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Gold prices and the US dollar are trading close to their recent highs, but investors are taking a closer look at the data coming out before the weekend. A key piece of data that will be on the minds of investors will be the Finished Goods Producer Price Index (PPI), a monthly survey of prices of goods in the United States that are manufactured by companies with a domestic presence. The results of the survey will give investors a better idea of how the economy is performing.
Finished Goods Producer Price Index (PPI)
The Producer Price Index (PPI) showed a moderate rise in the overall prices paid to U.S. producers in November. This data is usually overlooked by economists, but is crucial to understanding inflation.
The headline PPI rose to 0.3% month over month, and was above the 0.2% increase expected by Wall Street. The core PPI was also better than expected, climbing to 0.3%.
It’s no surprise that consumer spending makes up two-thirds of the nation’s economy. This may give the Fed some headaches ahead of Wednesday’s interest rate announcement. However, weak demand trends could signal that shoppers aren’t as willing to spend as they were a year ago.
Bond yields in the Eurozone were sharply higher
When the European Central Bank decided to hike interest rates by a substantial amount, the bond markets were not able to keep up. Indeed, the euro’s 10-year benchmark government note yield spiked past 4% in mid-December. In fact, the ECB’s decision added 250bps to rate hikes over the past nine months, extending the fight against surging inflation in the currency bloc.
The ECB also announced a series of quantitative tightening measures, which were designed to curb inflation. These measures include the aforementioned rate hike, a 25 billion euro purchase program, and the purchase of euro area government securities.
China’s COVID-related restrictions helped the yield on the benchmark 10-year U.S. Treasury note
China’s rapid shift from zero-COVID to COVID-19 has caused a significant disruption to the domestic economy. Inflation in the country began to rise due to higher energy and food prices. The economic costs of the restrictions are being reflected in purchasing managers’ indices.
Although Chinese officials have announced plans to ease restrictions, it is still unclear how the move will affect the economic outlook. Many analysts have warned that the shift could increase business uncertainty.
The decline of the 10-year Treasury bond yield, which finished the week at 3.5%, is a sign that investors have become less optimistic about the Fed’s plans to hike interest rates. The Fed recently cut the federal funds rate target by 1.5 percentage points.
Shanghai City Authorities will stop requiring Covid test checks for restaurants and entertainment venues
Shanghai City Authorities announced they will no longer require Covid test results for outdoor venues. They will also no longer require PCR test results to enter indoor venues such as cinemas and gyms. They will also no longer require a 48-hour negative test result to use public transport.
The announcement comes days after China’s vice premier said the virus’ ability to spread was waning, a move that many saw as a ploy to suppress protests. While the city was only recently reopened after a two-month lockdown, the decision is sure to anger many.
The announcement comes after several cities in the northeast, such as Chengdu, Shenzhen, and Wuhan, announced that they would ease COVID-19 restrictions. Those cities are among the hardest hit by the disease.
NZD/USD struggles to extend three-day uptrend
The NZD/USD currency pair is attempting to consolidate its gains following a strong three-day uptrend. While the pair has retreated back to the 0.6286 neckline, bulls still have a strong case to take control. The next resistance level at $0.6242 holds good upside potential. The pair could also extend the recent rebound to a monthly high around $0.6475-80.
Amid a risk-on environment, the US dollar has struggled to hold up against the New Zealand currency. However, the softer USD has been a factor in the recent NZD gain.
The RBNZ has raised interest rates by 75 basis points at its latest meeting. The move will give the Bank of New Zealand an opportunity to steer the economy to a soft landing.
Japan’s stock markets generated modest positive returns
Japanese stocks were up a bit over the week, although still lagging the FTSE. The Nikkei 225 Index, the country’s blue chip gauge, was up 3.1%. The market’s biggest gain came from Tokyo Electron, which gained 8% as tech shares surged.
Meanwhile, Japan’s heavy industries rose, with Kawasaki Heavy Industries gaining 5.22% and Mitsubishi Heavy Industries gaining 2.5%. This was all on the back of a report that the government will not set a ceiling on defence spending.
Another factor that helped push up the market’s tally was the Bank of Japan’s ultra-loose monetary policy. The yen fell to JPY 136.6 against the US dollar from JPY 134.3 earlier in the week.