Stock Markets

The holiday shortened trading week saw the S&P set a fresh record high on Monday as another round of unemployment benefits and stimulus checks were announced. The market has increasingly focused on the size and magnitude of the stimulus bill as well as the rising coronavirus case count and initial stages of the vaccine rollout. Even as the vaccine is rolled out, England has extended its toughest coronavirus restrictions to three quarters of the population. This week also saw the signing of a long-awaited Brexit deal between the U.K. and the E.U. On the economic front, the Bureau of Labor and Statistics released initial jobless claims that were sizably below consensus estimates and the prior period. Although positive, the levels are still firmly elevated from pre-pandemic levels and point to a job market that is still under stress. As we enter the new year, analysts expect GDP growth to slow in Q1, but eventually recovering. They also expect bouts of volatility in the equity market as investors balance rising case counts and continued vaccinations, however, they say that markets will be supported by historic monetary and fiscal support and has a positive long-term outlook.

US Economy

Stocks finished 2020 with a gain of more than 15%, a welcome figure but one that doesn’t begin to tell the story of the market’s path to get there. Nevertheless, this was fifth year in the past decade in which the S&P 500 posted a return of more than 15%, doing so in a year that contained a global pandemic, record-breaking recession and a contentious presidential election. This highlights;

1. the importance of staying calm when the markets seem to be panicking,

2. the value of a disciplined investment strategy and diversified portfolio, and

3. the forward-looking nature of the stock market.

Analysts anticipate tepid expansion in the early portion of the year, stunted by lingering measures to slow the spread of COVID-19. Growth should accelerate as the vaccine becomes widely available, allowing consumer, work, leisure and travel habits to return toward more sustainable levels. They widely agree that 2021 will begin a multi-year economic expansion, with widespread distribution of the vaccine sparking progress toward a new normal for the U.S. economy. Meanwhile, the one-two punch of monetary and fiscal policy stimulus will keep a tailwind at the economy’s back.

Metals and Mining

Gold and silver prices entered the final week of 2020 edging higher, with both metals receiving support from US President Donald Trump’s signing of a coronavirus relief bill.  Trump had initially refused to okay the bill, saying that the US$600 allocated for citizens needed to be topped up to US$2,000; although the bill wasn’t adjusted, he signed it into law on Sunday. Conversations have continued around increasing the payments to US$2,000, and prices for gold and silver have stayed elevated. Gold was trading just under US$1,900 per ounce at the end of the day on Thursday, while silver was at about US$26.40 per ounce. Both metals have had stellar performances in 2020, with gold adding about 21 percent to its value-year-to-date and silver seeing a price increase of around 45 percent over the course of the year. The precious metals did see drops in March, when global markets reacted swiftly and negatively to COVID-19 restrictions. Gold and silver sunk to US$1,498 and US$11.94, respectively, at that time. A strong rebound off investor sentiment pushed gold to a record high by August, and for its part silver rallied to a seven-year high.

Looking back on 2020, FocusEconomics economist Steven Burke explained that the precious metal’s price growth was closely tied to the global reaction to COVID-19. “The pandemic invoked unprecedented economic uncertainty, which led to a surge in safe-haven demand and, in turn, boosted gold prices,” Burke told the media. He anticipates that prices for the yellow metal will be rangebound into 2021. Aside from the health crisis, there are US fiscal measures like stimulus that will work as tailwinds for a higher gold price, he explained. “A (Joe) Biden administration is expected to bring about stronger public spending, which is projected to boost US domestic demand and economic growth — more than was anticipated under a Trump second term,” said Burke.

As for silver, the white metal was unable to break its previous 2011 price high of US$47.94 but was still able to outperform gold. The dual metal rose as much as 147 percent from its March low of US$11.94 to its August high of US$29.85. In fact, demand for silver exchange-traded products drove global holdings to more than a billion ounces for the first time. Physical silver investment climbed 27 percent in 2020 to a five year high as well.

Energy and Oil

Oil has seesawed back and forth over the past week, sandwiched between very strong bullish and bearish forces on each side. Covid-19 is at its worst in many parts of the world, but vaccinations are picking up in earnest as well. Brent edged back above $51 per barrel after the house passed a major stimulus bill on Monday evening. “Markets feel very rangy into the New Year but should find support today from broader risk markets as stocks are soaring on the prospects of larger stimulus checks,” said Stephen Innes, chief global market strategist at Axi. The terms of a new OPEC+ production pact could be revised if oil demand recovers next year faster than currently expected, Russian Deputy Prime Minister Alexander Novak, who is still in charge of coordinating Russia’s oil policy with OPEC, told Rossiya TV news channel in an interview on Monday. Rising JKM prices for LNG in Asia brighten the outlook for U.S. LNG exports. “We assume near-max utilization rates of US LNG export facilities next year,” Bank of America said. Meanwhile, oil and gas companies in North America and Europe wrote down around $145 billion in assets in the first three quarters of 2020, the most since 2010. Prices are rebounding, but the write-downs also reflect long-term concerns. “They are coming to grips with the fact that demand for the product will decline, and the write-downs are a harbinger of that,” KPMG’s Regina Mayor told the WSJ. Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $2.45 per million British thermal units (MMBtu) last week to $2.67/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the January 2021 contract increased 24¢, from $2.442/MMBtu last week to $2.677/MMBtu this week. The price of the 12-month strip averaging January 2021 through December 2021 futures contracts climbed 20¢/MMBtu to $2.780/MMBtu.

World Markets

Shares in Europe rose, lifted by the UK-European Union (EU) trade accord and the approval of a U.S. fiscal stimulus package. The UK’s FTSE 100 Index recorded modest losses, partly due to the stronger British pound, which reached USD 1.3675, its highest level in a year. UK stocks tend to fall when the pound rises because many companies that are part of the index are multinationals with overseas revenues. Most European markets closed early due to the New Year’s Day holiday.

Finland’s Central Bank Governor Olli Rehn said that the European Central Bank was monitoring the euro exchange rate very closely. The euro climbed to its highest level in 2020, to around USD 1.2300, partly due to underlying weakness in the greenback and the post-Brexit trade deal.

The UK government extended its strictest restrictions to additional areas, seeking to curb a surge in infections, hospitalizations, and deaths caused, in large part, by a new variant of the coronavirus. Three-quarters of the country is now in a de facto lockdown. After regulatory approval, the authorities began deploying a second vaccine, one produced by AstraZeneca and Oxford University, enabling the government to accelerate its inoculation program. EU countries began to distribute the Pfizer/BioNTech vaccine to those most at risk. The EU also exercised its option to buy another 100 million doses of the vaccine.

Chinese stocks finished a holiday-shortened week at multiyear highs as investors anticipated stronger growth in 2021. The country’s benchmark SSEC Index rallied Friday to its highest close since February 5, 2018, while the blue chip CSI300 Index recorded its highest close since June 15, 2015, according to Reuters. For the year, the SSEC Index advanced 14% and the CSI300 Index rallied 27%, buoyed by signs of an accelerating economy as China became the first major world economy to successfully contain the coronavirus.

In a week devoid of major economic releases, Ant Group stayed in the spotlight as the Chinese financial technology giant remained the target of a growing regulatory crackdown. The People’s Bank of China (PBOC) is considering plans to force Ant Group to shed equity investments in some financial companies, a move that would curb its influence over the sector, Bloomberg reported Thursday, citing unnamed individuals. Over the previous weekend, the PBOC summoned Ant executives and told them to “rectify” violations in the company’s lending, insurance, and wealth management businesses, though the central bank stopped short of calling for a widely feared breakup of the company.

The Week Ahead

The upcoming week will see the PMI composite, Unemployment Rate, and Factory Orders data being released.

Key Topics to Watch

• Markit manufacturing PMI
• Construction spending
• ISM manufacturing index
• Varies  Motor vehicle sales
• ADP employment report
• Markit services PMI
• Factory orders Nov.
• FOMC meeting minutes                                             
• Initial jobless claims (regular state program, SA)
• Initial jobless claims (federal & state, NSA)
• Continuing jobless claims (regular state program, SA)
• Continuing jobless claims (federal & state, NSA)
• Trade deficit
• ISM services index
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Wholesale inventories
• Consumer credit

Market Summary

Stock Markets

Equities closed the week lower, led by the real estate and financial sectors, as the recovery in employment growth appears to be stalling and as talks between Republicans and Democrats over another round of fiscal stimulus continue to drag on. A postponed stimulus package poses a headwind for stocks, as further economic restrictions from rising cases constrict growth. U.S. workers claiming unemployment insurance for the first-time exceeded consensus estimates. Positively, consumer sentiment posted a surprising increase in December amid prospects for a vaccine rollout. Concurrently, working from home and record-low mortgage rates have driven housing demand and created an additional $1 trillion in wealth for homeowners. Even as the economic momentum slows in the near term, analysts think the outlook for the economy is positive over the next year, though the road may be bumpy.

US Economy

Major indexes reached fresh record highs last week before pulling back to finish modestly lower, as stalled Washington stimulus talks and the likelihood for a no-deal Brexit soured the mood. The market appears to be largely focused on the prospects of a brighter outlook driven by vaccine rollouts, even as recent coronavirus trends continue to worsen and restrictions in activity are reimposed. To this point, the S&P 500 has hit 30 new all-times highs in 2020, 17 of them recorded after the late-February pandemic-induced bear market, and four of them recorded the last two weeks. Is this remarkable strength justified considering the recent loss of momentum in economic data, or has complacency settled in?

Analysts contend that the answer is yes to both, with different implications based on time horizons. The pendulum of investor sentiment has clearly swung from fear of losses, to fear of missing out, and this could trigger near-term disappointments. However, what matters more for long-term investors, they say, is the prospect of the economy entering a new multiyear expansionary cycle that extends the bull market into the future.

Metals and Mining

The gold price ticked higher early in the week, climbing above US$1,850 per ounce for the first time since late November. But as the US dollar strengthened and vaccines began to be administered and shipped, the yellow metal faced volatility. Edging to a weekly high of US$1,872 on Tuesday, the metal shed 2.5 percent over the next 24 hours, but remained above the US$1,800 level to trade for US$1,825.

Gold climbed on Wednesday as a US coronavirus relief package continued to be delayed. The situation is becoming increasingly tense as many initial emergency aid programs are set to expire on December 26. On Friday gold was valued at US$1,837.01. After a steady uptick throughout November, December has added increased volatility to the silver price. The white metal started the first full week of the month trading at US$23.93 per ounce. A mid-week uptick sent the metal to a five day high of US$24.72. Holding above US$23, silver is on track for one of its best performances in seven years. Much of the white metal’s growth in 2020 is the result of the exchange-traded products (ETPs) space. As of mid-November, the silver ETP sector had recorded yearly inflows of 326 million ounces. The massive amount of buying pushed global ETP holdings to more than 1 billion ounces for the first time ever. Silver was priced at US$23.91 on Friday. Platinum and palladium also faced brief price dips this session. Platinum was trading for US$1,017 per ounce on Monday after surging to a year-to-date high of US$1,068 on December 4. Palladium fell to US$2,152 per ounce mid-week, its lowest point since early November. A day later, a 5 percent uptick sent the price to a four-week high. On Friday, platinum was selling for US$1,008 and palladium was at US$2,217.50.

Copper continues to trade near its seven year high, climbing as high as US$7,712 per tonne. As economic hopes add headwinds for safe haven assets, the positive outlook is propelling the base metals. Zinc was also on the up this week, adding 2.9 percent from Monday to end at US$2,810 per tonne. Nickel prices surpassed their previous year-to-date high to sell for US$16,807 per tonne. Since January, the metal has added 19 percent to its value. According to the International Nickel Study Group, global nickel demand is projected to come in at 2.52 million tonnes in 2021, up from 2.32 million tonnes this year. Nickel was moving for US$16,807 on Friday. Lead prices briefly rallied past US$2,100 per tonne this week before settling back just below that threshold. Lead ended the week valued at US$2,083.

Energy and Oil

Brent hit $50 per barrel on Thursday for the first time since March, edging higher on optimism surrounding vaccinations, the OPEC+ deal, plus strong demand in Asia. However, prices eased a bit on Friday as demand in Europe and the U.S. remains subdued and Covid-19 cases continue to spread. The EIA also reported a surge in crude inventories for last week, up 15.2 million barrels. There are signs of a demand rebound in Europe. Many European countries went back into lockdown in November but are loosening restrictions again. Bloomberg says that road usage is on the rise, hitting a two-month high. Pemex suspends work with Vitol. Pemex suspended business with Vitol after the oil trader paid $160 million to settle bribery charges. Vitol settled charges for paying bribes in Brazil, Mexico and Ecuador. The U.S SEC is set to vote on disclosures. The Securities and Exchange Commission will vote on December 16 on whether or not to approve new disclosure rules for oil, gas and mining companies related to payments to foreign governments. It is the third iteration of the rule and stems from the 2010 Dodd-Frank law.

Natural gas spot prices fell at most locations this week. The Henry Hub spot price fell from $2.70 per million British thermal units (MMBtu) last week to $2.45/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the January 2021 contract decreased 34¢, from $2.780/MMBtu last week to $2.442/MMBtu this week. The price of the 12-month strip averaging January 2021 through December 2021 futures contracts declined 20¢/MMBtu to $2.576/MMBtu.

World Markets

European shares fell on concerns about the rising numbers of coronavirus cases in key economies and uncertainty surrounding a post-Brexit trade deal and U.S. stimulus measures. In local currency terms, the pan-European STOXX Europe 600 Index ended the week about 1.00% lower, while Germany’s DAX Index fell 1.39%, France’s CAC 40 declined 1.81%, and Italy’s FTSE MIB tumbled 2.15%. The UK’s FTSE 100 Index was flat.

Core eurozone bond yields fell amid growing concerns about the possibility of a no-deal Brexit and another injection of stimulus by the European Central Bank (ECB), although optimism related to coronavirus vaccines and expectations of further U.S. fiscal stimulus moderated the overall fall. Peripheral eurozone bond yields broadly followed core markets. UK gilt yields also declined on receding hopes of a post-Brexit deal and Bank of England Governor Andrew Bailey hinting that the central bank could implement negative interest rates.

China equities fell on renewed tensions with the U.S. after a second major index provider removed some Chinese companies from its benchmarks following a Trump administration executive order. The large-cap CSI 300 Index sank 3.5%, its biggest weekly drop since September, and the Shanghai Composite Index shed 2.8%. Sentiment weakened after S&P Dow Jones Indices (S&P DJI) said it would remove 21 Chinese companies from its global stock and bond benchmarks after the U.S. Defense Department earlier this year designated the companies as having ties to China’s military. The move by S&P DJI followed a similar decision by FTSE Russell the previous week and comes as other index providers, including JP Morgan, MSCI, and Nasdaq, are deliberating whether to do the same.

The Week Ahead

Next week promises to be busy as a flurry of economic data will be released, including Housing Starts, Retail Sales growth, the Fed Funds Target Upper Bound, and Markit PMI breakdowns.

Key Topics to Watch

• Import price index
• Empire state index
• Industrial production
• Capacity utilization
• Retail sales
• Retail sales
• Markit manufacturing PMI
• Markit services PMI
• Business inventories
• NAHB home builders’ index
• Federal Reserve announcement                                           
• Federal Reserve Chair Jerome Powell press conference                                          
• Initial jobless claims
• Initial jobless claims (federal & state, NSA)
• Continuing jobless claims (regular state program, SA)
• Continuing jobless claims (federal & state, NSA)
• Housing starts Nov.
• Building permits Nov.
• Philly Fed index
• Current account deficit
• Leading economic indicators

Market Summary

Stock Markets

The S&P 500 closed at a new record high and global equities posted a second week of gains following news of progress in developing a COVID-19 vaccine. Stocks surged on Monday after Pfizer and BioNTech announced that their vaccine had 90% effectiveness in their large study, triggering a wave of hope and optimism that a medical solution will address the health crisis and accelerate the economic recovery. Cyclical sectors that have been negatively impacted by the pandemic and are more sensitive to the reopening of the economy outperformed last week, while sectors that have benefited from the pandemic underperformed. A similar rotation occurred across asset classes, with small-cap and international stocks outpacing U.S. large-caps. The encouraging vaccine news is consistent with the view that the economic recovery will be sustainable heading into and through 2021, but near-term uncertainties could still trigger volatility. Mass production and widespread distribution of a vaccine will likely take months, and in the meantime the virus will continue to shape the direction of the economy, suggesting that balance and diversification across sectors and asset classes are warranted.

US Economy

In what surely qualifies as some of the more encouraging news of the year, the announcement that a Pfizer vaccine showed promising trial results powered markets higher last week. The coast isn’t clear, but the light at the end of the pandemic tunnel got a bit brighter. With U.S. equities up an impressive 10% in just the past two weeks, and with the spotlight likely to shine intensely not only on virus-case counts, but also on policy responses and the path of the recovery as we head into the holiday season things appear positive but guarded.

Gains were solid but not steady last week, with the S&P 500 rising 2.2% in see-saw fashion. Analysts think the improved prospects for a vaccine establish a bit of a safety net under the market, but they won’t prevent spells of weakness. The spike in new COVID-19 cases and hospitalizations will likely be the key instigator of market swings in the weeks ahead. The strong rally in U.S. stocks since midsummer has been driven by progress in reopening the economy. The surge in infections stunts that progress, with several areas, including Chicago and New York, imposing tighter restrictions to mitigate the spread. Analysts don’t think we’ll return to the lockdown measures of earlier this year, but the pace of the rebound in economic activity is likely to stall somewhat in the coming months. We suspect market sentiment will oscillate between vaccine optimism and near-term infection and reopening concerns.  

Metals and Mining

Gold prices were on track for their weakest performance since September, falling 5 percent Monday (November 9) as markets opened. News of a potential COVID-19 vaccine from Pfizer paired with US election results appearing to favor Biden pushed the currency metal lower. The positivity aided in a stock market rally as well as a rise in bond yields leading to a minor gold liquidation. The optimism waned mid-week as coronavirus cases in North America and Europe surged higher. The analyst also noted gold will face headwinds moving towards US$1,900 per ounce. Dipping as low as US$1,858 gold prices began to trend higher on Wednesday but remained well off the US$1,900 threshold. In the face of November’s price dip, the October gold ETF report logged an 11th consecutive month of net inflows. In its latest report, the World Gold Council notes gold ETF holdings rose by 20.3 tonnes in October. An ounce of gold was priced at US$1,889 on Friday. Silver prices mirrored gold’s performance, falling sharply to start the week. After edging to a 6-week high US$25.92 per ounce, values tumbled to US$23.77 midday Monday. Trading near US$24 for the remainder of the session prices climbed higher Friday, approaching the US$25 level. Silver was moving for US$24.66 on Friday. Prices for platinum also faced volatility dropping as low as US$846 per ounce. A brief rally late Monday held until late Tuesday when prices hit US$883. The uptick was quickly reversed when platinum fell back to US$854 Wednesday. By Friday morning prices had crept back to US$883. Unlike the other precious metals, palladium’s reaction to market positivity was delayed. Holding above US$2,300 per ounce off production challenges in South Africa early in the week, values slid to US$2,188 to end the day Wednesday. Palladium has not recovered those mid-session losses and was trading for US$2,196 on Friday.

The base metals space fared similarly, with a broad decline registering mid-week. Copper opened the period trading at a year-to-date high of US$7,034 per tonne. The value of the red metal has not breached the US$7,000 level since June 2018. By Wednesday the momentum was lost when prices slumped to US$6,68.50. Concern surging COVID-19 cases in various countries will lead to a new round of lockdowns has dampened economic recovery hopes. The uncertainty has also made forecasting difficult. Roskill estimates global GDP is likely to decline 3.9 percent this year. This will be followed by a 5.7 percent rebound in 2021. Copper was selling for US$6,904 a tonne Friday. Zinc prices hit an 18-month high of US$2,664.50 per tonne Monday driven by market optimism. Zinc’s upward trend has prompted Fastmarkets to forecast an upside target price of US$2,800 for the metal. By Friday zinc had pulled back to trade for US$2,593. Nickel opened the session at US$15,862 per tonne and was able to end the week slightly higher at US$15,874. Lead also made a strong showing mid-week reversing a small dip, to close the week at US$1,868.50 per tonne.

Energy and Oil

Oil prices surged early in the week on enormously optimistic vaccine news. But prices withered as the week wore on, as the short-term Covid-19 outlook continues to darken. The U.S. posted nearly 160,000 positive cases on Thursday, more than doubling the daily case-count in less than two weeks. Crude is still set to close out the week with price gains, but the short-run outlook is pessimistic. At the same time, new restrictions may hurt demand. The vaccine won’t be widely available for months at the earliest, and in the meantime, new partial stay-at-home orders have been announced in a growing number of places. Last week, Austria, France, Germany, the UK, and Portugal all began implementing a wide variety of restrictions that will no doubt compound the oil demand problem. The IEA downgraded its demand outlook by 1.2 mb/d for the fourth quarter in its latest Oil Market Report. “With a Covid-19 vaccine unlikely to ride to the rescue of the global oil market for some time, the combination of weaker demand and rising oil supply provide a difficult backdrop” to the OPEC+ meeting, the IEA said. “Unless the fundamentals change, the task of rebalancing the market will make slow progress.” On one positive note, the U.S. could add 23 GW of wind capacity this year, substantially more than the previous record set back in 2012 at 13.2 GW. One of the main drivers is the phasing down of the federal production tax credit.

Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $2.60 per million British thermal units (MMBtu) last week to $2.77/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the December 2020 contract decreased 1¢, from $3.046/MMBtu last week to $3.031/MMBtu this week. The price of the 12-month strip averaging December 2020 through November 2021 futures contracts declined 1¢/MMBtu to $2.991/MMBtu.

World Markets

Shares in Europe rallied with global markets on encouraging news regarding the development of a vaccine to combat the novel coronavirus, although surging coronavirus infections and lockdowns in key European economies capped the gains. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 5.13% higher. Major European indexes also posted strong gains: Germany’s DAX Index climbed 4.78%, France’s CAC 40 surged 7.45%, and Italy’s FTSE MIB added 6.21%. The UK’s FTSE 100 Index rose 6.88%.

Core eurozone bond yields climbed after Pfizer and BioNTech disclosed that their vaccine candidate had exhibited strong efficacy in Phase III trials. The movement in 10-year German bond prices was especially pronounced. Yields subsequently moderated on rising coronavirus cases, ongoing lockdown measures, and the European Central Bank’s (ECB’s) dovish comments. Peripheral eurozone bond yields largely tracked their peers in the core European economies.

Chinese stocks declined slightly for the week as unfavorable macro news outweighed generally positive corporate earnings. The Shanghai Composite Index shed 0.1%, while the large-cap CSI Index ended down 0.6%. In credit markets, the yield on China’s 10-year sovereign bond increased by six basis points to end at 3.28%, as solid monthly trade data underscored the strong post-pandemic recovery. Corporate bonds sold off following a default by state-owned Yongcheng Coal & Electricity, an event that proved disruptive to China’s money markets and led the country’s central bank to inject liquidity into the financial system. Foreign flows into China’s bond market slowed in October following an especially strong third quarter, which recorded inflows of USD 21 billion for each month. In currency trading, the renminbi stayed broadly unchanged and ended at 6.610 against the U.S. dollar.

The Week Ahead

Important economic data being released include retail sales and industrial production on Tuesday, building permits on Wednesday, and the leading index on Friday.

Key Topics to Watch

• Empire state index
• Retail sales
• Retail sales ex-autos
• Import price index
• Industrial production
• Capacity utilization
• Business inventories
• Home builders index
• Housing starts
• Building permits
• Initial jobless claims (state program, SA)
• Initial jobless claims (total, NSA)
• Continuing jobless claims (state program, SA)
• Continuing jobless claims (total, NSA)
• Philly Fed index
• Existing home sales
• Index of leading economic indicators

Market Summary

Stock Markets

U.S. stocks logged their best weekly gain since early April as investors reacted to the increased possibility of a divided government, including a potential Biden win and continued Republican control in the Senate. The final results of the U.S. election are still unknown as of Saturday. However, the market began to price in the scenario of a split government that potentially reduces the likelihood of immediate tax hikes and increased regulations, while not removing the potential for an agreement on some form of fiscal-aid package.

On the economic front, the jobs report showed that despite the lack of additional stimulus, election uncertainty, and rising virus cases, the labor market continued to heal, signaling that the economic recovery is still on track.

US Economy

Stocks rallied sharply, logging a 7.3% gain for the full week. Markets found some relief in the prospects of a divided government, with a Biden presidency and a Republican-controlled Senate reducing the likelihood of immediate tax hikes and increased regulations, while not removing the potential for an agreement on some form of fiscal-aid package. Analysts note that Washington’s composition is not yet set in stone given contested outcomes in certain states and Georgia’s two potential run-off elections for Senate seats. Analysts don’t think investors should let their guard down just yet when it comes to election-driven volatility, but we believe the week’s gains are consistent with our long-standing view that the economic recovery, along with monetary- and fiscal-policy tailwinds, will be behind the wheel as we advance, not simply the occupant of the Oval Office.

Metals and Mining

Gold edged toward US$1,960 per ounce on Friday as the US election tally dragged into its fourth day. In search of safe havens, investors kept the yellow metal well above US$1,900. A poor showing from the US dollar, which recorded its worst week since March, also aided gold’s ascent. The presidential uncertainty benefited the broader resource sector, with precious and base metals on track to end the week higher than they were on Monday. By Friday, gold had added an impressive 3.6 percent to its value since opening on Monday at US$1,889. The potential for a contested election added volatility to markets, with the Dow Jones Industrial Average slipping 158 points on Friday. It’s expected that monetary policy from the winning party will be a catalyst for gold’s further climb. Whether the yellow metal will enter record-setting territory again this year remains unknown, but Frank Holmes, CEO and chief investment officer at US Global Investors thinks US$2,000 is in sight in the short term. Longer term, he believes a price of US$4,000 is possible. On Friday, gold was valued at US$1,942.30. Silver also trended higher starting on Wednesday, but experienced some headwinds on Friday morning. Hitting US$25.93 per ounce before pulling back, the white metal added as much as 8 percent this week, its best performance since early August. Year-to-date, silver has increased 43 percent from its January start, and is positioned to continue to move higher off rising industrial and safe haven demand that favor the metal. Silver was holding in the US$25.34 range as Friday. Market volatility was also positive for platinum, pushing the catalyst metal above US$900 per ounce for the first time since September 18. Friday morning saw platinum reach US$908 before a reversal sent the metal back to the US$890 range. As platinum struggled to hold onto gains made since Monday’s US$849 start, palladium rocketed higher, adding the most to its value in the precious metals sector. Registering its best performance since March, palladium soared from US$2,077 per ounce on Monday to US$2,336, a 12 percent rise.

The base metals also trended higher throughout the week. Copper made a modest 1 percent climb in the first week of November. The red metal continues to trade near its year-to-date high of US$6,953 per tonne, which it reached on October 21. Copper’s gains this period have been attributed to a weakening US dollar index. As of Friday, copper was moving for US$6,798. Zinc prices soared to a year-to-date high this session, reaching US$2,593 per tonne. Since markets tumbled in March, zinc has added more than 46 percent to its value. On Friday morning, zinc was holding at US$2,593. After reaching its year-to-date high in late October, nickel has shed some of those gains, but remains in the US$15,000 per tonne range. A resurgence in industrial demand as supply chains strengthen has benefited the metal. Nickel was trading for US$15,450 to end the week. Despite rallying past US$1,800 per tonne this week, lead prices remain under pressure. The metal crept towards the US$2,000 per tonne range in mid-September.

Energy and Oil

It appears that Joe Biden will become the 46th resident of the United States barring the current legal challenges in play. Still, assuming Biden wins, he will take office with a divided government. He will have little wiggle room in Congress without Republican support, and he will also have his hands full with multiple crises – the pandemic, unemployment, climate change, and deep political division. Barring a sweep of two January Senate races in Georgia, presumed President-elect Joe Biden will struggle to push through major green stimulus as he had proposed unless he can somehow bring Sen. Mitch McConnell on board with concessions elsewhere. That leaves executive authority, something President Trump used heavily during his four years. A few possibilities jump out: rejoining the Paris Climate agreement, nixing Keystone XL and possibly the Dakota Access pipeline, slowing down drilling in Alaska and reinstating methane regulations on drilling. Plenty of other actions are possible, but may not be immediate, such as stricter fuel economy standards, reduced permitting for drillers on federal lands, greater environmental enforcement, etc. But big-spending items will require an act of Congress. Natural gas spot prices fell at most locations this week. The Henry Hub spot price fell from $3.06 per million British thermal units (MMBtu) last week to $2.60/MMBtu this week. At the New York Mercantile Exchange (Nymex), the November 2020 contract expired last week at $2.996/MMBtu. The December 2020 contract price decreased to $3.046/MMBtu, down 25¢/MMBtu from last week to this week. The price of the 12-month strip averaging December 2020 through November 2021 futures contracts declined 11¢/MMBtu to $3.001/MMBtu.

World Markets

Shares in Europe rallied in sympathy with U.S. equities while also receiving a lift from the generally strong quarterly earnings reported by European corporations and the additional stimulus measures announced in the UK. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 7.02% higher, while Germany’s DAX Index rallied 7.99%, France’s CAC 40 gained 7.98%, and Italy’s FTSE MIB climbed 9.69%. The UK’s FTSE 100 Index advanced 5.97%.

Core eurozone bond yields bounced around but ended the week roughly level. The German 10-year bund yield, for example, plummeted on Wednesday after early U.S. election results proved indecisive. This downward pressure eased as the odds of a Biden victory and a divided Congress appeared to increase. Yields on peripheral eurozone bonds fell overall. The growing likelihood of a Biden win drove demand for riskier assets, pushing the yield on Italy’s 10-year bonds to record lows on Friday. UK gilt yields largely tracked core eurozone yields.

Chinese stocks advanced as the prospect of a Biden presidency raised the outlook for improved U.S.-China relations. The benchmark Shanghai Composite Index ended up 2.2% and the large-cap CSI 300 Index rose 3.4%, according to Reuters data. The yield on China’s 10-year government bond increased to 3.22% as economic data showed the country’s recovery was on track. In currency trading, the renminbi rose 1.1% versus the dollar and closed at 6.621. Many policy analysts see scope for more cordial U.S.-China relations in trade, cross-border investment, and climate change. However, they caution that a major reengagement with China appears unlikely and that U.S. policy toward China regarding intellectual property rights, technology transfer, and national security may not change much under a Biden administration.

The Week Ahead

Important economic data being released this upcoming week include the Unemployment Rate, the Fed’s upper bound key interest rate, and various PMI series.

Key Topics to Watch

• NFIB small-business index
• Job openings
• Initial jobless claims
• Initial jobless claims (total, NSA)
• Continuing jobless claims (regular state program)
• Continuing jobless claims (total, NSA)
• Consumer price index
• Core CPI
• Federal budget
• Producer price index
• Consumer sentiment index               

Market Summary

Stock Markets

Last week marked the 11th time this year that the S&P 500 has closed more than 2% lower than where it started the week, compared with a yearly average of around six times since 2010. The sell-off was largely driven by news that daily coronavirus cases have hit new record highs, and by less certainty that we will see another round of fiscal stimulus this year. Notably, the technology sector, which has been a leader for much of this bear-market rally, was down 6.5%, making it one of the leaders in the decline this week. Some good news was the strong third-quarter GDP growth, a labor market that is continuing to recover, and consumer spending that is continuing to exceed expectations.

US Economy

With days left before the U.S. election, a trifecta of worries around the political outcome, the path of the virus, and the lack of progress on another fiscal package weighed on stocks. The S&P 500 fell almost 6%, its worst weekly decline since March 20, and volatility jumped 40% from prior weeks’ levels. Analysts say this spike in volatility does not signal a 180-degree change in the long-term outlook for stocks, but rather reflects some nervousness around uncertainties that are likely to result in a slower, bumpier path ahead. However, they don’t think this uneasiness will derail the recovery.

Metals and Mining

Gold battled headwinds this week, falling below US$1,880 per ounce for the first time in four weeks. The US dollar rallied briefly but was reversing course by Friday. Uncertainty around the approaching US election paired with a rise in global COVID-19 cases weighed on investor sentiment, aiding in a late-week ascent for the yellow metal. The broader precious and base metals sectors also faced declines in the last week of the month, with palladium and nickel experiencing the largest decreases at 9 percent and 2.6 percent, respectively. Gold started the week holding just above US$1,900, edging as high as US$1,909 on Tuesday. But by Wednesday, a stronger US dollar index had added pressure, sending the price plummeting to US$1,872. And that wasn’t the end to the currency metal’s woes — the greenback’s move then forced gold even lower, to US$1,863. Despite the recent dip, most analysts expect gold to regain steam. Gerardo Del Real of Digest Publishing sees the drop-in value as a realignment and opening. Gold was priced at US$1,879 on Friday. The silver price shed as much as 7.3 percent this week, dropping as low as US$23.02 per ounce for the first time since September 21. Volatility across equity markets added pressure to the dual metal, which was weighed down by both its currency and industrial correlations. The white metal stands to benefit from infrastructure, stimulus and energy projects post-election, although it is likely to face headwinds until after the November 3 vote. Silver was trading for US$23.40 an ounce on Friday. Platinum also fell lower this week, losing 3.9 percent after edging to US$879 per ounce. Sluggish Q3 automotive sales and lingering supply chain challenges have depressed platinum prices, as well as prices for its metal sister palladium. Although Q3 auto sales rose 38 percent from the previous quarter, they are still down 10 percent year-over-year. Palladium was the precious metal facing the largest declines this period, dropping 9 percent. It sunk from US$2,264 on Tuesday to US$2,057 by early Friday. Platinum was valued at US$840 and palladium was selling for US$2,091 on Friday.

After reaching a year-to-date high of US$6,953 on October 21, copper has pulled back by 3.7 percent. Although the dip has lowered prices, the copper outlook remains optimistic. A recovery in China, which makes up the bulk of copper demand, looming supply shortages stemming from lockdowns in Peru and Chile and a weak US dollar are all potential catalysts for copper prices down the road. Copper was moving for US$6,692 per tonne on Friday morning. Zinc also experienced volatility for the last trading week of October. Like copper, zinc reached a year-to-date high of US$2,565 per tonne late in the month, then fell back. Prices remain above US$2,500, but according to analysts at the International Lead and Zinc Study Group (ILZSG), volatility could be ahead for both zinc and lead. 2020 is anticipated to bring a 5.3 percent fall in zinc demand, and a 6.5 percent decline for lead. Some of that is expected to be offset by output drops from top-producing nations Bolivia, Peru and Mexico. Zinc mine production is forecast to be down 4.4 percent, with a 4.7 percent decrease for lead. However, these two metals have also experienced severe supply disruptions as well. Zinc was priced at US$2,503 on Friday, while lead was trading for US$1,801 per tonne. Nickel spent the early part of the week edging higher to sit at US$15,819 per tonne on Wednesday. A day later, a dramatic drop sent prices to US$15,393, a 2.6 percent decline. The reversal is linked to a market correction after the metal marked its year-to-date high of US$16,064 on October 21. Nickel’s October rally has been attributed to a recovery in the stainless-steel market, and that could help keep prices above US$15,000 into next year. On Friday morning, nickel was valued at US$15,393.

Energy and Oil

Oil prices plunged this week after spending months trapped in a narrow range around $40 per barrel. Renewed national lockdowns in France and Germany rattled financial markets, while the U.S. case count for covid-19 remained at record levels and may continue to rise. “As lockdowns begin to bite on demand concerns across Europe, the near-term outlook for crude starts to deteriorate,” said Stephen Innes, chief global market strategist at Axi. In early trading on Friday, WTI fell to $35 per barrel and Brent was at $37. It seems that OPEC members are reluctant to extend cuts. Three of the biggest OPEC producers behind Saudi Arabia may not be on board with extending the current cuts into next year. Iraq, the United Arab Emirates (UAE), and Kuwait are reportedly not particularly inclined to support a rollover of the cuts of 7.7 million barrels per day (bpd), because such cuts are too deep for their economies and budget incomes to sustain.

Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $2.86 per million British thermal units (MMBtu) last week to $3.06/MMBtu tis week.  At the New York Mercantile Exchange (Nymex), the November 2020 contract expired at $2.996/MMBtu, down 3¢/MMBtu from last week. The December 2020 contract price decreased to $3.291/MMBtu, down 6¢/MMBtu from last week to this week. The price of the 12-month strip averaging December 2020 through November 2021 futures contracts declined 3¢/MMBtu to $3.108/MMBtu.

World Markets

Shares in Europe tumbled the most since their March swoon, as investors worried that lockdowns aiming to control the coronavirus’ spread could push the eurozone economy into a double-dip recession. Political uncertainty in the U.S. also weighed on sentiment. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 5.56% lower, while Germany’s DAX Index dropped 8.61%, France’s CAC 40 lost 6.42%, and Italy’s FTSE MIB slid 6.96%. The UK’s FTSE 100 Index declined 4.83%.

Core eurozone bond yields fell on the week. The yield on Germany’s 10-year sovereign bonds declined, as the country and France reintroduced national lockdown restrictions to combat rising coronavirus cases. Dovish messaging from the European Central Bank (ECB) after its policy meeting on Thursday also helped to support prices and compress yields on core eurozone bonds. Peripheral bond yields fluctuated. Yields in Spain and Italy drifted higher early in the week, as investors shied away from risk; however, yields on these bonds moved lower after the ECB reiterated its commitment to easier monetary policy. UK gilt yields followed their developed market counterparts lower.

Chinese stocks fell in sympathy with the downturn on Wall Street, with the benchmark Shanghai Composite Index declining 1.6% and the large-cap CSI Index shedding 0.5%. The yield on the 10-year sovereign bond ended flat at 3.20%, and the dollar-renminbi currency exchange rate stayed broadly stable. In currency news, the People’s Bank of China (PBOC) asked domestic banks to suspend the use of a so-called countercyclical factor (CCF) in fixing the renminbi’s daily midpoint against the U.S. dollar, Reuters reported. The CCF—which is an adjustment made by contributing banks to influence the value of the yuan—was introduced in 2017 as a tool to dampen excessive currency volatility. The PBOC’s move to neutralize the CCF was interpreted as allowing the renminbi, which is tightly managed by the central bank, to become more market-driven.

The Week Ahead

Important economic data being released this upcoming week include the Unemployment Rate, the Fed’s upper bound key interest rate, and various PMI series.

Key Topics to Watch                          

• Markit manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Election Day                                       
• Factory orders Sept.
• Motor vehicle sales (SAAR)
• ADP employment report
• Trade deficit
• Markit services PMI (final)
• ISM services index
• Initial jobless claims (regular state program, SA)
• Initial jobless claims (federal & state, NSA)
• Continuing jobless claims (regular state program, SA)
• Continuing jobless claims (federal & state, NSA)
• Productivity
• Unit labor costs
• Federal Reserve meeting announcement                                         
• Fed Chair Jerome Powell news conference                                      
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Wholesale inventories
• Consumer credit

Market Summary