 (−0.45%)

FTSE 100 (UK100) 7,476.63 +4.46 (+0.06%)

USD Index 105.02 +0.21 (+0.20%)

• – Australia NAB Business Confidence (m/m) at 02:30 (GMT+2);
• – UK Average Earnings Index (m/m) at 09:00 (GMT+2);
• – UK Claimant Count Change (m/m) at 09:00 (GMT+2);
• – UK Unemployment Rate (m/m) at 09:00 (GMT+2);
• – German Consumer Price Index (m/m) at 09:00 (GMT+2);
• – German ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
• – Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
• – UK BoE Gov Bailey Speaks at 13:00 (GMT+2);
• – US Consumer Price Index (m/m) at 15:30 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.