After a positive start to the year in markets – in part driven by a better inflation narrative in the U.S. and globally – this past week investor sentiment seemed more mixed. Equity markets turned negative midweek after economic data pointed to a weaker manufacturing sector and U.S. consumer. In addition, the overhang from the ongoing U.S. debt-ceiling debate, along with mixed earnings results, weighed on markets.

Markets seemed to take a notable turn lower last week after a slew of weaker-than-expected economic data. On Wednesday, U.S. retail sales data for December fell by 1.1% monthly, below the expected 0.8% decline, and at the lowest monthly reading in 2022. This softness occurred during the holiday-spending season and indicated broad-based weakness, including in big-ticket items like auto sales and furniture. This was perhaps the first signal that the U.S. consumer is starting to pull back, feeling the impact of both elevated inflation and potential economic weakness. Investors will now be watching to see if this trend continues into early 2023.

In addition to the economic data, investors faced myriad headlines around the ongoing U.S. debt-ceiling debate. On Thursday, the U.S. officially exceeded its debt limit of 31.4 trillion, and the Treasury began “extraordinary measures,” including suspending the sale of certain government securities, to ensure the U.S. meets its obligations.

Per CNN:

“In her letter, Yellen wrote that the extraordinary measures would last through June 5. But timing is subject to “considerable uncertainty,” she noted, stressing that it’s a challenge to forecast how many financial obligations the federal government must pay and how much revenue it will take in months into the future. She urged lawmakers to “act promptly.”

Treasury secretaries are authorized by Congress to take several types of extraordinary measures to prevent a default. Secretaries in both Democratic and Republican administrations have taken such steps.

This time around, Yellen anticipates selling existing investments and suspending reinvestments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. Also, she is suspending the reinvestment of a government securities fund of the Federal Employees Retirement System Thrift Savings Plan.

These funds are invested in special-issue Treasury securities, which count against the debt limit. Yellen’s actions would reduce the amount of outstanding debt subject to the limit and temporarily provide the agency with additional capacity to continue financing the federal government’s operations.

No retirees will be affected, and the funds will be made whole once the impasse ends.”

This sounds a lot like a giant shell game to me.

Market performance around prolonged government ceiling standoffs

Bonds-safe haven again…or too soon…time will tell

Perhaps one bright spot as we head into 2023 is that bonds have held up better than much of what we saw last year. The U.S. Bloomberg Aggregate Bond Index was up over 0.5% this week, even as the S&P 500 fell by about 1.0%.

MARKET MOVERS THIS WEEK

COMMODITIES PERFORMANCE

Month to Date Commodities Performance

Week to Date Commodities Performance

LOOKING AHEAD TO THIS WEEK-TECHNICALS

$DXY

Still showing signs of weekends we are well below the 20o day, first downside target hit …levels below. If we make a meaningful move above 103…downside trend will be broken

Gold

The uptrend is still intact but we are coming up on some VERY big levels. Watch ~$1960 and if we move up into the last consolidation area ~$2000 is the next big area *watch real rates*

Silver

The second week of consolidation…this is preparing to make a big move

Copper

Copper is still constructively bullish. It is the start of the Chinese Lunar New Year holiday….we could see some consolidation …caution in this market next week.

Nat Gas

We are at a big level in this market. A cold front moving into Europe, we could see a bounce here soon, otherwise, we could see consolidation in the ~3.00 ~2.50 area. Also, we are supposed to hear if Freeport is finally reopening, which would be a positive for this market. Caution on this market next week, unless we open gap up tonight and run to the upside.

Crude Oil

Crude oil is finally looking better for the bulls. I still think this month will be volatile on a daily basis. Stay with the trend.

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