On Friday, Statistics Showed That The U.S. Economy Has Begun To Slow Down. An Interest Rate Hike Is Just Around The Corner

The US stock indices were trading flat on Friday. By the end of the week, Dow Jones (US30) decreased 0.56% (-0.73% for the week), S&P 500 (US500) gained 0.08% (+0.16% for the week), and tech index Nasdaq (US100) added 0.59%, becoming the best performer of the week (+0.96%) among the US indices. The decline in Dow Jones was led by declines in shares of major banks, including JPMorgan Chase & Co. and Citigroup after earnings results raised worries about declining trading profits and rising lending.

Last week, investors' main focus was on the US consumer price index. The US consumer inflation increased to 7% in annual terms, the highest level in 40 years. However, producer inflation has slowed, which is soon the first sign of a slowdown in consumer inflation. The US Federal Reserve officials signaled last week that they would begin raising interest rates in March to counter inflation, which is undermining economic growth and slowing the labor market.

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This week's main event for investors will be meetings of the central banks of Japan and the Eurozone. The Bank of Japan is set to leave policy unchanged and revise its inflation forecast, while the ECB is set to expand its stimulus measures. Investors' attention should also be focused on inflation data in the UK, Eurozone, and Canada. Rising inflation is always a reason for a central bank to tighten monetary policy, so high inflation is often accompanied by an appreciation of the national currency. Also, traders should not forget about the reporting season.

Today is a bank holiday in the USA, and the stock market will not work. Goldman Sachs and Charles Schwab will report on Tuesday. Bank of America, Morgan Stanley, and Procter & Gamble will report on Wednesday before the market opens. The first of the "FAANG" companies to report will be Netflix on Thursday after the close. Investors will pay close attention to the streaming giant's plans for new content and its outlook for subscribers.

Some analysts believe a strong earnings season could reverse the stock indices caused by rising Treasury bond yields and expectations that the Federal Reserve will tighten monetary policy and raise rates aggressively to fight inflation. JP Morgan analysts believe there could be six or seven rate hikes from the Fed this year (every two months).

Proposed US sanctions against Russia's leadership could lead to an end to relations between the two countries, Peskov said.

On Friday, European stock indexes closed with a decline since rising inflation in the Eurozone, comments by Fed officials during the week, and disappointing statistics in the US on Friday influenced investor sentiment. German DAX (DE30) decreased by 0.93% (-0.77% for the week), French CAC 40 (FR40) decreased by 0.81% (-1.41% for the week), Spanish IBEX 35 (ES35) lost 0.12% (+0.41% for the week), British FTSE 100 (UK100) decreased by 0.28% on Friday but gained the most among major European indices (+0.77%) for the week. France's Consumer Price Index reached 3.4% in annual terms, the highest level in 13 years.

According to Gas Infrastructure Europe, Europe's underground gas storage facilities are more than 50% empty. Consumers in Europe continue to withdraw fuel actively. The increased demand for fuel is also provoked by low winter temperatures in 2021-2022.

Oil prices accelerated on Friday, with Brent crude oil surpassing $86 a barrel for the first time since Oct. 27. Declining commercial inventories in the US, supply disruptions in Libya lead to a supply shortage, causing oil prices to rise. But analysts are confident that oil prices are now balanced and will fluctuate around $75-85 per barrel.

Gold increased by 1.11%, and silver added 2.59% for the week. Investors should be aware that this is a short-term gain caused by the falling dollar index and treasury bond yields. With the Fed planning 3-4 interest rate hikes as well as beginning balance sheet cuts, this will have a positive effect on the dollar index and government bond yields and a negative effect on precious metals.

Asian markets mostly traded in negative territory on Friday. The market dynamics coincided with the US stock indices. Japan's Nikkei 225 (JP225) decreased by 1.28% (-2.05% for the week), Australian S&P/ASX 200 (AU200) lost 1.08% (-0.80% for the week), Hang Seng of Hong Kong (HK50) fell by 0.19% but added 3.65% for the week. China's central bank cut its key interest rate for the first time in almost two years. The ten basis point cut was announced shortly before data showed that the country's GDP grew by 4% in the final quarter of 2021 from a year earlier. At the end of 2021, China's GDP grew by 8.1%. The People's Bank of China accelerated the pace of policy easing to lower borrowing costs and stimulate credit supply. The move suggests that China's economy is slowing. Industrial production increased by 4.3% in December from a year earlier, beating a Reuters forecast of 3.6% growth. But the representatives of the Central Bank of China warned about growing risks in the supply chain. Retail sales did not meet expectations and gained only 1.7% in December. Analysts predicted an increase of 3.7%.

China's troubled real estate developer Evergrande avoided a default on bonds in the Chinese yuan by agreeing to defer payments with its creditors.

At the commodities market, futures on natural gas (+7.97%), WTI oil (+6.81%), lumber (+6.89%), cocoa (+6.31%), heating oil (+6.25%), Brent oil (+5.77%), orange juice (+5.56%) and silver (+2.59%) showed the biggest gains by the end of the week. Soybean futures (-2.87%), wheat (-2.08%) and palladium (-2.01%) showed the biggest drop.

Main market quotes:

• S&P 500 (F) (US500) 4,662.85 +3.82 (+0.08%)
• Dow Jones (US30) 35,911.81 −201.81 (−0.56%)
• DAX (DE40) 15,883.24 −148.35 (−0.93%)
• FTSE 100 (UK100) 7,542.95 −20.90 (−0.28%)
• USD Index 95.17 +0.38 (+0.40%)

Important events for today:

• China GDP (q/q) at 04:00 (GMT+2);
• China Industrial Production (m/m) at 04:00 (GMT+2);
• China Retail Sales (m/m) at 04:00 (GMT+2);
• China Unemployment Rate (m/m) at 04:00 (GMT+2).