The threat of sanctions against Russia by the European Union for the ongoing war in Ukraine, plus reduced production in the US due to the weather pushed oil prices to a 3-week high.
Forex
The British pound traded marginally lower for the week. With the miss on the United Kingdom Gross Domestic Product (GDP), over both the year-on-year and quarter-on-quarter basis, the UK economy registered its first negative quarter of growth in 2022.
The Bank of England (BoE) is also facing a tough scenario due to strikes by the rail, maritime, and transport workers in the UK, contributing to lower household income while inflation continues to climb. The rising inflation may lead to the BoE ending rate hikes sooner than the US Federal Reserve, which may favour the US dollar in 2023.
A rebound in EUR/USD occurred after the euro registered small losses on Thursday, 22 December, climbing above $1.06. In its latest report issued on the same day, the Bureau of Economic Analysis (BEA) revised the annualised growth rate of the third quarter to 3.2% from 2.9% previously.
In response to the upbeat BEA data, the US dollar strengthened against its major rivals and pushed EUR/USD lower. As trading conditions weakened going into the Christmas holiday, the EUR/USD pair failed to gain enough momentum to make a decisive move.
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Commodities
There’s a lot of optimism about the continuing rise in gold prices, or them at least staying sideways if the coil market holds. With the impending Christmas holidays, gold prices edged up on Friday, 23 December, supported by the lower-than-expected inflation data. Meanwhile, after a half-percent drop from October, the Personal Consumption Expenditures (PCE) index stood at 5.5% year-over-year.
Russia warned on Friday, 23 December, that it might reduce oil production by as much as 700,000 barrels a day in response to sanctions against the country’s crude by the European Union (EU).
Despite a winter freeze sweeping across the US, Russia’s threat of reduced oil production outweighed dwindling trading volumes heading into Christmas. On the Texas Gulf Coast, one-third of refining capacity has been shut down, while in North Dakota, up to 350,000 barrels of crude oil is being produced per day.
The threat of sanctions against Russia and reduced production in the US helped oil prices rally to a 3-week high on Friday, 23 December, after rising for a second straight week. Despite a volatile year for oil prices dominated by Russia’s invasion of Ukraine, crude prices are still on track for a modest gain on a yearly basis.
Cryptocurrencies
Cryptocurrency prices remained largely stable through much of the week, with an absence of a macro trigger reinforcing lacklustre performance. The global cryptocurrency market capitalisation stood at USD 811 billion on Sunday, 25 December.
Christmas has offered nothing for the Bitcoin bulls or bears, and cryptocurrency enthusiasts are growing increasingly tired as Bitcoin’s price has plunged over 75% from its all-time high of $69,000 that it scaled last year.
It is currently trading at $16,829 after reaching $16,907.50 on Tuesday, 20 December. Meanwhile, the world’s second-largest digital currency by market capitalisation, Ethereum, was trading at $1,218.21 at the time of writing.
Following the prosecution of FTX CEO Sam Bankman-Fried, the US Deputy Attorney General, Lisa Monaco, along with the US Justice Department, has started building expertise across the 93 US attorney offices to enhance cryptocurrency enforcement regulations and is coordinating those efforts through a 25-member national cryptocurrency enforcement team. FTX was one of the largest cryptocurrency exchange platforms before it imploded in November, leading to a crash in the prices of digital assets. The latest move to enhance regulations and accountability will likely strengthen trust in cryptocurrencies.
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US stock markets
| Name of the index | Friday’s close | *Net change | *Net change (%) |
| Dow Jones Industrial Avg (Wall Street 30) | 33,203.93 | 283.47 | 0.86 |
| Nasdaq (US Tech 100) | 10,985.45 | -258.27 | -2.30 |
| S&P 500 (US 500) | 3,844.52 | -7.54 | -0.20 |
Source: Bloomberg
*Net change and net change (%) are based on the weekly closing price change from Friday to Friday.
Santa Claus seems to have evaded Wall Street this year as major US stock indices lacked the upward force that they are used to experiencing towards the end of each year.
As traders hoped for a so-called Santa Claus rally to kick in, the S&P 500 ended the week down about 0.2% for the week and the Nasdaq lost over 2%, both indices recording a third consecutive week in the red. However, the Dow Jones Industrial Average was the outlier, posting a weekly gain of 0.86%.
Several factors contributed to the underwhelming performance of the stock indices, however, the major factors are still inflation and fears of an impending recession, come 2023. Furthermore, the core Personal Consumption Expenditures (PCE) price index came in slightly higher-than-expected on a year-over-year basis. This is indicative of inflationary pressures on the stock indices.
This December has marked an exception in equities as major indices have been weighed down by hefty declines in shares of Tesla, Amazon, and other big name stocks that had pushed markets higher in previous years.
The market trajectory would still be dictated by inflation and whether the US Federal Reserve stops raising interest rates sooner than projected.
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