China is opening its borders. The US labor market remains solid

Last week’s FOMC report showed that Fed policymakers increased the final interest rate range, and the non-farm payrolls report showed that the labor market remains resilient. Together, these 2 factors point to further interest rate hikes in the first half of 2023. A key factor will be the inflation data on January 12.

On Sunday in California, hundreds of thousands of homes and businesses were without power due to a severe storm. On Saturday, the NWS Weather Alert warned that the cumulative effect of successive heavy rains since late December could cause rivers to reach record highs and cause flooding in much of central California.

Falling energy prices in the Eurozone (especially natural gas prices) helped weaken the overall inflation rate. The overall inflation rate fell from 10.1% to 9.2% on an annualized basis. Core inflation (which excludes food and energy prices) also fell from 5.1% to 5.0% year over year. But the detailed report indicates that price pressures in non-energy sectors are rising, especially for food. This indicates that inflation is still strong. The next two months will be critical, as many businesses traditionally change prices early in the year.

Consequently, it is possible that core inflation will continue to rise. Consumption remains under pressure, and retail sales have been declining for quite some time, businesses continue to adjust their prices upward. The ECB has taken a very hawkish stance and is likely to keep the pace of rate hikes at 50 bp in February and March.

Asian markets traded mixed last week. Japan’s Nikkei 225 (JP225) decreased by 0.39%, China’s FTSE China A50  CHA50) was up 0.81%, Hong Kong’s Hang Seng (HK50) ended the week up 4.80%, India’s NIFTY 50 (IND50) decreased by 1.34%, and Australia’s S&P/ASX 200 (AU200) ended the week up 1.24% positive.

China on Saturday marked the first day of “Chun Yun,” the 40-day lunar New Year period. This Lunar New Year public holiday, which officially begins on January 21, will be the first since 2020 with no restrictions on domestic travel. Also, on Sunday, China will reopen its border with Hong Kong. China’s Ministry of Transportation expects more than 2 billion passengers to travel over the next 40 days. Investors hope the reopening will eventually revive the economy. Ultimately, it is likely to have an impact on oil prices. Demand for oil in China usually rises every year after the Lunar New Year. The increase in demand is a signal for rising oil prices.

In the commodities market, futures on copper (+2.97%), cotton (+2.76%), gold (+2.43%), and platinum (+1.99%) showed the biggest gains last week. Futures on natural gas (-15.96%), gasoline (-9.05%), Brent oil (-8.51%), WTI oil (-8.14%), wheat (-6.19%), sugar (-5.34%), coffee (-5.29%), corn (-3.72%) and lumber (-2.95%) showed the biggest drop.