Investors Overlook Record Trade Deficit and Focus On Chairman Powell Comments

Barry Adams
07 Feb, 2023
New York City

Stocks lacked direction and bounced around as investors digested recent comments from the Federal Reserve Chairman Jerome Powell. 

Chairman Powell acknowledged that inflation has started to cool but the disinflation process is in the early stage. 

Market indexes bounced around and fell at one point in negative territory as investors decide the future rate path and the appropriate levels of interest rates. 

“The disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of our economy," Chairman Powell said in a question and answer session at the Economic Club of Washington, D.C. 

"“But it has a long way to go. These are the very early stages,” Powell added. 

 

Record U.S. International Trade Deficit In 2022 

The U.S. trade deficit widened in December to $67.4 billion from the revised $61 billion in November, the Bureau of Economic Analysis reported Tuesday. 

In December, the goods deficit with China rose to $22.8 billion, the European Union  $18.6 billion, Mexico $12.0 billion, Vietnam $8.1 billion, Germany $8.0 billion and Japan $7.2 billion. 

For the full-year 2022, the trade deficit widened to record $948.1 billion or 3.7% of current dollar GDP from $845 billion in 2021 or 3.6% of GDP.  

The goods trade deficit widened 9.3% to $1,191.8 billion and the services surplus narrowed 0.6% to $243.7 billion. 

In 2022, exports of goods rose 17.7% to $2,085.6 billion and imports rose 16.3% to $3,277.3 billion, both driven by crude oil. 

The deficit with China expanded to $382.9 billion and the shortfall with Canada to $81.6 billion.

 

U.S. Indexes In Review 

The S&P 500 index increased 0.8% to 4,142.11 and the Nasdaq Composite index rose 1.2% to 12,033.13. 

Crude oil rose $2.55 to $76.74 a barrel and natural gas increased 6 cents to $2.65 a thermal unit. 

The yield on 2-year Treasury notes edged down to 4.45%, 10-year Treasury notes increased to 3.65% and 30-year Treasury bonds traded near 3.69%. 

 

German Industrial production Dropped 

Germany's industrial production declined at the fastest pace in nine months in December, the data released from Destatis or Federal Statistics Office showed. 

Industrial production fell 3.1% in December on the month, reversing the 0.4% increase in November. 

The 5.8% fall in intermediate goods output drove the overall production lower and consumer goods production increased 0.3% but capital goods production was unchanged.  

The decline in December was the largest since the 4.2% fall in March.  

 

Volatile European Markets Closed Lower  

European markets closed down in choppy trading after energy prices advanced and investors reacted to corporate earnings. 

The DAX index decreased 0.6% to 15,320.88, the CAC-40 index declined 4.75 points to 7,132.35 and the FTSE 100 index increased 0.4% to 7,864.71. 

The yield on 10-year German Bunds increased to 2.32%, French bonds rose to 2.77%, the UK Gilt to 3.3% and Italian bonds to 4.2%. 

The euro traded near $1.075, the British pound inched lower to $1.20 and the Swiss franc fetched 91.97 U.S. cents. 

Brent crude oil traded higher $2.83 to $83.84 a barrel and Dutch TTF natural gas spot price dropped 6.5% to Є54.50 per MWh. 

 

Europe Stock Movers 

BP Plc increased 3.3% to 494.0 pence after the energy explorer reported bumper profit reflecting higher crude oil, gasoline and natural gas prices. 

The energy company said group revenue increased 34.5% to $70.2 billion and net income soared more than four-fold to $11.1 billion from $2.6 billion and diluted EPS rose to $3.50 from 70 cents a year ago.

BP repurchased $3.2 billion of stock in the quarter including $2.5 billion repurchase announced in the previous quarter. 

 

SoftBank's Vision Fund Losses Expanded

SoftBank Group Corp declined 1.1% to ¥6,268.0 and the diversified tech investment company reported a loss of ¥783.4 billion largely on the account of losses in its start up fund. 

The Vision Fund segment reported a loss of ¥660 billion or about $5 billion after the fund marked down its investment in Didi Global and Grab Holdings and ByteDance. 

For the first nine-months in the fiscal year 2022, the loss expanded to 5 trillion yen from 441 billion yen in the previous year's period. 

 

Real Wages In Japan Edged Up 

Benchmark indexes in Tokyo closed unchanged and the yen rebounded from the recent lows.

Japan's real wages edged up 0.1% in December from a year ago, rising for the first time in nine months since March, a report released on Tuesday by the labor ministry showed.  

The Nikkei 225 index declined 8.18 points to 27,685.47 and the yen strengthened 1.5% to 130.73 against the U.S. dollar. 

 

China Reopening Enthusiasm Lifted Indexes 

Chinese stocks rebounded on the hopes that the reopening of the economy and social mobility will accelerate the increase in business activities. 

The Shanghai Composite index increased 0.3% to 3,248.09 and the Hang Seng index advanced 0.4% to 21,298.70. 

Stocks in Mumbai closed down driven by losses in metals stocks after Tata Steel reported a surprise loss in the December quarter. 

 

Losses In Metals Stocks In India Drove Indexes Lower  

The Sensex index declined 0.4% or 220.86 points to 60,286.04 and the Nifty index eased 0.24% or 43.10 points to 17,721.50. 

The rupee edged lower to 82.86 against the U.S. dollar. 

Adani Ports increased 1.9% after the company reported better-than-expected quarterly profit. 

Consolidated profit fell 16% in the December quarter.  

Tata Steel said revenue in the December quarter declined about 5% to ₹57,354 crore or $6 billion and swung to a net loss of ₹2,502 crore or $320 million from a profit of ₹9,598 crore or $1.2 billion.