The Precious Metals Week in Review – April 7th, 2023

1. It was a shortened trading week due to the timing of the Easter holiday this year as most markets were closed for Good Friday. Next week will also be a relatively short trading week, as some markets will be closed on the Monday following Easter.

2. In the U.S. this week, former President Donald Trump was indicted on 34 felony charges of falsifying business records in New York, stemming from alleged “hush money” payments to Stormy Daniels. Trump was arrested, surrendered himself to authorities at the courthouse in Manhattan on Tuesday, and charged with a crime before Judge Juan Merchan upon which he was released and returned to Mar-a-Logo. Trump pleaded not guilty to all counts and his legal team supposedly has plans to file a motion to dismiss the case due to “prosecutorial misconduct, and selective prosecution.”

3. In Switzerland, regulatory body FINMA said that allowing troubled lender Credit Suisse to tip into bankruptcy would have crippled Switzerland’s economy and financial centers, likely leading to deposit runs at other banks. FINMA and the Swiss central bank brokered a deal announced on March 19 allowing UBS to take over Credit Suisse for 3 billion Swiss francs ($3.3 billion). As part of the deal, the regulator instructed Credit Suisse to write down 16 billion Swiss francs worth of AT1 bonds to zero. FINMA CEO Urban Angehrn said “The current fragile state of the financial markets due to the shift to monetary tightening in 2022, the uncertain economic outlook, the crisis at certain banks in the US and the whole geopolitical backdrop were also relevant to our decision. There was a high probability that the resolution of a global systemically important bank would have led to contagion effects and jeopardized financial stability in Switzerland and globally.”

4. Elsewhere in Europe, Finland officially became a member of the NATO military alliance, effectively doubling NATO’s border with Russia once their membership is fully completed. Finland has remained relatively neutral for decades but requested to join the alliance after Russia’s decision to invade Ukraine last year. Turkey, which has stalled for months as they demanded certain concessions from Finland, and its neighbor Sweden, who applied to join NATO at roughly the same time, finally unanimously voted to formally approve Finland’s membership on Thursday. Unanimous approval is required from all member states for entrance into the alliance. Both Turkey and Hungary remain the holdouts for Sweden’s membership hopes.

5. Citi announced this week that it now expects China’s Hang Seng Index to reach 24,000 by the end of September instead of its previously forecast expectations for June as China continues to face challenges to its recovery. In a report released by analysts on Thursday, the group said, “We expect [first-quarter 2023 corporate] results to be on the weaker side as post-COVID recovery seems slower than expected.” The report focused its analysis on the 2022 results of 316 Chinese companies, and it found more misses than beats in the data. It also appears that earnings from e-commerce giants JD.com and Alibaba also continue to reflect that consumers remain conservative with their spending habits. Exports also continue to fall for China as slower growth in the U.S. and Europe have tempered demand for Chinese goods.

6. House Speaker Kevin McCarthy and a bipartisan congressional delegation met with Taiwanese President Tsai Ing-wen in Simi Valley, California this week. Tsai also held meetings with other small groups of U.S. lawmakers last week. McCarthy called Tsai “a great friend to America” and said that they would “find ways for the people of America and Taiwan to work together to promote economic freedom, democracy, peace and stability in Asia.” The activities have infuriated the leadership of the Chinese Communist Party and prompted veiled threats from Beijing to those members of Congress who attended the event, saying it planned to take “resolute actions” to respond to the “provocation.” In Los Angeles, the Chinese Consulate warned McCarthy on Monday not to “repeat disastrous past mistakes and further damage Sino-U.S. relations,” apparently in reference to a visit by then-House Speaker Nancy Pelosi to Taiwan last August.

7. On Thursday, the U.S. Bureau of Labor Statistics issued an announcement that beginning with the April 6, 2023, release of Unemployment Insurance Weekly Claims, the Seasonal Adjustment Factors were being revised and that they would be moving back to a “multiplicative” adjustment. During the pandemic, the BLS switched to an “Additive” factor for calculating seasonal adjustments due to the wide unemployment swings as businesses were forced to shut down. According to the BLS, the multiplicative model is a more accurate method during “normal times” and they are moving back to that model. During the week ending April 1, the advance figure for seasonally adjusted initial claims for unemployment was 228,000, a decrease of 18,000 from the previous week’s revised level. The previous week’s level was revised higher by 48,000 from 198,000 to 246,000. The 4-week moving average of claims was 237,750, a decrease of 4,250 from the previous week’s revised average. The previous week’s average was revised higher by 43,750 from 198,250 to 242,000.

8. Despite the holiday on Good Friday, the U.S. Department of Labor followed its usual schedule for releasing the monthly Non-Farm Payrolls Report. Non-Farm Payrolls grew by 236,000 for March, which was relatively close to the Dow Jones estimate for an increase of 238,000, though it was significantly lower than the upward revision of 326,000 for February’s data. The unemployment rate dipped lower, falling to 3.5% from 3.6% as labor force participation managed to increase, climbing to its highest level since before the Covid pandemic ravaged the global economy. The monthly total is the lowest monthly gain in Non-Farm payrolls since December 2020 and seems to indicate that the Federal Reserve’s efforts to slow labor demand in order to bring inflation back under control may finally be having some effect.

9. Oil indexes managed to post a third weekly gain for the sector as OPEC+ shocked markets by pledging to make production cuts that will be more than expected. Declining U.S. oil inventories also added upward pressure to the complex. Brent crude futures settled down 13 cents to settle at $84.86 a barrel on Thursday while West Texas Intermediate closed 14 cents lower to settle at $80.47 a barrel. There will be no trading on Good Friday, which means both benchmarks settled over 6% higher for the week.

10. EUR/USD moved through the 1.0900 mark this week, peaking at 1.0967 on April 4 before drifting lower again. The euro saw a continued decline through the rest of the week, dipping to 1.0910 into Friday, where it will likely hold fairly steady throughout the holiday period when markets remain closed.

11. USD/JPY drifted lower this week, dropping to 130.79 by mid-week before beginning to drift higher again. The index had moved back near the 132 range by the end of the week and will also likely hold relatively steady through the holiday period, given the lack of any surprises showing up in the U.S. Non-Farm Payrolls data.

The shortened trading week this week due to Good Friday and a partially shortened week next week, as much of Europe will remain closed for Easter Monday, could lead to some unexpected market moves on Tuesday. The U.S. released its Monthly Non-Farm Payrolls Report (NFP) as regularly scheduled on Friday while markets were closed, and Monday’s extended closure in Europe means that market reactions to the data will be staggered, at best. The NFP did not have unexpected changes, but when combined with the changes to the seasonal adjustment factors to the weekly U.S. unemployment report, it seemed to show that the Federal Reserve’s hopes for a slow-down in labor demand to help tame inflation may be coming to fruition. The downside of that is that indications also are building that the Fed’s moves may be engineering the very recession they were hoping to avoid. Service sector activity is slowing, consumer spending is softening, and layoffs are rising quickly in more sectors than just technology and media. In fact, announced layoffs appear to be running at 396% above levels just one year ago, according to recent data.

JPMorgan Chase CEO Jamie Dimon, in his annual letter, noted that the latest financial shock in the banking sector remains underway. Dimon said, “As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.” Dimon also noted, however, “But importantly, recent events are nothing like what occurred during the 2008 global financial crisis.” Dimon went on to note that “The recent failures of Silicon Valley Bank (SVB) in the United States and Credit Suisse in Europe, and the related stress in the banking system, underscore that simply satisfying regulatory requirements is not sufficient. Risks are abundant, and managing those risks requires constant and vigilant scrutiny as the world evolves.” Dimon called for more forward-looking regulation rather than knee-jerk reactions to the current crisis.

Economic, geopolitical, and environmental uncertainty remains at the forefront of concerns for the near term. Finland’s acceptance into NATO is sure to infuriate Russia further, especially if Sweden can garner support from Turkey and Hungary, the remaining hurdles to their own acceptance. Finland’s acceptance adds 832 miles to NATO’s border with Russia, effectively doubling the previous border. Global weather events continue to wreak economic devastation to communities in the U.S. and around the world. As these uncertainties continue to escalate, savvy investors remain steadfast in their search for alternative investments for their portfolios to aid in diversifying them away from overexposure to any single asset class. Many of these investors continue to look to physical precious metals as part of that diversification plan, seeking out buying opportunities in the form of temporary price dips that allow them to add more physical precious metals products into their portfolios. Remember that one of the keys to profitability through the ownership of physical precious metals is to acquire the physical product and hold on to it for the long term without overextending your ability to maintain its ownership.

Trading Department – Precious Metals International, Ltd.

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