Global stocks had their best week since November. As recession concerns fade, we see volatility easing. The S&P 500 index ended the week up 3.9%, breaking a four-week losing streak, and rose 0.2% on Friday, its strongest performance since November.
Japanese stocks rose 3% yesterday, posting a 7.9% weekly gain, while the Stoxx Europe 600 rose 2.4% on a weekly basis. The MSCI World Index of developed-market stocks also had its best week since early November. The global recovery this week has been driven by data showing that the U.S. economy is in better shape than expected. Inflation figures released on Wednesday showed that the annual increase in the consumer price index fell below 3% for the first time since March 2021. On Thursday, strong U.S. retail sales and lower-than-expected new jobless claims boosted investor confidence. Wall Street’s Vix volatility index, known as the ‘fear signal’, has fallen below 15 after reaching a four-year peak of 65 during a sell-off in early August. As risk appetite increased, yields on US 2-year bonds closed yesterday at 4.05%, rising 0.39 points from their recent low on August 5.
Headline inflation in the US fell below 3% for the first time since 2021. The CPI’s annual decline to 2.9% strengthens the Fed’s hand to cut interest rates at its next meeting in September. Core inflation, which excludes food and energy prices, fell from 3.3% to 3.2%. David Kelly, Global Strategist at Jpmorgan Asset Management, said the data was ‘encouraging’ and would give the Fed ‘more confidence’ that it is moving towards its 2% target.
The Fed is looking at a lot of data to show that inflation is indeed slowing before starting to cut interest rates. The slowdown in employment in early August raised concerns that the central bank was taking too long to cut interest rates and sent U.S. financial markets into turmoil. Ahead of the data, investors were divided into two camps over whether the central bank would cut interest rates by a quarter point or half a point at its next meeting.
Meanwhile, we have the retail data from the U.S. According to data from the U.S. Department of Commerce, retail sales increased by 1 percent in July, the most since January 2023. This increase, which came after a 0.2 percent decrease in June, points to a strong recovery in consumer spending. Auto dealers, electronics and appliance stores, and grocery stores in particular saw strong sales increases. When adjusted for inflation, sales increased by about 0.8 percent.
One of the most important agenda items of the week was the Mpox virus. The World Health Organization declared a global emergency due to the monkeypox virus (Mpox), which has become common in Africa and has been particularly severe in the Republic of Congo. WHO called on countries to be careful in this regard, recommending that public health measures be increased and awareness-raising activities regarding the virus be accelerated.
World Health Organization Director-General Tedros Adhanom Ghebreyesus stated that cases of monkeypox virus have been reported in the Democratic Republic of Congo for more than 10 years and emphasized that there has been a steady increase in the number of cases reported each year. Ghebreyesus said, "The number of cases reported last year increased significantly. The number of cases reported so far this year is more than 14,000. There have been 524 deaths related to the disease, which has already exceeded last year's total."
Although the monkeypox virus takes its name from monkeys, it first originated in rodents. The virus was first detected in 1958 in monkey colonies kept for research purposes, as a result of two different outbreaks with symptoms similar to smallpox, and for this reason it was called "monkeypox". The first infection with monkeypox virus in humans was recorded in 1970. From that date until today, the virus continues to be seen regularly in the form of sporadic cases on the African continent.
Monkeypox, which is especially common in West and Central Africa, where tropical rainforests are located, is generally limited to this region. However, it can spread to different parts of the world through animals exported from the region, although rarely. The first symptoms can appear within 5 to 21 days after contracting the virus. These symptoms usually include high fever, headache, back and muscle pain, swollen lymph nodes, fatigue, chills, shivering and chickenpox-like blisters on the skin. It can be transmitted through direct contact with body rashes, use of clothing, sheets and towels contaminated with these rashes and contact with body fluids. This disease, which does not have a specific treatment method, is treated with antiviral drugs. Most cases have a mild illness and recover within a few weeks.
Oil cannot find its direction. Both the Iran-Israel tension and the Russia-Ukraine war increase geopolitical tensions and put pressure on oil supply. Brent crude, the most important global reference for oil prices, increased by 7 percent in the first 13 days of August. However, the IEA's optimistic report on oil supply subsequently led to consolidation in prices. Brent crude oil fell back by 1.5 percent following the report, falling back to $81.
While the IEA expects a surplus in oil for 2025, it expects demand to decrease as the seasonality effect experienced in gasoline, especially during the holiday season in the US, ends. Since the beginning of the year, oil prices have fluctuated between signs of weakening in global demand and geopolitical tension, moving in a narrow band. According to the IEA report, demand in the US is still very strong and consumption is in the growth zone. There was an increase of 870 thousand barrels per day in global demand in the second quarter. This demand is at these levels despite the slowdown in China. However, despite the buoyancy in the US, demand is expected to increase by less than 1 million barrels per day in 2024 and 2025.
Considering the 2.1 million barrels per day growth last year, the IEA expects demand to increase much more slowly. This slowdown is due to the lackluster macroeconomic outlook. In June, Chinese oil demand contracted for the third consecutive month, driven by a decline in industrial inputs, including the petrochemical sector. Leading data show that this weakness continued in July, with crude oil imports falling to their lowest level since the strict lockdowns in September 2022. In contrast, gasoline demand in developed economies, especially the US, has shown signs of strengthening in recent months.
The US is a very important market for gasoline. One-third of the gasoline produced in the world is consumed in the US. However, the IEA expects production increases from non-OPEC+ countries, especially the US, Canada, Brazil and Guyana, to meet demand growth in 2025. Despite the significant slowdown in Chinese oil demand growth, OPEC+ members have not yet finalized their decision on whether to cut production for the last quarter. However, even if a decision is made to cut, the expected additional demand of 860 thousand barrels per day next year is expected to be met by these four countries, which can produce 1.1 million barrels per day.
Let's also look at the natural gas side. The Russia-Ukraine war, which has been going on for 2 years, had become an issue that markets accepted as long as there was no threat to the commodity and supply chain.
However, the war is changing dimensions and we have been receiving news from the region that we are not used to. Ukraine, which has been the defender since the beginning of the war, has attacked Russian territory for the first time. While Ukrainian troops are trying to seize more Russian territory in the Kursk region, they claim to control approximately 1,150 square kilometers there.
First, Ukraine took control of Suca, which is important for the flow of natural gas, and then turned to Kursk, one of Russia's important cities. So far, Russia has had difficulty stopping Ukraine's advance. It is reported that more than 120 thousand people have been evacuated from Kursk. Strategists believe that Ukraine, which has lost territory and soldiers in Eastern Ukraine, is carrying out this operation in order to gain morale. Taking the war to Russian territory could also mean that Ukraine's position at the table will be strengthened in possible negotiations. Uncertainty is increasing on the energy side of commodities. We see the reflections of these uncertainties in natural gas contracts. After Suca was seized by Ukraine, natural gas contracts rose above 39 Euros, reaching their highest level in the last 8 months. Suca is an important region in terms of natural gas supply and is the only entry point for Russian gas into Ukraine. Natural gas entering the Ukrainian system is sent to the European Union. Approximately 42 million cubic meters of natural gas flow from Suca every day.
Globally, recession concerns that began to be discussed with US employment data are causing pressure on base metal prices. Iron ore futures fell due to increasing supply pressure. A decline in steel demand is expected as weak construction activities in China reduce domestic consumption. The January ore contract on the Dalian Commodity Exchange (DCE) reached 725.5 yuan/ton, the lowest level since August 15, 2023. September iron ore on the Singapore Exchange fell to $98.45/ton early in the session, the lowest level since July 31.
According to MysteelGlobal data, about 95% of Chinese steelmakers are operating at a loss. There are also declines in coking coal, another important commodity for steel production. Steel indices on the Shanghai Futures Exchange also reported losses due to weak demand. Rebar fell 1.83%, hot-rolled coil fell 2.06%, wire rod fell 1.83% and stainless steel fell 1.26%.
In copper prices, macroeconomic weakness outweighs signs of improving demand. Three-month copper on the London Metal Exchange (LME) fell 0.3% to $8,838/ton, while September copper on the Shanghai Futures Exchange traded flat at 71,410 yuan/ton ($9,944.30). Copper prices fell early last week as fears of a slowdown in the U.S. economy triggered a sharp sell-off in financial markets, but have since risen again along with riskier assets following moderate employment data. Copper inventories in China are on the rise, which is weighing on prices along with concerns about a recession.
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