Stock Markets

The S&P 500 advanced for the fourth straight week, with technology stocks leading the index to a new record high. Economic data and corporate profits released last week showed that the recovery is progressing, yet it remains uneven. Existing-home sales rose by the most on record in July, boosted by low mortgage rates and low inventory. A few big-box retailers that reported second-quarter results saw profits surge during the pandemic. While these are clear pockets of strength supporting the economy and the market, unemployment remains elevated, highlighting the need for another fiscal package. Analysts contend that an appropriate balance and diversification can help prepare portfolios for any uptick in market volatility while also positioning them for the longer-term recovery.

US Economy

This week the S&P 500 edged passed its pre-pandemic record high reached in February. It was a milestone that marks the roundtrip rally from lows to highs as the fastest bear-market plunge and the second-fastest bear-market recovery in U.S. history. In contrast, the economy has not had a chance to recover as swiftly from the plunge in economic activity in the second quarter as a result of the pandemic and the national and global lockdown measures to contain it. The good news is that after the greatest decline in economic activity since the Great Depression in the second quarter the economy has shown signs of recovery. The bad news is that with COVID-19 cases still at elevated levels, the momentum of that rebound has softened in August.

Metals and Mining

Gold was holding around US$1,930 per ounce on Friday, set to record a second week of declines since breaching the crucial US$2,000 mark. A strong US dollar is pulling the yellow metal back as economic recovery concerns provide tailwinds. The other precious metals also faced pressure this session, but the base metals performed confidently amid positive manufacturing and consumer data. Starting the week at US$1,957, the gold price climbed above US$2,010 on Wednesday. The gain was short-lived, however, as it fell later that day to US$1,927.90. Despite the volatility this session, gold is still on track for a record-setting year. The yellow metal is up 24 percent year-to-date, and gold exchange-traded funds have also registered solid gains in 2020. July marked the eighth straight month of positive inflows — 166 tonnes were added over the month, pushing global holdings to 3,758 tonnes. Although gold is especially attractive in times of uncertainty, the yellow metal has always been the premier long-term investment. Silver’s push towards US$30 per ounce continued this week, with the metal touching US$28.27 on Tuesday. Headwinds mid-session prevented silver from holding its ground, pushing it back below US$27 by the end of the week. Like gold, silver has been on the decline for the last two weeks but is still maintaining broader gains made since January. Year-to-date, the dual metal has added 47 percent to its value. Platinum posted the steepest decline in the precious metals space this week, falling 5 percent since Monday. Decreased jewelry sales resulting from COVID-19, paired with weakened automotive demand, are the primary catalyst behind the decline. The metal’s price has returned to its pre-pandemic range but is still off its year-to-date high of US$1,022 per ounce, set on January 17. After a challenging June and July, the palladium price is holding above US$2,000 an ounce. Since falling to US$1,522 in March, palladium has been unable to maintain the US$2,200 level, although a brief surge at the end of July pushed the automotive metal to US$2,242. Since then, persistent supply chain disruptions and depressed vehicle demand have pulled the metal back to the US$2,000 range.

The copper price spiked early in the week, climbing from US$6,342.50 per tonne to US$6,667. The red metal was unable to maintain the new year-to-date high, pulling back a day later. Zinc made a minor gain this week, edging up from its Monday value of US$2,403 per tonne. Well above its mid-March level of US$1,773, zinc set a year-to-date high this session at US2,466.50. Despite the move, analysts have pointed out that US$2,500 is the resistance level for the metal, and it is currently trading below that. Zinc was selling for US$2,466.50 early on Friday. Nickel also registered a year-to-date high this week, topping US$14,700 per tonne. Unable to maintain the high, its price settled back to US$14,666 on Thursday, and it remained there on Friday. The lead sector also posted an uptick. By mid-week, lead was up 1.94 percent from Monday to US$1,994 per tonne. The move brought the metal closer to its price high for the year, US$2,026 in January. Some of those gains were shed later, and by Thursday lead was back to the US$1,964 range and holding.

Energy and Oil

Oil retreated at the end of the week on more negative news from the U.S. labor market. Oil prices fell back to a familiar trading range in the low-$40s. “With all the bullish headlines that we’ve seen over the last weeks regarding inventories,” the inability to break higher does not bode well, Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC, told the media. “Crude fails to break to the upside and you’re in a contango market, so risk is to the downside.” U.S. oil inventories declined again last week, the fifth time in six weeks. But the process will take a while. OPEC warned that the drawdowns are “slower than anticipated with growing risks of a prolonged wave of COVID-19.” The slow pace underscores the “fragility of the market.” The group of OPEC+ producers that may need to compensate for past overproduction could cut by as much as 2.31 mb/d for one month, according to OPEC+ calculations seen by Reuters. If spread over more than one month, the figure would be smaller.  Natural gas spot price movements were mixed this week. The Henry Hub spot price rose from $2.06 per million British thermal units (MMBtu) last week to $2.36/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the September 2020 contract increased 27¢, from $2.152/MMBtu last week to $2.426/MMBtu this week. The price of the 12-month strip averaging September 2020 through August 2021 futures contracts climbed 15¢/MMBtu to $2.866/MMBtu.

World Markets

European shares weakened on worsening U.S.-China relations and growing concerns that a resurgence in coronavirus infections could derail an economic recovery. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.81% lower, while Germany’s Xetra DAX Index fell 1.06%, France’s CAC 40 slipped 1.34%, and Italy’s FTSE MIB declined 1.66%. The UK’s FTSE 100 Index shed 1.45%.

The net long position in euro futures climbed to a record level of more than USD 30 billion in the week ended August 11, according to the U.S. Commodity Futures Trading Commission. During the week, the euro reached its highest value relative to the dollar since May 2018, partly on the view that the eurozone economy would recover faster from coronavirus lockdowns than the U.S.

Mainland Chinese stocks ended the week slightly higher as President Donald Trump’s postponement of a six-month trade review assuaged concerns about deteriorating U.S.-China ties. Some observers believe that the White House is seeking more time to allow China to increase purchases of U.S. farm and other exports in order to burnish the optics of the trade deal. However, tensions remained on low boil as the U.S. announced more restrictions on Huawei Technologies, making it difficult for the Chinese telecoms giant to maintain production beyond September without a supply of advanced chips from the U.S. or Taiwan. Longer term, the Trump administration’s actions to restrict the access of Chinese companies to U.S. semiconductor technology will likely remain a source of tension with the U.S. and spur Beijing to foster its domestic technology capabilities.

The Week Ahead

Economic data being released include consumer confidence on Tuesday, durable goods on Wednesday, and personal income and spending on Friday.

Key Topics to Watch

• Chicago Fed national activity index
• Case-Shiller national home price index
• Consumer confidence index
• New home sales (SAAR)
• Durable goods orders July
• Core capital goods orders
• Initial jobless claims
• Initial jobless claims (total, NSA)
• Continuing jobless claims (state program, SA)
• Continuing jobless claims (total, NSA)
• GDP revision (SAAR)
• Pending home sales index
• Personal income
• Consumer spending
• Core inflation  July
• Advance trade in goods
• Chicago PMI
• Consumer sentiment index (final)

Markets Index Wrap Up

Stock Markets

Following another weekly gain, and almost five months after the bear-market low in March, the S&P 500 closed within striking distance of its record high. Even though the pace of improvement is slowing, economic data continue to show steady progress. Initial jobless claims fell below one million for the first time since March, and U.S. retail sales continued to rebound in July, exceeding pre-pandemic levels. As a result of better-than-expected data and an uptick in inflation, government-bond yields hit a two-month high. The lack of progress in the negotiations for another round of fiscal aid represents a growing short-term risk, but fundamentals remain reasonably supportive, according to analysts.

US Economy

Last week the stock market’s impressive run led the S&P 500 within a whisper of its all-time high last seen on February 19.  With the 50% rally from the March lows, equities are now up 4% year-to-date1. While the gains are certainly welcomed by investors, the rebound that has brought the market back near record levels features some interesting dynamics.

If the market officially eclipses February’s high, this will be the second-fastest bear-market recovery in the last half century, trailing only the rapid rebound in 1982. This reflects the unique economic shutdown and reopening aspects of this downturn, which produced the fastest-ever bear-market drop from a market peak, as well as what we expect to be an abnormally short official recession (though also abnormally severe).

The economy is still a long way from regaining its pre-pandemic GDP level, but the stock market’s recovery is a reflection of the forward-looking nature of the stock market. The rally is, analysts say, reflecting an outlook for a continued economic recovery and rebound in corporate profits over the remainder of this year and through 2021.

Metals and Mining

After hitting a new all-time high last week, gold retreated this session and is on track for a 4.2 percent decline. Despite the reversal, the yellow metal is still holding above US$1,940 per ounce. Recent headwinds for the yellow metal come courtesy of a variety of factors, including an uptick in US Treasuries paired with some renewed strength in the US dollar. Positive economic data out of America has also weighed on the broader precious metals sector; the country reported less than 1 million new jobless claims last week for the first time since the pandemic started. The base metals were also challenged over the five-day period, trending lower.

Despite mostly holding above US$1,900, gold recorded its poorest performance since March this week. The decrease ended the currency metal’s nine-week growth trend, but was expected by some. This week’s correction may be short-lived as the US government continues debating another round of stimulus measures, a factor that is likely to impact gold. Silver also pulled back this session, ending nine consecutive weeks of growth. Valued as both a precious and industrial commodity, the white metal was battered on two fronts as both sectors felt pressure. Slipping by 5 percent over five days, silver is still holding in the US$26 per ounce range, which is an important psychological threshold for the metal. Platinum hit its weekly high early on Monday and trended lower for the rest of the week. By Friday the price had shed 3.3 percent Continued demand challenges in the auto sector are preventing the metal from growing, but platinum has regained its March losses and is holding in the range it was at prior to pandemic closures. Palladium has faced similar headwinds as automotive demand is a primary end use of the metal. Prices also spiked early in the week, hitting US$2,167 per ounce. Market volatility set in a day later, sending the price to its weekly low of US$1,942. Since then prices have pulled back above US$2,000.

The base metals sector stalled this week, awaiting the next stimulus move from US Congress, plus the outcome of the US/China phase one trade deal review. Copper was one of the few commodities to squeak out a gain, climbing from US$6,363 per tonne on Monday to US$6,380 on Thursday. According to a Fastmarkets update, Chinese shipments of copper and aluminum have ballooned in recent weeks. That has prompted speculation that the country may be stockpiling ahead of another round of supply disruptions and scrap shortages. Zinc slipped lower this week but has still added 6 percent to its overall value in the last month. The industrial metal is now in range of its year-to-date high of US$2,466 per ounce, set on January 22. Nickel reached its year-to-date high on August 6, when it breached US$14,380 per tonne, taking out the previous high set in late January of US$14,285. Since achieving the milestone in early August, prices faced some pressure this week, impeding new growth. Lead was the only base metal to pull off a sizeable gain. Starting the week at US$1,880 per tonne, its price had climbed 2.7 percent by the week’s end. Despite the move, the lead price is still 4.6 percent off its year-to-date high of US$2,026 set on January 16. The price sat at US$1,932 on Friday.

Energy and Oil

Another week and another snoozer for oil prices. WTI and Brent remain in a narrow range, although their foothold in the $40s feels more solid than it has in the past. EIA data this week showed another decent stock decline, along with an uptick in gasoline demand. The International Energy Agency expects crude oil demand this year to be 8.1 million bpd lower than it was in 2019, a downward demand forecast revision of 140,000 bpd, the authority said in its latest Oil Market Report. The agency cited the very weak aviation industry as a main reason why demand could remain depressed. In the fourth quarter, oil inventories could draw down at “record speed,” according to SEB. “The IEA projected a call-on-OPEC in Q4 2020 of 29.5m bl/day. If this turns out to be correct and OPEC and OPEC+ both stick to their agreed caps, then global inventories will decline by between 4m bl/day and 5.2m bl/day in Q4 2020 – an inventory draw of between 370m bl and 480m barrels in a single quarter, which cannot be far from a historical record,” SEB’s Bjarne Schieldrop said in a statement. Natural gas spot price movements were mixed this week. The Henry Hub spot price fell from $2.18 per million British thermal units (MMBtu) last week to $2.06/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the September 2020 contract decreased 4¢, from $2.191/MMBtu last week to $2.152/MMBtu this week. The price of the 12-month strip averaging September 2020 through August 2021 futures contracts remained the same week to week at $2.717/MMBtu.

World Markets

Equities in Europe ended the week higher on signs of progress in developing a vaccine against COVID 19, the disease caused by the coronavirus, and hopes that major economies could pursue additional stimulus measures to bolster a nascent recovery. The strong rally at the start of the week stalled on rising fears of a potential second wave of coronavirus infections in Europe, a risk that prompted the UK to impose more travel restrictions. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.24% higher, Germany’s DAX Index rose 1.79%, France’s CAC-40 ticked up 1.50%, and Italy’s FTSE MIB gained 2.62%. The UK’s FTSE 100 Index climbed 0.96%.

Spikes in coronavirus infection rates sparked fears about a second wave in the pandemic. The BBC reported that Germany recorded its biggest daily increase in coronavirus cases in more than three months on Wednesday, while France suffered the biggest daily uptick in positive tests since lifting its lockdown restrictions in May. Spain has the worst infection rate in Europe, with 675 “active outbreaks.” The UK recorded the biggest rise in cases in seven weeks and added France, the Netherlands, and Malta to its quarantine list.

Mainland Chinese stock markets ended the week broadly unchanged as investors stayed on the sidelines ahead of U.S.-China trade talks on August 15. Many analysts see the talks—which are intended to review the progress of the phase one trade deal over the past six months—as a potential risk to markets, though President Trump is believed to want the deal upheld ahead of the November presidential election. However, U.S. import targets for 2020, to which China has committed, already appear out of reach.

In fixed income markets, the yield on China’s 10-year bond was broadly flat following mixed economic data, while the yuan ended largely unchanged against the U.S. dollar. China recently introduced several changes to improve its bond defaults mechanism, though more work needs to be done before domestic credit markets are on par with global standards, according to Asia Times Financial. The first Chinese bond default was in 2014, according to S&P Global Ratings, with 300 technical defaults by 110 companies since then. Just 100 have been resolved so far, mostly by in- and out-of-court restructuring, delayed payment, or liquidation. So far this year, domestic bond defaults have risen 6.6% from a year ago.

The Week Ahead

Economic data being released in the U.S. include building permits on Tuesday, the Federal Reserve’s July meeting minutes on Wednesday, and the leading index on Thursday.

Key Topics to Watch

• Empire state index
• NAHB home builders’ index
• Housing starts July
• Building permits
• FOMC minutes           
• Initial jobless claims (regular state program, SA)
• Initial jobless claims (total, NSA)
• Continuing jobless claims (regular state program)   
• Continuing jobless claims (total, NSA)
• Philly Fed index
• Leading economic indicators  July
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• Existing home sales

Markets Index Wrap Up

Stock Markets

GDP growth data was released last week, showing the sharpest quarterly downturn on record, driven by shutdown policies aimed at combatting the spread of the coronavirus. The negative GDP growth, however, was better than expected, with stocks finishing the week slightly higher on positive earnings news. Big tech held the earnings spotlight, with three big tech names (Facebook, Amazon, and Apple) reporting results that were significantly better than expected. Congressional negotiations over a fifth coronavirus relief bill were stalled as Democrats and Republicans struggle to reach terms.

US Economy

Stocks escaped a busy week of earnings, economic data reports, and the Federal Reserve’s (Fed) policy meeting unscathed, finishing modestly higher and adding to the biggest four-month gain in the S&P 500 since 2009. At the same time, nervousness about the negotiations over the next round of fiscal relief, along with concerns about the sustainability of the rebound, pushed the 10-year yield to its third-lowest closing level on record and the five-year yield to a new record low.

Nevertheless, a fresh look at the three underpinnings of long-term investment returns – the economy, earnings, and monetary policy – reveals that the fundamental backdrop, while fragile, is trending in the right direction, according to analysts. A rebound in economic activity and corporate earnings, along with ongoing monetary-policy stimulus, should provide broad support, but virus concerns and political uncertainties are likely to spark bouts of volatility along the way.

Metals and Mining

Gold continued to trend higher this week breaking its previous all-time high. A weak US dollar and a steady uptick in America’s new COVID-19 cases sent investors to safe havens, ultimately benefiting gold and silver. Poor economic data is painting a bleak picture for economic recovery as many analysts begin to realize the rumored V-shaped recovery will not materialize. The yellow metal started the session firmly planted above US$1,900 per ounce. By mid-week the metal had reached US$1,970 and was still strengthening. Silver also performed positively this week, reaching price territory unseen since 2013. The white metal moved from its Monday start price of US$24.10 per ounce to a seven-year high of US$25.89, prompting many to speculate how high the metal will go. As industrial demand has shrunk, exchange traded fund demand has helped the metal add to its value during the first half of 2020. Platinum faced some challenges this session, which weighed on its ability to lock in gains. A brief mid-week rally saw the price top US$951 per ounce. However, the price faced pressure from declining consumer demand in the auto sector and pulled back. The palladium story was similar this week, as the weakened auto sector continues to grapple with a host of transport and logistical issues. A mid-week high of US$2,2267 per ounce brought the metal back to pre-pandemic levels. The rally then reversed as the price fell below US$2,000. Despite weak economic information from America, copper was able to hold above US$6,400 per tonne this session. The price has continued to strengthen over the last three months thanks to improved demand from China.

Zinc edged higher this week to a six-month despite surplus levels rising at the London Metals Exchange warehouse. The stockpile may weigh on prices later in the quarter, however for now investors continue to believe in the sector. Zinc was valued at US$2,275 per tonne on Friday. Nickel prices continue to fell pressure. A 1.8 percent price slip mid-week brought the metal to US$13,470 per tonne. Lead made some minor gains over the five-day period. Despite edging higher lead is still 18.7 percent off its year-to-date high of US$2,265 per tonne and expected to face continued headwinds from the demand side.

Energy and Oil

Oil prices retreated on Thursday after the U.S. posted a horrific second quarter GDP figure. Prices steadied in early trading on Friday, pushing crude benchmarks back to familiar territory – roughly $40 for WTI and $43 for Brent.  ExxonMobil reported a loss of nearly $1.1 billion, the largest quarterly loss in 36 years. Production was down 7 percent, year-on-year. Exxon said its working on cost-cutting plans in a “last ditch” effort to preserve its dividend. and CEO Darren Woods said that the company would not take on more debt. Chevron reported an adjusted loss of $3 billion, along with an impairment of $5.6 billion. That included writing off Chevron’s entire unit in Venezuela, worth about $2.6 billion. “We would need to see sustained economic recovery and much lower inventory levels before we would add capital back to the Permian or other basins,” Pierre Breber, Chevron’s finance chief, told the media. “We’re in a lower for longer world where demand is down and there’s ample supply.” Across the border, Canada is on track to drill 2,800 wells this year, according to the Petroleum Services Association, the third downward revision for the group. Last year, the industry drilled 4,900 wells. Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from a low of $1.64 per million British thermal units (MMBtu) last week to $1.75/MMBtu this week. At the New York Mercantile Exchange (Nymex), the August 2020 contract expired Thursday at $1.854/MMBtu, up 17¢/MMBtu from last week. The September 2020 contract price increased to $1.930/MMBtu, up 21¢/MMBtu from last week to this week. The price of the 12-month strip averaging September 2020 through August 2021 futures contracts climbed 18¢/MMBtu to $2.620/MMBtu.

World Markets

Equities in Europe fell on concerns about an economic recovery due to a resurgence in coronavirus infections, U.S.-China tensions, and disappointing company earnings. In local currency terms, the pan-European STOXX Europe 600 Index ended the week about 3.0% lower, Germany’s DAX Index fell 4.1%, and France’s CAC 40 slid 3.5%. The UK’s FTSE 100 Index dropped 3.7%.

European corporate earnings were generally downbeat in the second quarter, especially for banks. In energy, Royal Dutch Shell and Total proved resilient as strong oil trading revenues helped offset falling energy demand triggered by the pandemic. In autos, results from Volkswagen and Renault disappointed.

The German and French economies slumped in the second quarter as household spending, business investment, and exports collapsed during the coronavirus pandemic, according to preliminary data. Germany’s GDP shrank by a record 10.1% quarter on quarter, and in France, where restrictions were stricter, the economy contracted 13.8%.

In China, mainland equity markets rallied on positive data despite elevated U.S.-China tensions and floods in the country’s Yangtze River basin. The large-cap CSI 300 Index rose 4.2%, and the benchmark Shanghai Composite Index gained 3.5%, reversing the previous week’s declines. A-share funds suffered outflows during the week after a correction the previous Friday, with institutional outflows outweighing retail investor inflows. Northbound Stock Connect (investments in mainland stocks by Hong Kong-based foreign investors) saw significant net outflows, especially in financial stocks.

The Week Ahead

Important data being released next week include construction spending, the unemployment rate, the Purchasing Managers’ Index (PMI) composite, and consumer credit.

Key Topics to Watch

• Markit manufacturing PMI
• ISM manufacturing index
• Construction spending
• Motor vehicle sales   
• Factory orders June
• ADP employment report
• Trade deficit
• Treasury quarterly refunding                                    
• Markit services PMI
• ISM nonmanufacturing index July     
• Initial jobless claims (state program, SA)
• Initial jobless claims (total, NSA)
• Continuing jobless claims (state program, SA)
• Continuing jobless claims (total, NSA)
• Household debt (SAAR)                                             
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Wholesale inventories
• Consumer credit

Markets Index Wrap Up

Stock Markets

Stocks declined modestly last week, while long-term bond yields retreated near record lows. The S&P 500 turned briefly positive for 2020 before pulling back on concerns over escalating Chinese/American tensions. On the economic front, U.S. initial jobless claims increased last week for the first time since March, raising worries that the economic recovery is beginning to stall. Positively, European Union leaders agreed on a landmark stimulus package to help member states mitigate the economic downturn. Analysts believe the pace of improvement in economic data will likely slow as coronavirus cases continue to rise, but the continuing fiscal and monetary stimulus will play a crucial role in supporting the expansion until a vaccine is discovered.

US Economy

In response to the coronavirus-tainted reopening of the U.S. economy, legislators also met in D.C. this week to negotiate a new round of stimulus. Federal stimulus has been a strong support for stocks to climb during the rally from the March 23 lows, despite near-term economic challenges. However, key relief measures to households will expire at the end of July, which could slow the overall economic recovery.

In contrast to the struggling labor market, the housing market is showing itself to be a bright spot in the economy. Existing home sales increased 20.7%, and new home sales rose by 13.8% in June versus the previous month. After stalling earlier this year as stay-at-home orders were put in place nationally, record-low mortgage rates have lured homebuyers back into the market. Thirty-year mortgage rates have fallen from low to lower this year, dropping from 3.7% in January to 3% last week.  Housing, as one of the most interest-rate-sensitive sectors of the economy, is an important watchpoint for markets, serving as both a current indicator of consumer health and a leading indicator of economic recovery.

Metals and Mining

Gold broke past the US$1,900 per ounce mark this week, driven by a weakening US dollar and mounting safe haven demand. Climbing as high as US$1,905 on Friday morning, the yellow metal has added more than 5 percent to its value since Monday. Its ascent has not yet taken it past its previous high of around US$1,920, set in September 2011. Silver also had a stellar performance, adding 16 percent this week and holding above US$22 an ounce. Much of golds price growth over the last four months has resulted from the economic upset caused by COVID-19. Mass money printing, quantitative easing and stimulus have all made gold more alluring as the US dollar becomes increasingly devalued. As mentioned, silver has made significant gains, climbing from US$19.59 on Monday to US$22.84. The white metal’s price growth this week marks its best performance in almost three decades. Silver is now at seven-year highs, and its safe haven characteristics have made exchange-traded funds increasingly appealing. All-time yearly inflows were surpassed in the first half of 2020. Platinum was also in the positive this week. Monday saw the metal trading in the US$842 per ounce range, steadily edging higher. The metal’s weekly high came mid-week, when it hit US$923. Shedding some of that growth later in the week, platinum is still shy of its year-to-date high of US$1,022, set in mid-January. Breaking past US$2,000 an ounce, palladium added more than 6 percent to its price this week. Weak industrial demand has been offset by rising COVID-19 numbers out of South Africa, a primary producer of both platinum and palladium.

The base metals space also saw broad increases, with the exception of lead, which fell lower. Copper made firm gains, climbing above US$6,500. The red metal hit a year-to-date high last week before retreating; it is now within range of surpassing US$6,545. Zinc made more modest gains, adding 1.6 percent over the week. The metal is still well off its year-to-date high but is in price territory similar to February. Zinc was priced at US$2,207 on Friday morning. Nickel prices continue to gain support from supply chain woes. This week saw the metal add 2 percent to its value as it continues to move away earlier lows. Nickel ended the session trading for US$13,460 per tonne. Lead was the only base metal to slip lower this week. Despite the modest price shedding, the metal is now in its pre-pandemic price range. But is still over US$200 off its January high of US$2,026.

Energy and Oil

Oil fell back to around $40 for WTI and $43 for Brent – familiar territory for the market over the past few weeks. The EIA’s data for this week was more downbeat, dashing hopes of positive momentum. Still, crude remains stable and steady at around $40, trapped between coronavirus fears on the downside, and improving fundamentals on the upside. The Chevron purchase of Noble Energy may spark more M&A activity. Goldman Sachs said more M&A could be positive for the macro outlook for oil because consolidation will translate into slower production growth. “We believe strip prices are too low and are likely to move higher in 2021, a catalyst not only for fundamental upside to E&P stocks but also for potential M&A values,” Goldman Sachs said in a note. New York is seeking bids for 2.5 GW of offshore wind and 1.5 GW of onshore renewables. The state will also invest $400 million in port upgrades to support offshore wind. Meanwhile, Saudi Arabia is accelerating plans to sell off state assets and is considering an income tax in order to shore up its budget. Schlumberger, the largest oilfield services company in the world, said it would eliminate 21,000 jobs. The company posted a loss of $3.4 billion in the second quarter, including a $3.7 billion-dollar impairment. Natural gas spot prices fell at most locations this week.

The Henry Hub spot price fell from $1.71 per million British thermal units (MMBtu) last week to $1.64/MMBtu to this week. At the New York Mercantile Exchange (Nymex), the price of the August 2020 contract decreased nearly 10¢, from $1.778/MMBtu last week to $1.681/MMBtu this week. The price of the 12-month strip averaging August 2020 through July 2021 futures contracts declined 5¢/MMBtu to $2.371/MMBtu.

World Markets

European shares fell, as a deterioration in U.S.-China relations eroded earlier gains from the European Union (EU) agreeing on a recovery fund and positive news on efforts to develop a coronavirus vaccine. In local-currency terms, the pan-European STOXX Europe 600 Index ended the week 1.17% lower, while Germany’s DAX Index eased 0.23%, France’s CAC 40 slid 1.47%, and Italy’s FTSE MIB declined 1.25%. The UK’s FTSE 100 Index fell 2.38%.

Business activity in the eurozone grew in July for the first time since February and at the fastest rate in more than two years, a survey by IHS Markit showed. The Flash Eurozone PMI Composite Output Index rose to 54.8—well above 50, the level that divides expansion from contraction, and the 48.5 reading registered in June. Both manufacturing and services portions of the economy returned to growth. New order inflows picked up and job losses eased, although job cutting was widespread as many companies continued to reduce capacity.

Mainland Chinese stocks declined for the week. The large-cap CSI 300 Index declined 0.9% and the benchmark Shanghai Composite Index shed 0.5%, weighed by a Friday sell-off on news that the Trump administration withdrew consent for China to operate its consulate in Houston, Texas. This unexpected decision rattled investors who viewed it as an aggressive move that would ratchet up bilateral tensions at a time when China’s economic recovery remains fragile.

In China’s bond markets, the yield on the sovereign 10-year bond ended the week almost unchanged at 2.98%. The People’s Bank of China kept the loan prime rate (LPR), a reference rate for new bank loans, unchanged for a third straight month, as expected. The one-year LPR remains at 3.85%, while the five-year rate stands at 4.65%. In the currency markets, the renminbi declined following the escalation in U.S.-Beijing tensions, losing 0.4% against the greenback and closing at 7.018 for the week.

The Week Ahead

The earnings season will take center stage, with almost 40% of the S&P 500 companies reporting second-quarter results. Important economic data being released include consumer confidence on Tuesday, the Federal Reserve’s interest rate decision on Wednesday, and the preliminary second-quarter GDP on Thursday.

Key Topics to Watch

• Durable goods orders June
• Core capital goods orders                              
• Case-Shiller national home price index (year-over-year)
• Consumer confidence index
• Homeownership rate Q2      
• Advance trade in goods
• Pending home sales index                                             
• GDP Q2
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Continuing jobless claims (total, NSA)
• Personal income
• Consumer spending
• Core inflation  June
• Employment cost index
• Chicago PMI
• Consumer sentiment index

Markets Index Wrap Up

Stock Markets

Stocks finished higher for the third consecutive week on coronavirus-vaccine optimism and positive economic data. U.S. retail sales jumped 7.5% in June, and industrial production increased the most since 1959, both surprising to the upside. Following a two-month rebound, retail sales are almost back to their pre-virus levels, largely helped by the direct support and fiscal transfers from the government to consumers. As the expanded unemployment benefits are due to expire at the end of the month, expectations are that Congress will manage to reach a deal on a new aid package, which is much needed to support the economic recovery.

US Economy

As the economy takes the first tentative steps out of a deep but likely short recession, the destination is clear for many investors. After a precipitous decline in economic activity in the second quarter (the worse since the Great Depression), the economy is set to rebound faster than in previous recessions on the tailwinds of pent-up consumer demand and an unprecedented amount of fiscal and monetary stimulus. Widespread agreement that economic and corporate fundamentals are headed to a more encouraging destination has helped stocks climb 40% from the March low and within 5% of the February high down just 0.5% for the year.

However, the journey to a recovery is likely to be stalled at times by occasional setbacks due to the unpredictable path of the coronavirus pandemic. Despite a fast-initial acceleration, the economy faces headwinds borne out by the dogged virus, which have led to new outbreaks in the Southern and Southwestern regions of the U.S. All told, the trek back to pre-pandemic levels of economic output is likely to be protracted and potholed, with the CBO estimating a nine-year stretch before the economy recovers completely from the pandemic.

Metals and Mining

The gold price held above US$1,800 per ounce this week. Starting the period at US$1,806, the yellow metal briefly slipped to US$1,795 before climbing back above the US$1,800 threshold. Rising COVID-19 cases in gold production hub South Africa, paired with massive upticks in the US, have been price growth catalysts as investors move toward the inflationary hedge and safe haven asset. As of Friday, there were 13.8 million COVID-19 cases globally and 591,000 deaths worldwide related to the virus. Moving as high as US$1,813 on Wednesday, gold has now added more than 20 percent to its value since falling to US$1,498 in March. It is on its way to a sixth week of gains. As the long-term impacts of the pandemic begin to emerge, market watchers are forecasting more stimulus and bailouts, which will ultimately bolster the case for gold. Silver has also been on a steady upward trajectory since mid-June, holding above US$19 per ounce. Now approaching four-year highs, the white metal is also poised to benefit from the mounting financial uncertainty related to COVID-19. As silver and gold moved higher, platinum was challenged and fell lower. Starting the trading week at US$839 per ounce, the metal trended down to a low of US$812. Palladium sat in the US$1,900 per ounce range, surging to US$1,993 on Monday. The metal dropped to US$1,885 hours later before ticking higher in the days to follow. Continued pressure on auto demand is seen weighing on palladium’s ability to reach its early March level of around US$2,400.

As the precious metals held steady, base metals faced headwinds, ending the week lower. Concern that a second wave of COVID-19 will lead to new lockdowns prevented the space from locking in gains. Copper had fallen 2.4 percent by Thursday to reach US$6,385 per tonne, down from the US$6,545 level seen on Monday. Despite that poor showing, the red metal has been a top performer in the base metals sector this year, growing 6 percent on the London Metal Exchange year-to-date. Zinc also started the session at its high, slipping lower over the week. Delayed concentrate shipments this year are expected to put the metal in surplus in 2021. Shedding 1.7 percent from its value, nickel spent the early part of the week climbing higher. Reaching US$13,512 per tonne on Wednesday, the metal slipped 1.9 percent Friday. Despite the fall late in the week, nickel’s H1 performance was surprisingly positive. Nickel’s resilience has prompted Fastmarkets analysts to slightly increase their outlook. Supply chain interruptions in the first half of the year and concerns about future lockdowns have benefited lead prices broadly, despite the metal trending lower this session. Holding in the US$1,800 per tonne range, the metal is now within range of its January highs.

Energy and Oil

The big oil market news of the week was the easing of cuts from OPEC+. The markets largely welcomed the move, especially since it included pledges by laggards to temporarily keep some supply off of the market to compensate for past under-compliance. Meanwhile, bullish EIA data also boosted sentiment. However, by the end of the week, concerns about slowing oil demand weighed on prices, keeping them stuck at around $40. OPEC+ cut really deep in June, and the cohesion was maintained as the group moved to ease production cuts from 9.7 mb/d to 7.7 mb/d in August. However, the headline number is mitigated by the fact that the so-called laggards are supposed to “compensate” for overproducing in recent months. So, the effective production cuts may only decline to 8.1 to 8.3 mb/d in August instead of 7.7 mb/d. Analysts mostly think that there is room for OPEC+ to increase production without leading to a slide in prices. After all, demand apparently outstrips supply at the moment. Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said the increase will be “barely felt.” Still, significant downside risk remains, largely revolving around the potential hit to demand from the coronavirus and renewed closures. U.S. gasoline demand fell 5 percent last week, the second consecutive week of declines. “Normally this two-week period would have been the peak demand period and we didn’t get it,” said John Kilduff, partner at Again Capital in New York. “The recovery has been unwinding.” Natural gas spot prices fell at most locations this week. The Henry Hub spot price fell from $1.79 per million British thermal units (MMBtu) last week to $1.71/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the August 2020 contract decreased 5¢, from $1.824/MMBtu last week to $1.778/MMBtu this week. The price of the 12-month strip averaging August 2020 through July 2021 futures contracts declined 2¢/MMBtu to $2.421/MMBtu.

World Markets

European shares rose over the week on reports of progress in the development of a coronavirus vaccine. The pan-European STOXX Europe 600 Index ended the week 1.6% higher. The major country indexes also climbed, with Germany’s Xetra DAX up 2.26%, France’s CAC 40 1.99% higher, and Italy’s FTSE MIB ahead by 3.24%. The UK’s FTSE 100 Index added 3%.

European Union (EU) leaders started a two-day summit Friday to discuss the proposed EUR 750 billion EU recovery fund, amid market hopes for a deal by the end of summer. The size of the fund, distribution criteria, and the proportion of grants to loans are the main areas of disagreement. The Netherlands, Sweden, Denmark, and Austria want to link loans to reforms designed to boost productivity and jobs. Italy and Spain, which were hit hard by the coronavirus, seek a simplified reform agenda and distribution of funds via grants.

Chinese stocks slumped in a volatile trading week amid indications of economic weakness, renewed U.S. trade tensions, and profit taking following recent gains. The large-cap CSI 300 Index fell 4.4%, its biggest weekly decline since February, while the country’s benchmark Shanghai Composite Index lost 5.0%. China’s sovereign 10-year bond yield declined by nine basis points to 3.04% on the week through Friday.

China’s economy grew a better-than-expected 3.2% in the second quarter from a year earlier, reversing a historic 6.8% contraction in the first quarter, according to preliminary data from the country’s statistics bureau. On a sequential basis, gross domestic product rebounded by a rate of 11.5% quarter on quarter, following a 10.0% drop in the first quarter. In the release accompanying the data, China’s National Bureau of Statistics warned that “we should be aware that some indicators are still in decline and the losses caused by the epidemic need to be recovered.”       

The Week Ahead

The earnings season will take center stage, with about 20% of the S&P 500 companies reporting second-quarter results. Important economic data being released include existing home sales on Wednesday, the leading economic index on Thursday, and July’s preliminary Purchasing Managers’ Index on Friday.

Key Topics to Watch

• Chicago Fed national activity index
• Committee vote on Fed nominations of Judy Shelton, Christopher Waller             
• Existing home sales (SAAR)
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Continuing jobless claims (federal & state, NSA)
• Leading economic indicators  June    
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• New home sales (SAAR)                                            

Markets Index Wrap Up

Stock Markets

Stocks finished modestly higher last week, led by technology and long-term growth stocks. The nonmanufacturing Purchasing Managers’ Index, a measure of business conditions, posted its biggest monthly gain and moved back into expansion, adding to the string of positive economic surprises. However, as new COVID-19 cases rise and several states slow down or roll back reopening measures, the economic recovery is likely to start losing some momentum. Uncertainty around the path of the virus and the political outcome of the U.S. elections will likely linger over the coming months, but low interest rates and monetary and fiscal stimulus should help sustain the economic recovery later this year and into 2021.

US Economy

With 50% of 2020 in the books, the outlook for the second has things that change, but as many that remain the same. Analysts believe some of this year’s prevailing conditions will persist, while some facets of the investment environment are likely to change as we progress through the remainder of the year.

Financial goals stretch beyond this calendar year, so investment decisions should be guided by a longer-term strategy, not simply the next several months. At the same time, disciplined portfolio positioning and periodic adjustments can help keep investors on track toward ther goals as we navigate the remainder of this historic year. Analysts expect the second half of 2020 will be governed by:

COVID – which will remain in the driver’s seat.

Low interest rates – which are likely to linger on.

Policy-support – will remain wide open aiding the markets.

Metals and Mining

Gold breached US$1,800 an ounce on Wednesday, trending as high as US$1,814. A weakening US dollar and a retreat from risk sentiment helped the yellow metal hit its highest value since 2011. The broader precious metals space benefited from the rally, with all constituents positioned to end the week in the green.

After climbing 9.7 percent during Q2, gold is on track for a fifth straight week of gains. Since July 1, it has added 2.4 percent to its value. The yellow metal has not been in the US$1,800 range since mid-September 2011. Silver was also able to rise this session, increasing by roughly 2.2 percent. While the white metal’s fundamentals differ from those of gold, safe haven demand has worked in its favor. Diminished industrial demand has weighed on silver, and the lifting of lockdowns and factory restarts have yet to propel the metal to its previous levels. Silver is still well off its all-time high of nearly US$50 per ounce, even as its sister metal inches higher. Platinum rose above US$850 per ounce this week. The move marked the first time since May that the metal had surpassed that threshold. But the ascent was short-lived, with the catalyst metal falling to US$814 at midday on Thursday. A recent report from the World Platinum Investment Council showcases Germany’s decarbonization goals. The group expects the use of fuel cell electric vehicles (FCEVs), which require platinum, to be a key component in the German strategy. Palladium made a large leap this session, jumping to US$1,934 per ounce on Thursday. The 4 percent surge over one day was later reversed when the metal pulled back to US$1,880. Now back above US$1,900, palladium has climbed 5.5 percent since Monday.

The first full week of July was positive for base metals as well. Copper started the period at US$6,112 per tonne and was up 3 percent by the end of week. Supply and demand chains continue to be impacted for the red metal, which could justify a move to US$7,000, according to one market watcher. A modest gain was also seen in the zinc space as prices steadily moved up. But a week of positive price action was still not enough to pull the metal to its pre-COVID-19 high of US$2,466 per tonne. Nickel saw a 1.3 percent increase this period, marking a year-to-date high for the metal. Now at the US$13,400 per tonne level, nickel remains far from its one year high of US$18,620. A rally in lead prices pushed the metal above US$1,800 this week. Five days of steady gains helped push lead back to its pre-pandemic price, and a 2 percent uptick allowed the base metal to end the week trading at US$1,817.50 per tonne.

Energy and Oil

Oil posted a price correction on Thursday on fears of the rising coronavirus numbers in the U.S., something that the IEA warned about in its latest Oil Market Report out Friday. In early trading, prices firmed up, with WTI holding onto $40 per barrel. The IEA hiked its demand forecast for 2020 but also warned that the spreading coronavirus in the U.S. poses downside risks. The agency said demand could be 400,000 bpd higher than previously thought this year due to a rapid bounce back in many economies around the world, particularly in China and India. Also, oil supply fell by 2 mb/d in June, further tightening the market. Investment in U.S. offshore wind could soon match total investment levels in offshore oil and gas. A new study from Wood Mackenzie projects offshore wind investment could reach $78 billion this decade, compared to $82 billion for offshore oil and gas. In the decade ending in 2010, wind saw virtually nothing while offshore oil and gas received $154 billion. On the legal front, the U.S. Supreme Court ruled that a large swathe of Oklahoma remains in control of Native American tribes. The decision raises questions about whether oil and gas sites will no longer fall under the control of Oklahoma regulators, instead potentially reverting to federal control with tribes as beneficiaries. Natural gas spot prices rose at most locations this. The Henry Hub spot price rose from $1.48 per million British thermal units (MMBtu) last week to $1.58/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the July 2020 contract decreased 4¢, from $1.638/MMBtu last week to $1.597/MMBtu this week. The price of the 12-month strip averaging July 2020 through June 2021 futures contracts declined 8¢/MMBtu to $2.286/MMBtu.

World Markets

European shares ended the week little changed, depressed by renewed concerns about a resurgence of coronavirus cases. Although the pan-European STOXX Europe 600 Index was flat, major European market indexes were mixed. Germany’s DAX Index rose 0.22%, but France’s CAC 40 Index eased 1.38%, while Italy’s FTSE MIB Index declined 1.12%, and the UK’s FTSE 100 Index fell 1.19%.

Core eurozone bond yields fell on the week as a surge of coronavirus cases in the U.S. ignited fresh fears of a second wave, pushing investors to core assets. Peripheral eurozone bond yields fell overall after a mixed week. Cautious optimism about an economic recovery lifted yields at first, but reignited coronavirus fears caused them to retrace.

In Chinaa, a bullish editorial in the China Securities Journal on Monday set in motion a risk-on rally for the rest of the week that sent the benchmark Shanghai Composite Index to a two-year high. By Friday, the large-cap CSI 300 Index and Shanghai Composite Index rallied 7.5% and 7.3%, respectively. In China’s fixed income market, domestic bonds sold off and yields rose. The yield on China’s 10-year bond rose 20 basis points to end the week at 3.13% amid growing optimism about the economy and strong momentum in stocks. 

China’s June consumer price inflation rose 2.5%, in line with expectations. However, headline inflation is expected to decline in future readings as food price inflation continues to ebb on lower pork prices. A food basket tracked by China Reality Research fell to a 16-month low and an annual rise of 9%, down from 10.6% in May. More noteworthy was the continued decline in factory gate prices, which fell for the fifth straight month in annual terms. The producer price index fell 3.0% in June from a year earlier, underscoring the threat of deflation due to the coronavirus-induced demand shock, though it exceeded the consensus forecast and the prior month’s 3.7% drop.

The Week Ahead

The second-quarter earnings season kicks off on Monday, with 8% of S&P 500 companies reporting earnings throughout the week. Important economic data being released include inflation on Tuesday, retail sales on Thursday, and housing starts on Friday.

Key Topics to Watch              

• Federal budget          
• NFIB small-business index
• Consumer price index
• Core CPI
• Empire state index
• Import price index
• Industrial production
• Capacity utilization                                        
• Initial jobless claims
• Continuing jobless claims
• Retail sales
• Retail sales ex-autos
• Philly Fed index
• NAHB home builders’ index
• Business inventories
• Housing starts (SAAR)
• Building permits (SAAR)
• Consumer sentiment index (flash)

Markets Index Wrap Up

Stock Markets

Stocks finished the week higher, capping the shortened July 4th holiday week. The second quarter also saw the Dow Jones having its best quarter on record since 1987, closing up 17.8%. Favorable jobs data came in as confirmed cases of coronavirus reach record highs and some states begin to suspend or reverse reopening plans. Analysts believe the better-than-expected economic news, coupled with the worsening pandemic, shows an economic recovery is taking shape but there is still some distance to go before the economy can pick up full steam.

US Economy

We’ve reached the halfway mark in 2020. If you’d glanced at the stock market on Jan. 1 and then not again until June 30, you’d see it was down a modest 4%. But as we are all well aware, that doesn’t even begin to tell the story of the first six months of this year.

The first half of 2020 contained an all-time high for stocks, a global pandemic, the deepest recession since the 1930s and the sharpest bear market drop on record, followed by a market rally that included the fifth-strongest quarterly gain in the postwar era. Analysts believe the U.S. economy is in the early stages of its recovery. They say the initial rebound will take shape more swiftly given the unique nature of this environment in which the economy is being reopened, unleashing a certain amount of pent-up demand from consumers. They expect positive GDP in the second half of the year.

While the economic restart will foster the initial recovery, analysts don’t expect output to return to pre-pandemic levels swiftly. They think the reopening of the economy will proceed in a “two steps forward, one step back” fashion as new cases and hotspots slow reopening plans and certain industries and regions experience lingering impacts.

Metals and Mining

The gold price enjoyed another week of gains — mixed sentiment had some investors storing the safe haven, while others opted for more risk. Edging closer to US$1,800 per ounce mid-week, the yellow metal hit a seven year high on Wednesday, when it rallied to US$1,788.90. Gold futures passed the US$1,800 mark this week. The first week of the third quarter also saw silver in the green, while platinum struggled and lost ground. The base metals were a mixed bag, with all but lead trending higher.

Having added over 1 percent to its value this session, gold is expected to hold above US$1,750 on steady increases to total global coronavirus tallies. Silver also spent the period in the green, on track for a fourth week of gains. The white metal broke the US$18 per ounce threshold on Tuesday. Rising to US$18.40, silver has now achieved pre-COVID-19 lockdown price territory. After dipping below US$18 briefly on Thursday, silver is progressing towards a month of steady gains. Platinum also performed positively this session following a month of declines. On Wednesday, the catalyst metal climbed as high as US$822 per ounce, its highest value since May 21. Palladium was also in the green on Friday morning, after trending lower for most of June. Prices had been slipping since mid-May, falling as low as US$1,799 per ounce.

In the base metals space, copper pulled ahead this week as industrial demand in China experienced a reinvigoration. Starting the week at US$5,957 per tonne, the red metal had added just over 2 percent to its value by the end of session. Lower-than-expected job loss data out of the US also helped prop up prices of the industrial metal. Copper was trading for US$6,080 on Friday. Zinc faced some headwinds, causing volatility in the price. Following a mid-week dip that saw nickel fall to US$12,555 per tonne, the metal was able to regain lost ground to end the week higher. Lead was the only base metal to end the week in the red. Starting the first week of July at US$1,783 per tonne, the price fell to US$1,761 mid-session. By the end of the week, lead had edged slightly higher, but was still below its Monday (June 29) value.

Energy and Oil

Crude oil hit four-month highs on Thursday, aided by a tightening market and a better-than-expected U.S. jobs report. The caveat is that the jobs survey took place before the latest Covid-19 wave and the associated closures. Analysts still expect oil to face resistance to any further gains. “Gasoline has carried the load on recovery and demand, and it’s not clear whether that could continue into August and September,” Andrew Lebow, senior partner at Commodity Research Group, told media. Oil prices retreated during midday trading on Friday. OPEC+ is scheduled to ease production cuts beginning in August, and sources say that the group will likely refrain from an extension. Saudi Arabia also reportedly put pressure on Nigeria to increase its compliance. On Thursday, Russian energy minister Alexander Novak reiterated that position. “At present, there are no decisions to prepare any changes…Next, under the current agreements we should have a partial restoration of the volume of reductions starting August 1,” he said, according to TASS. Russia is set to cut oil exports to Europe to just 900,000 bpd in July, the lowest level since 1999, as supplies from elsewhere continue to gain market share. U.S. oil, in particular, has gained a foothold. Saudi Arabia and Kuwait have restarted production at the Al-Khafji oil field in the neutral zone between the two countries. Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $1.48 per million British thermal units (MMBtu) last week to $1.58/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the July 2020 contract decreased 4¢, from $1.638/MMBtu last week to $1.597/MMBtu this week. The price of the 12-month strip averaging July 2020 through June 2021 futures contracts declined 8¢/MMBtu to $2.286/MMBtu.

World Markets

European stocks rose through Thursday on encouraging news related to the development of a potential coronavirus vaccine and improving economic data. In local currency terms, the pan-European STOXX Europe 600 Index ended 2.11% higher for the first four days of the week. Germany’s DAX Index rose 3.33%, France’s CAC-40 Index added 2.41%, and Italy’s FTSE MIB Index gained 3.11%. The UK’s FTSE 100 Index increased 0.58%.

Purchasing managers’ indexes (PMI) for manufacturing in the eurozone continued to show significant improvement with the easing of lockdown restrictions. The June flash manufacturing PMI rose to 46.9 from 39.4, exceeding expectations. Manufacturing in the UK returned to expansion in June, with the flash PMI rising to 50.1 from 40.7. Eurozone inflation quickened to 0.3% in June from 0.1% in May, although core inflation slipped to 0.8% from 0.9%.

Stocks in China rallied for the week until Thursday after several data points suggested that the economy was firmly recovering after a historic contraction in the year’s first quarter. On Thursday, the blue-chip CSI 300 Index closed at its highest level since January 26, 2018, while the benchmark Shanghai Composite Index rose to its highest close since January. China’s sovereign 10-year bond yield was broadly flat for the week until Thursday.

Investor sentiment brightened after two separate gauges showed a pickup in the country’s manufacturing sector: On Wednesday, the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to a six-month high reading of 51.2 in June from May’s 50.7. The privately administered Caixin survey came a day after China’s official manufacturing PMI rose to a three-month high of 50.9 in June, its fourth straight month of a reading above 50, which signals improving conditions from the prior month. Meanwhile, car sales in China surged 11% in June from a year ago for the third straight monthly gain, according to an industry group.

The Week Ahead

Important economic news coming out next week includes the Markit PMI Composite index, domestic auto sales and Consumer Credit data.

Key Topics to Watch

• Markit services PMI (final)
• ISM nonmanufacturing index
• Job openings
• Consumer credit
• Initial jobless claims (regular state program)
• Continuing jobless claims
• Wholesale inventories

Markets Index Wrap Up

Stock Markets

Stocks continued to seesaw in June, with one week’s gains being reversed the following week. Last week’s decline was caused by a renewed surge in coronavirus cases across the Southwest. Texas and Florida reported a record number of new cases, which led to some rollback of reopening measures. Adding to the anxiety was the announcement that travelers coming into New York, New Jersey and Connecticut from the recent virus hotspots will be subject to a 14-day quarantine. Uncertainty around the path of the virus will continue to be a headwind, but, provided that statewide lockdowns are avoided, a longer-term economic recovery is under way, analysts believe.

US Economy

Last week, an increase in daily new coronavirus cases in the sunbelt states of Texas, Florida and Arizona dampened some of the market optimism for a speedy economic recovery and quick rebound in corporate earnings. In response, to an uptick in COVID-19 outbreaks, the state of Texas dialed back its reopening plans and replaced limits on bars, restaurants and outdoor gatherings. New York, New Jersey and Connecticut, states which had previously led the nation in new cases but have recently seen success in lowering the infection rate from previous high levels in March and April, also reacted to the rise in cases by issuing self-quarantine orders for visitors from emerging hotspots. Stocks slipped 2.9% as anxiety over a second wave of new cases overshadowed recent good economic news on the reopening of the national economy.

To date, the market has rebounded 35% from the March 23 low and is within 11% of the February 19 high. Yet along with this overall upward trend there have been occasional market pullbacks as the economy continues along the bumpy and unprecedented path of reopening and recovery.

Metals and Mining

Gold continued climbing on Friday on its way to a third week of gains. The yellow metal hit a year-to-date high on Wednesday of 1,777.60 per ounce. Concern that miners’ Q2 tallies will be more disappointing than first expected are likely to be a tailwind for the yellow metal in the weeks to come. Despite mostly holding above US$1,700 since passing the threshold in mid-May, analysts at Metals Focus are forecasting a gold price average of only US$1,700 this year. The metals consultancy is also calling for a 9 percent increase in physical gold investment this calendar year, as investors react to weak equities, negative bonds and mounting debt. As reserved as that price forecast may be, Metals Focus did note that gold has the potential to trend higher amid the current uncertainty. Silver edged as high as US$17.99 per ounce this session but was unable to pass the key US$18 level. But the rollover of the June contract is expected to take the white metal past US$18 during the next week. After moving lower since the end of May, platinum soared to US$824 per ounce this week before retreating. Platinum has been plagued by low prices since 2016, falling as low as US$670 in March. Recognizing the opportunity, China has ramped up purchases of the catalyst and jewelry metal, as per a note from the World Platinum Investment Council. Palladium also fell lower this week, starting at US$1,836 per ounce and ending down 3.5 percent. Slower-than-anticipated restarts are preventing the metal’s ability to claw back previously lost gains.

The base metals sector was split during the last full week of June, with two commodities recording modest gains. Copper climbed from US$5,825 per tonne on Monday to US$5,895 a day later. The red metal has now regained its March losses, adding 27 percent to its year-to-date low of US$4,617.50. Positioned favorably in relation to the other base metals, analysts at Canaccord Genuity project that copper demand will remain steady in the long term. Zinc prices fell lower this week, shedding almost 2 percent. The metal remains well off its year-to-date high of US$2,643 per tonne despite being profoundly affected by COVID-19 closures. According to a Reuters report, as much as 5 percent of globally supply may have been impacted due to lockdowns in major producer Peru. Weak demand also prevented nickel from surpassing its Monday value of US$12,625 per tonne. Economic uncertainty continues to weigh on industrial demand, keeping the metal 32 percent off its year-to-date high of US$1,8620. Lead was able to add to its value and finished the session higher. At 11:07 a.m. EDT on Friday, lead was priced at US$1,777.50 per tonne.

Energy and Oil

The two-month oil rally has stalled, with WTI falling back to $38 per barrel. The resurgence of Covid-19 across the U.S. has halted the market’s positive momentum. In many ways, the rally was already overdone.  Texas Governor Greg Abbott ordered bars to shut down on Friday as the spread of the coronavirus continues to accelerate. With several states – and the U.S. as a whole – setting new daily records for positive cases, fuel demand faces enormous downside risk in the weeks ahead. For instance, Texas gasoline demand on June 24 was 17.8 percent lower than on June 17. California regulators approved a new rule requiring more than half of all trucks sold to be zero-emissions by 2035, with incremental targets beginning in 2024. The rule is estimated to lower the state’s greenhouse gas emissions by 17 million metric tons and save truck operators $6 billion on fuel costs. It is also expected to spur manufacturing for electric heavy-duty trucks. Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $1.48 per million British thermal units (MMBtu) last week to $1.58/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the July 2020 contract decreased 4¢, from $1.638/MMBtu last week to $1.597/MMBtu this week. The price of the 12-month strip averaging July 2020 through June 2021 futures contracts declined 8¢/MMBtu to $2.286/MMBtu.

World Markets

European shares fell amid trepidation about a resurgence of coronavirus infections that could halt an economic recovery and a flare-up in trade tensions between the U.S. and Europe. The pan-European STOXX Europe 600 Index ended the week 1.89% lower, with major European indexes mixed. Germany’s DAX Index declined 2.09%, while Italy’s FTSE MIB Index slipped 2.33%, and France’s CAC-40 Index slid 1.34%. The UK’s FTSE 100 Index fell 0.87%.

Upbeat economic data provided signs that the coronavirus-induced slump in the eurozone may be bottoming out, reviving hopes of a V-shaped recovery. The flash IHS Markit Eurozone Composite Purchasing Managers’ Index (PMI) surged to 47.5 in June from 31.9 in May, the second-biggest jump in the survey’s history. Although the PMI reached its highest level since February, the data still point to a drop-in business output. German and French business confidence recovered at record rates in June and more than expected by most economists, although they were still well below pre-pandemic levels, two national surveys showed.

However, European Central Bank Chief Economist Philip Lane warned in a speech that any substantial improvement in near-term indicators would “not necessarily be a good guide to the speed and robustness of the recovery.” He added that it might take a sustained period of improving economic and public health conditions before confidence is fully restored.

China’s large-cap CSI 300 Index and benchmark Shanghai Composite Index rose 1.0% and 0.4%, respectively, in a week containing few major economic readings. On Thursday, China’s government said that it would increase the number of sectors open to foreign investment starting July 23, mostly via shorter “negative lists.” The move was viewed as part of Beijing’s efforts to bolster overseas investment to support an economy battered by the coronavirus pandemic. Previously, the number of sectors listed as off-limits to foreign investors was lowered to 33 from 40.

The Week Ahead

U.S. financial markets will be closed Friday for Independence Day. Important economic data being released include pending home sales on Monday, consumer confidence on Tuesday, and the June jobs report on Thursday.

Key Topics to Watch

• Pending home sales index                                   
• Case-Shiller home price index     
• Chicago PMI
• Consumer confidence index                    
• ADP employment report
• Markit manufacturing index
• ISM manufacturing index
• Construction spending
• FOMC minutes                 
• Motor vehicle sales                                             
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Trade deficit
• Initial jobless claims
• Continuing jobless claims
• Factory orders
• Independence Day holiday          

Markets Index Wrap Up

Stock Markets

Stocks rebounded last week on better-than-expected economic data and hopes for fresh stimulus. U.S. retail sales jumped nearly 18% in May, the biggest monthly increase on record, signaling that the economy is improving from depressed levels. That news, coupled with news that the White House may be working on a $1 trillion infrastructure plan, along with the Fed’s announcement that it would expand its support of the credit markets by buying corporate bonds, led to stocks reversing the prior week’s losses. Analysts believe that the combination of job gains in May and the rebound in retail sales can provide some confidence to investors that an economic rebound is under way.

U.S. Economy

The week’s economic data offered mixed signals as to whether the economy will be able to manage a “V shaped” recovery. On Tuesday, the Commerce Department reported of a 17.7% surge in retail sales in May, better than double consensus expectations and the biggest gain in history—albeit one measured against the 23.3% cumulative decline over the previous three months. Labor market data disappointed, however. Weekly jobless claims fell less than expected, and continuing claims remained elevated, at over 20.5 million. A gauge of current manufacturing activity in the mid-Atlantic region surprised dramatically on the upside, indicating considerable expansion instead of continued contraction, but overall industrial production in May rose less than expected.

Metals and Mining

Following five days of volatility, gold was in the green on Friday morning, on track to end the session 1.7 percent higher. With the yellow metal edging above US$1,730 per ounce, analysts are forecasting a steady upward trend as concerns about stimulus and a weak US dollar drive investors to the sector. A Goldman Sachs report released this week projects that the currency metal will hit US$2,000 in the next 12 months as economies struggle with staggered re-openings and disrupted GDPs. The firm expects an inflationary reaction to the COVID-19 response from central banks — but just how much is uncertain. For David Smith, the economic recovery will be more complex, a topic he touched on during his presentation at the digital MoneyShow last week.

The senior analyst at the Morgan Report warned of a period of stagflation similar to the one experienced in the mid-1970s. In this environment, gold is favored to perform positively, according to Smith. Silver continued to trend higher, poised to make its fifth week of gains, despite headwinds mid-session. The white metal has climbed 2.7 percent since late April and is benefiting from safe haven investor attention and growth in industrial demand. Moving towards US$18 an ounce, silver’s steady ascent is right on trend. Platinum displayed strength on Monday, climbing to US$821 per ounce, its highest price since late May, before falling to US$793. As the other precious metals pushed to end the period in the green, palladium was dragged lower. The automotive metal has faced dwindling demand from manufactures. While some of this was offset by a COVID-19-induced production decline, stockpiled material will drag on its value now that projects are ramping up output.

Also on track for a week of positive growth was the base metals sector, which saw gains across most of the assets. Copper added 2.7 percent to its value this week, propelled by reinvigorated industrial demand, mostly in China. Zinc made modest gains over the week. Impacted by some of the same production setbacks that have plagued copper since the pandemic was announced, zinc may benefit from a reduction in supply. That’s because prior to the COVID-19 containment measures, the metal had been on its way to a significant surplus at the pre-closure production levels. With prices 17 percent lower than the same period last year, the output reduction may motivate the metal later on. Nickel was also on its way higher, advanced by positive tailwinds. The momentum has earned the attention of the London Metal Exchange, which changed its speculative position on the metal to bullish on June 12. After shooting from US$12,503 per tonne to US$12,903 early in the period, the metal slid back to US$12,760. Four solid days of gains drove lead from US$1,718 per tonne on Monday to just shy of US$1,800 by week’s end. The base metal is now back in pre-COVID-19 lockdown price territory, but still well off its one year high of US$2,265.

Energy and Oil

Oil prices have shrugged off concerns about rising coronavirus infections, with WTI hitting $40 per barrel in early trading on Friday, a three-month high. “OPEC+ has done a good job turning things around and stronger demand also helps,” said Carsten Fritsch, an analyst at Commerzbank AG. OPEC’s Joint Ministerial Monitoring Committee (JMMC) met and demurred on whether it would extend production cuts again. But Iraq and Kazakhstan presented plans on how they would increase their compliance, a move welcomed by oil markets. “That could be an extra piece of bullish news for the market, which may see the two nations removing some supply,” said Bjornar Tonhaugen from Rystad Energy. Meanwhile the U.S. Treasury Department slapped sanctions on Mexican trading company Libre Abordo SA de CV for buying Venezuelan oil. Saudi Aramco is cutting hundreds of jobs as it hopes to reduce costs. First-quarter profit for Aramco was down 25 percent from a year earlier. And without a doubt, U.S. shale dominance over. U.S. shale production could fall by half over the next year due to the massive drop in the rig count, putting overall American oil production below 8 mb/d within a year’s time. It will take years before production will rebound anywhere close to pre-pandemic levels. Natural gas spot prices fell at most locations this week. The Henry Hub spot price fell from $1.70 per million British thermal units (MMBtu) last week to $1.48/MMBtu this week.  At the New York Mercantile Exchange (Nymex), the price of the July 2020 contract decreased 14¢, from $1.780/MMBtu last week to $1.638/MMBtu this week. The price of the 12-month strip averaging July 2020 through June 2021 futures contracts declined 7¢/MMBtu to $2.361/MMBtu.

World Markets

Equities in Europe ended the week higher, supported by stimulus efforts and the reopening of key economies. However, a resurgence of COVID-19 cases in the U.S. and China cast doubt on a quick recovery and hindered the advance. The pan-European STOXX Europe 600 Index ended the week 3.31% higher, while Germany’s Xetra DAX Index climbed 3.51%, France’s CAC 40 Index added 3.23%, and Italy’s FTSE MIB Index advanced 3.99%. The UK’s FTSE 100 Index rose 2.93%.

Core eurozone bond yields were mixed on the week. Yields edged up following the Federal Reserve’s move to buy corporate debt, reducing demand for safe-haven assets. However, yields declined later in the week after it emerged that eurozone banks had borrowed a record EUR 1.31 trillion under the European Central Bank’s targeted longer-term refinancing operations (TLTRO). The Fed announcement and TLTRO uptake put downward pressure on peripheral eurozone bond yields, which fell markedly on the week. Meanwhile, the German 10-year bund yield was trading at -0.41% on Friday, up slightly from Monday’s -0.46%. The Italian 10-year yield traded at 1.35% on Friday, compared with Monday’s 1.41%.

China’s domestic large-cap index, the CSI 300 Index, gained 2.4% for the week, outpacing the 1.6% advance in the country’s benchmark Shanghai Composite Index. The gains in Chinese stocks came despite a reported surge in new COVID-19 cases in Beijing over the June 13 weekend, highlighting the risk of a second wave of infections. In response, Beijing returned to tight movement restrictions, though not a complete lockdown, after the new cases were traced to a wholesale food market. Despite fears of another wave, public health experts believe that China will be able to better manage a resurgence in infections given the country’s extensive experience in battling the coronavirus. 

The Week Ahead

Important economic data being released include existing home sales on Monday, the preliminary Purchasing Managers’ Index for June on Tuesday, and personal income and spending on Friday.

Key Topics to Watch

• Chicago Fed national activity index
• Existing home sales
• Markit manufacturing index (flash)
• Markit services index (flash)
• New home sales
• FHFA home price index (year-over-year change)
• Initial jobless claims (regular state program, SA)
• Continuing jobless claims
• GDP (revision) Q1
• Durable goods orders
• Core capital goods orders
• Trade in goods (advance report)
• Personal income
• Consumer spending
• Core inflation
• Consumer sentiment index (final)

Markets Index Wrap Up

Stock Markets

Stocks logged their worst weekly decline since March as fears of a second wave of infections and doubts about a speedy economic recovery dampened investor sentiment. The Federal Reserve indicated that rates are likely to remain near zero until 2022 and issued a cautious economic outlook. The Fed’s cautious tone, in combination with news of an acceleration in new infections and hospitalizations in certain states as well as concerns about the speed of the rebound in stocks, triggered some profit-taking. Analysts believe volatility will likely continue as uncertainties remain, but a longer-term economic recovery is starting to take shape.

U.S. Economy

After a historic drive higher from a late March low, the market sputtered last week, the first real sign of fatigue since stocks began their rebound. The market recorded its first three-day losing streak since February, including its worst daily drop in three months. Has the recovery run out of gas, or is this just a pit stop?

Analysts don’t think this signals a return to the market environment we experienced in February and March. At the same time, sufficient risks still remain, and even the best market rallies need a breather.

History shows that the initial stages of new bull markets are typically characterized by strong gains, a positive sign for the current rally. The table below shows how the recent rally stacks up to historical bull market commencements. There is no guarantee we’ve reached the lows in this current phase, but analysts point out an encouraging signal: While strong rallies often occur within ongoing bear markets, in the postwar era, every instance in which the stock market rose more than 30% from a bear market low turned out to be the beginning of a new bull market.

Stock Market Performance

Metals and Mining

Surging 2.8 percent this week off renewed COVID-19 concerns and weak economic data from the US, gold is on track for its largest weekly gain since the first week of April. Dismal data from the World Bank forecasting a 5.2 percent global contraction in the wake of the pandemic saw support when the US Federal Reserve projected a 6.5 percent decline in the US economy. Another 1.5 million jobless claims in the US last week sent markets into a tailspin on Thursday as investors pulled back on optimism seen earlier in the month. The flurry of news sent gold as high as US$1,744 per ounce, but it then slid back to US$1,724 in pre-trading hours on Friday. Despite the recent price volatility, the yellow metal is the lone resource expected to climb in 2020, according to the World Bank’s report. Calling this the worst recession since World War II, the international monetary group warned that a second round of COVID-19 lockdowns could lead to an even greater decline (8 percent) and prevent a forecasted 2021 recovery. Midway through the week, US Federal Reserve Chair Jerome Powell promised to counter the prolonged economic impact of coronavirus with continued stimulus, “using our full range of tools to support the economy in this challenging time.” During an interview, Byron King touched on the insurmountable level of US debt and his expectations for gold and the dollar.

In other precious metals, Silver also experienced uncertainty-related price growth early in the session, moving above US$18.15 per ounce. But safe haven demand was unable to hold the metal at US$18.10, and it fell back mid-week. A brief uptick on Thursday had silver testing US$18 again, before dipping as low as US$17.46 after hours. Following a steady decline in May, platinum prices edged to a four-week high on Wednesday. The metal’s climb to US$830 per ounce mid-week has been attributed to growing interest in platinum exchange-traded funds (ETFs). A recent five day stretch of consecutive inflows added 37,400 ounces of platinum to ETF holdings. Broad market pressure Thursday sent the platinum price below US$800 for the first time since June 5. Palladium fell to US$1,824 per ounce as markets dipped late in the week, its weakest since May 15. It continues to await a resurgence in automotive demand, which is expected to slowly increase in the weeks to come.

Base metals bore the brunt of the volatility, with all but copper ending the week lower. Copper was bolstered this session from China’s renewed industrial demand, a key factor for the growth of the base metals market. Entering the period at US$5,659 per tonne, the red metal climbed to US$5,680 on Wednesday and held. Slipping back from its Monday price of US$2,095 per tonne to hold at US$2,003.50, zinc was unable to make gains this session. Stagnated demand for the metal has kept prices low, although a 23,000 tonne shipment of zinc to the London Metal Exchange this week is offering promise. Speculation that a restart in the US auto sector could lead to an increase in demand for zinc and lead may be beneficial for prices in the near term. Nickel also fell off from its early week high of US$12,943 per tonne as continued drags on demand prevented growth. Electric vehicle adoption initiatives in Europe may be a potential catalyst for nickel down the road, despite the sector remaining flat currently.EV growth will put pressure on nickel sulfide companies, as the demand for the material from the electric vehicle battery space increases. Lead was also impacted by the fall in optimism and by fears a second wave of COVID-19 could again shutter economies. Slipping 1.5 percent this week, lead will face continued headwinds if industrial demand isn’t able to steadily climb in the months ahead.

Energy and Oil

Oil is set for the first weekly decline in over a month, dragged down by the broader selloff on Thursday. The jump in coronavirus cases in the U.S. sparked renewed concerns about the economic recovery. The Federal Reserve warned of long-term scars on the economy. At the same time, oil analysts have warned that the crude oil rally may have gone too far. U.S. gasoline demand ticked up to 7.9 mb/d in the first week of June, up about 350,000 bpd from a week earlier. Jet fuel demand is still a shadow of its former self, stuck at 30 to 40 percent of its pre-pandemic levels. Goldman Sachs said that an oil price correction of about 20 percent may already be underway. “Despite the rally, we have been hesitant to recommend a long position this early in the cycle for several reasons,” Goldman Sachs commodities analysts wrote in a note. Inventories are too high and the price rally has gone too far, the bank said. The Trump administration is planning to push for opening up Florida for offshore oil drilling, but the proposal will wait until after the November election in order to avoid political blowback, according to Politico. Drilling in Florida faces bipartisan opposition. The eastern Gulf of Mexico has long been off-limits to the industry. U.S. shale will concentrate on the Permian basin, where growth returns in 2021 and continues through 2030, according to Wood Mackenzie. Meanwhile, the Eagle Ford won’t return to its 2019 average until 2024, but will then decline. Projections vary, but the comeback is widely expected to be slow. Natural gas spot prices fell at most locations this week. The Henry Hub spot price fell from $1.77 per million British thermal units (MMBtu) last week to $1.70/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the July 2020 contract decreased 4¢, from $1.821/MMBtu last week to $1.780/MMBtu this week. The price of the 12-month strip averaging July 2020 through June 2021 futures contracts declined 11¢/MMBtu to $2.332/MMBtu.

World Markets

Equities in Europe fell—snapping four weeks of gains—on fears of a resurgence of coronavirus infections and a delayed economic recovery. The pan-European STOXX Europe 600 Index ended the week 4.99% lower. Among European markets, Germany’s Xetra DAX Index fell 6.13%, France’s CAC 40 Index declined 6.05%, and Italy’s FTSE MIB Index dropped 5.77%. The UK’s FTSE 100 Index slid 4.89%.

Gross domestic product (GDP) in the UK shrank by a record 20.4% in April from March as the country spent the month in a coronavirus lockdown, official data showed. The economy contracted by 24.5% year on year. ONS Statistician Rob Kent-Smith noted that the economy in April was the same size as it was in 2002.

Bank of England (BoE) Governor Andrew Bailey said that there were some signs of an economic pickup as the lockdown restrictions began lifting in May, but he warned that there was still likely to be long-term economic damage. The BoE was expected to expand its bond-buying program the following week.

Stocks in China declined amid disappointing credit data and weaker global sentiment. The domestic large-cap CSI 300 Index was unchanged from the previous week, while the benchmark Shanghai Composite Index slipped 0.4%. China’s sovereign 10-year bond yield declined as inflation continued to slow and stayed below the government’s full-year target.

China’s broad credit growth, as measured by total social financing, rose to 12.5% year on year in May compared with 10.7% last December, though a surge in net issuance of government debt appeared to drive the increase. Analysts said that China’s strong credit growth could overstate the prospects for an economic recovery as it includes short-term corporate bonds and coronavirus relief loans from the central bank, in addition to new loan demand from enterprises and households.

The Week Ahead

Important economic data being released include retail sales on Tuesday, housing starts and building permits on Wednesday, and the leading index on Thursday.

Key Topics to Watch

• Empire State index
• Retail sales
• Retail sales ex-autos
• Industrial production
• Capacity utilization
• Home builders’ index
• Business inventories
• Housing starts (annual rate)
• Building permits (annual rate)
• Initial jobless claims (regular state program)                                    
• Initial jobless claims (total, NSA)
• Philly Fed manufacturing index
• Leading economic indicators
• Current account deficit

Markets Index Wrap Up