Market news – Week 2, February 2023

The S&P 500 registered a cumulative 6.2% rise in January, signaling the likelihood of a strong performance in the US stock market this year.

Forex

Forex chart, Market report, Week 2 Feb 2023

Source: Bloomberg.

The US dollar followed up its rise from the week prior to register a strong performance last week, with the EUR/USD pair closing at 1.0795 USD. The currency was propped up by the US Federal Reserve’s (Fed) marginal rate hike, its acknowledgment of easing inflation, and a sharp increase in jobs in the US.

The Fed announced a 25 basis point interest rate hike on Wednesday, 1 February. The small increase was expected and is half the hike announced at the last Fed meeting in November 2022. The upbeat non-farm payrolls (NFP) data — which revealed an addition of 517,000 new jobs in January — was much higher than analysts’ expectations. The unemployment rate in the US is now down to 3.4%, a level not seen since 1969.

The rising dollar ensured that the GBP/USD pair ended the week at 1.2055 USD. After a steady start to the week, the pair started to decline on Thursday, 2 February, the day the Bank of England (BoE) and the European Central Bank (ECB) both raised their policy rates by half a basis point.

On the events front, Fed chief Jerome Powell is scheduled to speak on Tuesday, 7 February. The Initial Jobless Claims report — which measures the number of individuals who filed for unemployment benefits — will be released on Thursday, 9 February. Meanwhile, the fourth-quarter gross domestic product (GDP) data in the United Kingdom will be released on Friday, 10 February.

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Commodities

Gold chart, Market report, Week 2 Feb 2023

Source: Bloomberg.

Gold prices declined sharply, ending the week at 1,865 USD an ounce. The strong employment numbers in the United States — which has raised inflation fears — contributed to the weakness in the yellow metal as did the policy rate hikes by the BoE and the ECB last week. Gold prices were also impacted by the heightened geopolitical tensions between the US and China amid the sighting and subsequent downing of an alleged Chinese spy balloon off the California coast on Saturday, 4 February.

Fed chief Powell’s remarks on Tuesday, 7 February, will be closely watched as a hawkish stance from the central banker will likely push gold prices further down.

Like gold, oil prices slumped too. The price of US crude oil was impacted by an increase in supply in the United States, and fell nearly 8% for the week to around 73 USD per barrel, the lowest it has reached in nearly a month.

Meanwhile, on Saturday, 5 February, Saudi Arabia’s energy minister Prince Abdulaziz bin Salman Al-Saud warned that sanctions and underinvestment in the energy sector could result in shortage of oil supplies in the future. Saudi Arabia is the world’s largest supplier of crude. Russia has been heavily sanctioned by the West due to the ongoing war in Ukraine.

Cryptocurrencies

Crypto chart, Market report, Week 2 Feb 2023

Source: Bloomberg.

Cryptocurrencies traded mostly in the green last week, after Fed chair Powell acknowledged that inflation has started to ease in remarks he made following a quarter-point rate hike by the US central bank.

The rate hike and Powell’s comments appeared to have gone down well in the cryptocurrencies markets, which had been trading sideways in the lead-up to the speech. In the hours after Powell’s remarks, market capitalisation increased by nearly 4%. The global cryptocurrency market stood at 1.06 trillion USD on Sunday, 5 February.

After an impressive rally in January, Bitcoin’s rise has been subdued in February so far. The world’s largest cryptocurrency was trading at 22,936.30 USD at the time of writing, after reaching a high of 23,705.10 USD during the week. Ethereum, the world’s second-most popular cryptocurrency, was trading at 1,629.37 USD.

Meanwhile, in a significant development in the centralised digital currency space, the Chinese government distributed millions of dollars worth of its Central Bank Digital Currency (CBDC) across the country over the Lunar New Year period. Unlike the decentralised cryptocurrencies, the CBDCs are issued and controlled by the countries’ central banks.

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US stocks

Name of the indexFriday’s close*Net change*Net change (%)
Dow Jones Industrial Avg (Wall Street 30)33,926.01-52.07-0.15%
Nasdaq (US Tech 100)12,573.36406.763.34%
S&P 500 (US 500)4,136.4865.921.62%
Source: Bloomberg
*Net change and net change (%) are based on the weekly closing price change from Friday to Friday.

The S&P 500 index was on the up for a second successive week and registered a 1.62% rise. Nasdaq registered its fifth straight week of growth to end the last week up by 3.34%. Meanwhile, the Dow Jones was down 0.15%.

With last week’s results, the S&P 500 rose 6.2% in January on the back of hopes that the Federal Reserve will be able to keep inflation in check without hampering the economy. This marks the first instance in 4 years that the index has ended a January in green. The S&P 500’s January performance bodes well for the US stocks as the index has seen a positive February – December period 83% of the time it has seen a gain in the first month of the year.

With half of the earnings season gone, about 70% of the companies in the S&P 500 index have exceeded analysts’ expectations, a figure lower than the five-year average of 77%.

However, some investors are cautious, believing that the stocks have gotten ahead of themselves. Furthermore, the blowout employment data has renewed inflation concerns and bets of a more hawkish US Federal Reserve in the near future.

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