Energy anxiety has returned to Europe. Drag metals are under pressure again because of the rising government bond yields

By JustMarkets

At Friday’s close, the Dow Jones (US30) index increased by 0.30% (+0.44% for the week), while the S&P 500 (US500) index was down 0.11% (-0.61% for the week). The NASDAQ Technology Index (US100) closed Friday negative 0.36% (-2.99% for the week).

Friday’s Producer Price Index (PPI) data released on Friday came in slightly higher at 0.3% in July, up from the previously revised reading of 0%. This was likely another reason why the dollar held on to its high ground at the end of the week, as the PPI index is usually a precursor to a rising CPI index as price pressures trickle down from manufacturing to the final consumer. Friday also saw the release of the University of Michigan’s consumer sentiment data. The report showed a slight improvement in one-year inflation expectations, which fell to 3.3% from the previous reading of 3.4%. Current conditions improved, but the expectations index fell to 67.3 from 68.3.

Bankruptcy filings are on the rise in the US, and the index has already reached the peak area of 2008. What does this mean? There is the following procedure in the United States: first, a company files a petition to the court, and only then the court decides on the company’s bankruptcy. So this is a leading indicator of the bankruptcy rate. In the previous severe recession of 2008, it was the same thing – bankruptcies started rising before the recession, and during the recession, the bankruptcy rate rose even more.

This week, the July Federal Open Market Committee (FOMC) meeting protocols will be released. Analysts expect the FOMC minutes to show a hawkish sentiment as policymakers all continue to say in one voice that there is more work to be done. The Fed’s next major event will be the Jackson Hole Symposium on August 24-26, and analysts expect to hear more hints and guidance from Fed Chairman Jerome Powell on potential near-term interest rate developments.

Equity markets in Europe were mostly down on Friday. Germany’s DAX (DE40) decreased by 1.03% (-0.29% for the week), France’s CAC 40 (FR40) was down 1.26% (+0.68% for the week) on Friday, Spain’s IBEX 35 (ES35) lost 0.77% (+0.89% for the week), and the UK’s FTSE 100 (UK100) closed negative 1.24% (-0.53% for the week).

Energy worries are returning to Europe. Europe’s dependence on imports of liquefied natural gas has intensified since Russia invaded Ukraine last year. The withdrawal of energy supplies from Russia is fueling inflation and risks, adding to future price pressures as the region remains highly vulnerable to any disruption in global energy markets. Spot natural gas prices jumped nearly 30% in one single day after investors became alarmed by threats of a strike in Australia. ING Groep NV, Rabobank, and Saxo Bank A/S recommend preparing for a rise in hawkish sentiment from the European Central Bank as energy prices rise again and officials will seek to keep long-term inflation expectations from rising further.

Precious metals came under pressure from higher real yields amid a growing view that interest rates will remain high for a long time given stubbornly high inflation. As long as the risk of further tightening by the US Federal Reserve remains, gold and silver will be pressured by rising government bond yields. Investors should wait for the US Fed to complete the current tightening cycle. And that will happen either in September or November this year.

Thanks to forecasts of record global oil demand this month and supply cuts, oil prices rose for the seventh straight week. This is the longest winning streak for oil bulls since June 2022. The IEA estimates that global oil demand hit a record 103 million bpd in June and could reach another peak this month. Analysts say growth shows no signs of depletion. But technical traders expect a pause in growth and a temporary correction in oil prices.

Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) gained 1.42% for the week, China’s FTSE China A50 (CHA50) fell by 2.49%, Hong Kong’s Hang Seng (HK50) ended the week down 2.05%, and Australia’s S&P/ASX 200 (AU200) ended the week positive on 0.20%. Most Asian stock markets opened lower on Monday, with Chinese indices leading the way due to lingering concerns over slowing economic growth. Also, another default in China’s real estate market portends new headwinds for the country’s key economic engines. Government officials have not provided details on how additional economic support will be provided.

S&P 500 (F)(US500) 4,464.05 −4.78 (−0.11%)

Dow Jones (US30) 35,281.40 +105.25 (+0.30%)

DAX (DE40)  15,832.17 −164.35 (−1.03%)

FTSE 100 (UK100) 7,524.16 −94.44 (−1.24%)

USD Index  102.85 +0.33 (+0.32%)

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.