US equity indexes finished the week flat to lower: S&P 500 -0.7%, NASDAQ -1.6% and DJIA 0.0%, giving back some of the previous week's strong gains as market participants weighed US inflation data that seem to have peaked vs hawkish talk from Federal Reserve officials. Separately, reports of an errant missile originally thought to be from Russia that struck Poland (a NATO country) temporarily unnerved equities, before the report was dispelled. China is experiencing a strong COVID wave. Rising COVID cases there are a concern for market participants as they could cause further shutdowns/lockdowns which could weigh on global growth, and bring risk to supply chains.
St Louis Fed President Bullard (voter 2022), speaking Thursday, reiterated that inflation remains unacceptably high and that the policy rate will need to be increased further as it is not yet in restrictive territory, with his Taylor-Rule based estimates indicating somewhere between 5% and 7%. Bullard stated, "In the past I have said 4.75% to 5%.... based on this analysis today, I would say 5% to 5.25%. That’s a minimum level. It’s easy to make arguments that before this is all over, you’d have to go to much higher levels of the policy rate than 5.25%, but for now I’d be happy to get to the minimal level and that’s why I think the committee is going to have to do more.” Watch Bullard's speech and presentation here.
US 2yr treasury yields jumped from 4.35% to 4.48% after Bullard’s hawkish comments, while the 10yr yield rose from 3.68% to 3.80%. The 2-10yr curve, historically a typical but not conclusive indicator of a coming recession, inverted further to -67bp at the time of writing on Friday - a multi-decade low.
Ahead, market participants may gain further clarity on the potential path of rate hikes from the FOMC minutes released this Wednesday, November 23 and the highly anticipated speech by Fed Chair Jerome Powell on the topic: The economic outlook and the labor market at the Brookings Institute on November 30th.
Chart: US yield curves 2s10s and 3mo10yr
USD (ie the DXY Index) is being largely driven by Fed-speak and the reaction of US yields (chart). The DXY rose a modest 0.6% on the week. It is worth mentioning that JPY has appreciated 6.4% vs USD since the USDJPY high on October 21 and the MoF intervention. EURUSD, the DXY's largest component, remains above parity, now at 1.0253 at the time of writing. GBP was one of the strongest performers vs USD last week, supported by a new UK fiscal plan. UK finance minister Jeremy Hunt unveiled tax increases, spending cuts, and new fiscal rules, - an attempt to repair public finances and restore the UK's Britain’s credibility in international markets.
Chart: DXY Index vs US 2yr and 10yr yields
DIAMINDX fell 1.6%, gold fell 1.2%, and silver fell 3.5% on the week. Weakening in USD has helped support gold in recent weeks. Gold was down on the week after two consecutive weeks of solid gains. Starting this week off, USD is seeing broad-based gains, hampering gold. Silver has been hindered by global growth concerns. DIAMINDX is seasonally weak in November, but on average over the past 5 years, has bounced back in December.
DeBeers Group’s rough diamond sales for the sight period Oct 31-Nov 15 totaled $450 million, increasing 3% Y/Y from $438 million but declining 11% from $508 million in the previous sales cycle. The near-term slowdown reflects a bit of a softening in what has been a strong market for diamonds. DeBeers was optimistic: "We saw good demand for our rough diamonds during cycle 9 with sales reflecting what is traditionally a quieter time for the diamond midstream ahead of polishing factories reopening in India following the Diwali holidays," said De Beers Chief Executive Officer Bruce Cleaver.
Tenoris has a proprietary index jewelry sales comprised of 1,200 US specialty jewelry stores point of sales data. From that, analyst Edahn Golan notes that October jewelry sales fell 11% Y/Y, but 2021 was a blockbuster year for jewelry demand as a base comparison. 2022 is still trending above 2019 - the "last normal year" the jewelry industry had - ie unimpacted by COVID (chart).
Holiday jewelry purchases tend to be made somewhat last minute. While consumers are more cautious given high inflation, retailers are still looking forward to a solid holiday sales season.
Chart: US Diamond and Jewelry sales trend
Pink diamonds are having a moment:
The 170.2-carat Lulo Rose, believed to be largest pink diamond found in the last 300 year was sold at a rough tender by Sodiam, Angola's state-owned diamond trading company. The tender featured seven special sized diamonds, including the Lulo Rose, weighing 767 carats recovered from the Lulo alluvial mine by Sociedade Mineira Do Lulo, including three +100 carat white Type IIa diamonds and three other special sized white type IIa stones. Mining Review reports that "The seven diamonds achieved a total sale amount of US$20.4 million on a 100% basis, averaging US$26,536 (A$39,237)/ carat." The price paid for the Lulo Rose was not disclosed.
Ahead, Christie's is holding a Magnificent Jewels auction in NYC on December 6th that will feature a pink diamond weighing more than 13 carats. Christies will feature the diamond ahead of auction in Hong Kong and NYC. It is expected to bring in at least $25 million when it goes under the hammer.
This report has been prepared by the Strategy Team of Diamond Standard Inc. (“Diamond Standard”). This report, while in preparation, may have been discussed with or reviewed by persons outside of the Strategy Team, both within and outside Diamond Standard. While this report may discuss implications of legislative, regulatory and economic policy developments for industry sectors, it does not attempt to distinguish among the prospects or performance of, or provide analysis of, individual companies and does not recommend any individual security or an investment in any individual company and should not be relied upon in making investment decisions with respect to individual companies or securities.
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