It was a week of highs and lows on Wall Street as the first week of 2023 came to a close. Despite some choppy actions earlier in the week, the major indices were able to end the week with decent gains thanks to a rally effort on Friday.
So what drove the market this week? It was all about the expectations surrounding the Fed’s rate hike path and the economic releases that influenced those expectations. Stronger-than-expected employment data indicated that the US labor market remains tight, but a sharp narrowing in the trade deficit reflected weakening global demand. Market participants were fearful that the Fed would continue to raise rates and not pivot to a rate cut cycle anytime soon.
The December employment report wasn’t as strong as feared, but it also wasn’t weak. Average hourly earnings growth moderated to 4.6% year-over-year in December, which was taken as a positive by the market. However, the December ISM Non-Manufacturing Index fell into contraction territory for the first time since May 2020, reflecting a clear slowdown in economic activity.
The takeaway from all this? The Fed won’t be able to take the target range for the fed funds rate much higher before it decides to hit the pause button. This news was welcomed by both the Treasury and stock markets, which enjoyed substantive rallies to finish the week.
In the FX market, the US Dollar saw some two-way actions. It weakened this week, but analysts predict a rebound as the market prices too few Fed hikes and current account imbalances still favor the Dollar. EUR/USD is expected to go back to previous lows of around 0.98 in the coming quarters, but that is unlikely to happen in a straight line.
Precious metal markets got off to a strong start in the first couple of days of trading before facing some selling pressure on Thursday. However, they bounced back again on Friday after the release of the US labor report. COMEX gold futures closed at $1,870.50/oz for a weekly gain of 2.21%, while spot gold closed up $32.92 on Friday at $1,865.97/oz.
In energy markets, traders are sticking to the bearish outlook seen in the second half of 2022. Crude oil faced intense selling pressure below $80 a barrel, leading to a sharp, almost 10% decline this week. This may set the stage for further losses ahead.
In the world of cryptocurrencies, Bitcoin and Ether continued their sideway movements this week. Bitcoin was traded at $16,900, up 0.2% on Friday, while Ether was at $920, up 1.3% on the same day. It was a relatively quiet week for the digital assets, but market participants will be watching closely to see if they can build on these modest gains.
So there you have it, a wrap of the major market movements from the past week. Stay tuned for next week’s update as we continue to monitor the markets and bring you the latest developments.
