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Market Update

GDP, PCE take steps in the right direction ahead of Fed meeting, China’s reopening leads to commodities shift

January 30, 2023


December metrics for GDP and inflation came in at promising levels, keeping market expectations consistent ahead of this week’s FOMC meeting. China’s reopening leads to increased economic activity, including increased demand for metals and oil, while natural gas struggles due to unexpectedly warm weather.

Key consumer and inflation metrics meet or exceed expectations, PCE growth continues to slow

U.S. GDP growth slightly outpaced market expectations, coming in at 2.9% for the fourth quarter of 2022. This was slightly slower than the previous quarter, but still higher than pre-pandemic levels. Consumer spending and jobless claims are also showing resilience, with the former continuing to grow and the latter coming in almost 20,000 below market expectations. Treasury yields were slightly higher following Thursday morning’s reports, with 2Y rates climbing 4 bps and 10Y rates climbing 6 bps.

The Personal Consumption Expenditures price index (PCE) cooled as anticipated for December, coming in at a 5% year-over-year increase and a 0.1% monthly increase. This is a reduction from its 5.5% growth in November and is the lowest level of CPE growth since September 2021. Core CPE, which omits food and energy, rose by 4.4% annually and 0.3% monthly, which is the lowest it has been since October 2021.

These metrics, which are the Fed’s preferred measures of inflation, indicate some forward progress on the Fed’s path toward its 2% inflation goal. After the Commerce Department’s report Friday morning, there were signs of increased USD strength after it had been weakening for the bulk of January thus far.

Commodities demand shifts as China economy continues to reopen

With travel and trade having resumed in China, the commodities market is reacting positively to increased demand. Metals and oil indices have seen the biggest increases in demand, with LME leading the way at a 35% increase so far this year. This comes after metals had generally underperformed in 2022 amid economic uncertainty and the Russia-Ukraine war. This trend could continue over the coming weeks as industries that utilize these resources are granted permits and restart work in China. Further oil demand recovery is expected with China’s continued reopening as well, and the release of U.S. GDP and inflation data at the end of last week led to some buoying of oil prices: Brent and U.S. crude gained 1.34% and 1.44%, respectively. Conversely, demand for natural gas has plummeted 25% or more as many regions experience warmer winters than anticipated.

(Related insight: Read "7 ways to maximize FX and commodity hedging impact while minimizing costs")

The week ahead

With the FOMC’s first meeting of 2023 coming up on Wednesday, markets have remained steady in their prediction of a 25-bps rate hike, and many will be listening to see what Fed Chair Jerome Powell has to say about the path forward for rates. Other notable releases include the January consumer confidence index on Tuesday, and January non-farm payrolls and unemployment to close out the week.

(Related insight: Register for this week's "Semiannual Market Update Webinar" with Amol Dhargalkar and Kevin Jones)

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About the author


Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit