US equity indexes were up on the week: S&P 500 +2.5%, NASDAQ +4.3%, and DJIA +1.8%, resuming their January winning streak. The US 10 year yield finished the week slightly higher at 3.521% vs last Friday's 3.478%. Looking at flow data, last week saw a third consecutive week of solid inflows to global equity indicating a rise in risk seeking sentiment. According to Exante Data, inflows to global equity were driven by foreign purchases of EU equities ($2.7bn), the highest on record since May 2017. See charts and thread here.
On the US data front, Q4 US GDP was released and came in at 2.9% qoq, saar both above trend growth and above expectations of 2.6%, but down from 3.2% in Q3. However, underlying details were soft: personal consumption expenditure ("PCE") came in at 2.1% qoq, saar - below expectations of 2.9%. In addition, inventories contributed +1.5pp to GDP growth. This inventory build-up will likely weigh on Q1 2023 GDP. Domestic final sales rose only 0.8% qoq, saar, losing momentum. (chart below).
Chart: US GDP and Two Key Components (Q/Q%, saar)
Turning to the Diamond Commodity:
DIAMINDX fell 0.4% on the week, coming in at USD 5,450. The US consumer outlook remains uncertain impacting, in turn, the outlooks across the value chain for diamond mining companies, manufactures, and jewelry retailers. All most all gem quality diamonds are used for jewelry and the US is the world's largest diamond jewelry consumer - over 50% of global demand.
Last week we looked at Q3 results (ended December 2022) for Richemont, the world's second largest luxury conglomerate. Results were solid, especially for its jewelry maisons - Buccellati, Cartier and Van Cleef & Arpels.
This week, we look at December US jewelry sales at specialty retailers. Analyst Edahn Golan and his firm Tenoris have a data set which tracks point of sales data for approximately 1,200 US specialty jewelry stores. Golan reports: "December 2022 jewelry sales activity softened against an exceptionally strong 2021...However, there were pockets of improved activity, especially in higher-priced items."
December 2022 jewelry sales declined 9.7% by units and 7.1% by value on a year-on-year basis. Golan notes: "Natural Diamond Jewelry under-performed the market in December. Unit sales were down 15.6% and value of sales down 10.4% (year-on-year). Declines were across all retail price ranges with the exception of items priced at $50,000 and higher." Similar to the Q3 Richemont results, December US jewelry and natural diamond sales show resiliency in the higher-end market segment.
For 2022, natural diamond sales started off strongly, performing well through April on a year-on-year basis with a strong 2021 base. However, natural diamond sales began to fall off in May 2022. This is somewhat consistent with the DIAMINDX, which peaked in March 2022 and declined each month thereafter. In 2022, jewelry sales declined 6.6% by units sold and rose 0.8% in sales value year-on-year. Golan notes that "the American market is slowly moving away from its record high expenditure on jewelry" that occurred in 2021. See his report on the topic here.
Looking ahead to February 14, the US Valentine's Day holiday, the National Retail Federation ("NRF") says that "Consumers are expected to spend $25.9 billion on Valentine’s Day this year, up from $23.9 billion in 2022 and one of the highest spending years on record." The top gifts include candy (57%), greeting cards (40%), flowers (37%), an evening out (32%), and jewelry (21%). NRF says "Americans plan to spend more than $5.5 billion on jewelry..." The NRF conducted this survey of 7,616 U.S. adult consumers Jan. 3 through Jan. 11.
On the mining news front, Al Cook will succeed Bruce Cleaver as CEO of De Beers Group, formally taking over the role on February 20. Bruce Cleaver will move into the role of Co-Chair on the same date.
DS Director Neshiva Chan took a look at Petra Diamonds' announcement that its historic Koffiefontein mine, operating for 140 years, has been scheduled for closure. Neshiva notes that "Petra had sought a potential sale for the noted mine as recently as last year, but decided to conclude operations and place it on care and maintenance. This shuttering and the temporary suspension of mining at Williamson, its Tanzania mine which had a breach to a tailings dam, lead Petra to cut production forecasts for 2023 and 2024. 2023 forecasts of 3.3 to 3.6 million carats have been revised down to 2.8 million, and 2024 forecasts were also reduced to 2.8 to 3.3 million versus the previous estimates of 3.3 to 3.6 million carats."
Gold was supported this week by in-line US inflation data and the prospect that the Fed will continue to slow its rate hiking pace to 25bps at its FOMC meeting next week (see week ahead section below). Gold broke topside USD 1,940. Since January 14, the yellow metal has been trading in a USD 1,912 - USD 1,949 range. It ended the week at USD 1,929.63 for a rise of 0.16%.
Silver ranged USD 22.77-24.30, falling 1.6% on the week to end at USD 23.53. Topside breaks of USD 24.00 continue to be met with resistance. The gold to silver ratio moved up to 81.95.
Chart: DXY Index, DIAMINDX, and Gold. A weakening USD (DXY Index lower) reflected lower US yields in anticipation of a slowing US economy and a slowing US consumer. This has weighed on DIAMINDX but boosted Gold, in part, due to its safe haven properties.
The USD (DXY Index) was steady on the week. After two downside breaks into new, lower trading ranges earlier in January, the DXY Index has been holding in a 102.50-101.50 range since January 18. The DXY ended the week mid-range at 102.02 at the time of writing.
Commodity currencies AUD, NZD, and CAD were the strongest performing this week vs. USD in the G10 supported by improving US equity sentiment and China economic re-opening. AUD led the way, rising approximately 2% vs. USD (chart below). CAD gained 0.5% vs USD. Important to note that the Bank of Canada delivered a 25bp rate hike to 4.50% this week and signaled that this would likely be the last hike of its current rate tightenting cycle. NZD rose 0.2% vs USD.
EURUSD traded above 1.0900 this week, but the topside break was not sustained and the single currency ended the week at 1.0862. Next week will be interesting for EURUSD - it could receive a boost if the ECB delivers a 50bp rate hike and the Fed delivers "only" a 25bp rate hike as expected by the market (see week ahead section below).
Chart: S&P 500 and AUDUSD - risk seeking in US equities boosts AUD.
Ahead next week - select events include:
Key indicators for the US labor market and wages plus central bank rate decisions by the Fed, ECB, and BoE.
Tuesday, Jan 31
Germany CPI (Jan); US Employment Cost Index Q4.
Wednesday, Feb 1:
US ADP employment; US ISM Manufacturing.
Ministers from OPEC+ meet virtually: It is a panel called the Joint Ministerial Monitoring Committee (JMMC) that will meet. According to Reuters, "Five OPEC+ sources told Reuters the JMMC would discuss the economic outlook and the scale of Chinese demand, and was unlikely to suggest tweaks to current policy."
FOMC rate decision and Fed Chair Powell press conference: The Fed is expected to slow its pace of rate hikes further to 25bp. Out of 79 analysts surveyed by Bloomberg, 11 expect 50bp rate hike, 66 analysts expect a 25bp rate hike and 2 expect no rate hike.
Thursday, Feb 2:__ __ Bank of England rate decision:__ 9 out 10 analysts surveyed by Bloomberg expect a 50bp rate hike, 1 expects a 25bp rate hike to 3.75%. A 50bp rate hike, should it occur, would likely bring the BoE close to its terminal rate for this hiking cycle.
ECB rate decision and Pres. Lagarde press conference: Of the 49 analysts surveyed by Bloomberg, 48 expect a 50bp rate hike. 1 expects a 25bp rate hike.
Friday, Feb 3:
__US January payrolls: __Bloomberg consensus expects a rise of +190k, slightly lower than December's +223k result.
US ISM Services.
The DS Week In Review note will be on hiatus next week as we attend the 2023 iConnections Global ALTS Conference in Miami. If you are attending as well - reach out to us. The note will resume the weekend of Feb 11-12.
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