Markets mixed as focus turns to 2023
Corporates | Kennett Square, PA
Markets were largely quiet around the holidays, with strength in the jobs market and signs of reduced inflation helping to provide some risk-on sentiment. At the same time, the rise in COVID cases in China put downward pressure on demand forecasts for next year.
Up and down year for the U.S. dollar
The U.S. dollar continued its trend downwards in the latter half of December, with the dollar strength index falling below 105 for the first time since last summer. Much like the rally earlier in the year, the dollar’s strength has largely been a function of expected inflation and interest rates within the United States. With inflation showing continued signs of cooling and the Fed messaging fewer rate hikes starting sometime in 2023, the dollar came down from the historic highs it reached in September. However, it is still significantly higher than where it trended in 2020 and 2021.
(Related insight: read "Managing FX risk in a strong U.S. dollar environment")
Inflation continues its downward trend
The U.S. CPI reading for November came in at 0.1% MOM and 7.1% YOY, lower than the expected 0.3% and 7.3%, respectively. This was the third consecutive month when inflation came in below expectations, again leading to a jump in investor sentiment. The rally in equities was somewhat short-lived, though, and not enough to put a positive spin on 2022, which ended as the worst year for stocks since 2008.
Macro outlook for 2023
The jobs market within the U.S. finished off a strong year last week, with initial jobless claims at only 225k, right in line with expectations. The continued low unemployment is certainly a reason for optimism, especially with inflation trending down, but there are some other concerns weighing on the outlook for next year. In particular, the dramatic rise in COVID cases in China has created concerns around demand weakness that could impact the rest of the world. This introduced downward pressure on oil prices especially, as China is the largest importer of crude worldwide.
The week ahead
It’s another relatively quiet week for economic data, but there will be some important indicators within the jobs market, as initial claims come out on Thursday, followed by nonfarm payrolls on Friday.
Subscribe to receive our market insights and webinar invites
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 chathamfinancial.com/legal-notices.23-0004
Our featured insights
Banks tightened and the market rallied: what’s going on?
The European Central Bank (ECB), Bank of England (BoE), and U.S. Federal Reserve (Fed) all raised their respective benchmark rates last week. The ECB raised rates by 50 basis points to a key rate of 2.5% on Thursday and signaled another 50-basis-point hike was coming at the next meeting in March....
GDP, PCE take steps in the right direction ahead of Fed meeting, China’s reopening leads to commodities shift
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...
Retail sales, producer price data suggest cooling economic activity
Markets responded positively to declining PPI and retail sales figures, suggesting that U.S. economic activity, and notably inflation, is slowing. Investors are pointing to the data as another piece of evidence that the Federal Reserve will be able to soften its hawkish stance on rate tightening...
Labor market remains stoic as U.S. inflation slows, dollar weakens
The Federal Reserve appears to be in control of inflation after the most recent consumer price index report. Questions linger regarding future rate increases and the subsequent impact on the labor market. The dollar continues its march down from last year’s highs.
2023 corporate treasury trends
Corporate treasury and accounting teams face a daunting list of concerns as they plan for 2023. Inflation at multi-decade highs, a war in Europe for the first time in 75 years, global central bank tightening, a roller coaster ride in on equity prices, and recession fears all pose challenges to...
U.S. jobs market remains strong, nonfarm payrolls data suggest slowing inflation
December payrolls surpassed expectations Friday morning as the U.S. added 223,000 jobs to the economy. While the labor market remains strong, investors noted that wage inflation appears to be easing. On the commodity front, oil and natural gas markets lagged to start the year due to global demand...
The market is fighting the Fed yet again
After inflation, retail sales, empire manufacturing, and the Philadelphia Fed business outlook all came in below estimates last week, the market — as evidenced by Treasuries and forward curves — broadly disagrees with the Fed’s interest rate outlook.
7 ways to maximize FX and commodity hedging impact while minimizing costs
Hedge program costs can range from forward points, to trading costs, to fixed and variable operational costs that include systems and personnel. Program benefits often include risk reduction, operational ease, and favorable accounting treatment. This article will address leading practices and...