Stock Markets

Stocks fell last week, marking the longest weekly slide since 2019, as investors continue to digest news that U.S./China trade tensions are rising, a coronavirus vaccine won’t be widely available until April of 2021, jobs data came out worse than expected, and expectations are fading that a new fiscal stimulus package will be passed. Mega-cap stocks outperformed the S&P 500 last week, but Microsoft, Apple, Netflix, Amazon and Facebook are all still down for the month. Small-cap and cyclical stocks were hardest hit by the news that a vaccine is further away than initially thought. Ruth Bader Ginsburg’s death has ushered in fears that stimulus talks between Republicans and Democrats could be overshadowed by a political battle for a Supreme Court nominee. A surge in coronavirus cases in Europe has also seen investors shun some European stocks on fears that economic restrictions could be reestablished.

US Economy

Analysts believe the newly emerging bull market will prove durable, but not without growth scares and setbacks, as the range of economic outcomes remains wide (though narrower than in the spring). Following a powerful six-month rally, returns will likely slow, but the gains are not necessarily exhausted, and a correction could prove healthy. While today’s environment is unique, it is helpful to gauge the range of historical outcomes during past early recoveries. The table below provides a historical view of the S&P 500’s performance during the first year of the rebound following bear markets and offers the following takeaways:

Corrections are common, as conditions coming out of recessions are typically wobbly.

Looking at the distribution of market gains, the bulk of gains were mostly captured in the first six months of the first year of the rebound but returns continued to be above average in the second half, even as the pace of gains slowed.

At this juncture, analysts are recommending investors stay balanced and diversified but also opportunistic, deploying available cash towards long-term goals, if appropriate. As the correction plays out, lagging asset classes and sectors (including defensive areas like utilities, staples and health care) can present rebalancing opportunities to fill gaps in underrepresented areas within portfolios.

Metals and Mining

The gold price slumped this week, dipping below US$1,900 per ounce for the first time in eight weeks. It shed as much as 3.1 percent, largely due to a rebounding US dollar. The American greenback is on track for its best performance since April, and that has weighed on the yellow metal’s safe haven appeal. The strong US currency is also dragging on the precious metals as a whole, and all of them were in the red on Friday morning. The base metals did not fare any better, with that sector experiencing a marked decline as well. Gold has sat flat for most of September but spent the last full week of the month trending lower, even dropping as low as US$1,850 midway through the period. Analysts have attributed the decline to risk-aversion sentiment working against the yellow metal. The price drop led to some dip buying, helping the metal hold above US$1,850 on Friday. The silver price began falling early on Monday and has faced little resistance in its decline. Opening the session at US$26.02 per ounce, a 15 percent drop brought the white metal down as far as US$21.89, its lowest point since mid-July. Like its sister metal gold, silver spent the latter half of August and the early September trading flatly. Locked at the US$27 level, the metal made its sharpest decline this week. Silver later saw a small uptick to the US$23 range, and on Friday it was at US$22.93. After slowly edging higher throughout September, platinum was challenged during the last full session of the month. The pressure prompted the metal to slip below US$900 per ounce. Despite the recent value drop, the World Platinum Investment Council (WPIC) still anticipates investor interest in the metal. The palladium price also lost some recent gains when the metal pulled back from its three-week high of US$2,251 per ounce early on Monday. Although the other precious metals benefited from dip buying, palladium was unable to gain momentum on Thursday, and fell to the lowest point for the week on Friday morning. That day, palladium was moving for US$2,091.

Copper prices sank this week as reality began to set in on the markets. It fell 4.3 percent from its Monday value of US$6,837 per tonne on the back of a volatile broad-based selloff in US equities. By week’s end, copper was holding at US$6,538.50 as buying pressure began to re-emerge. Headwinds also pushed nickel lower. But despite its late September selloff, the metal was able to hold above US$14,000 per tonne, ending the session at US$14,179. Zinc also ended the week 4 percent lower, dragged down by a slump in demand. Despite the widespread slip, analysts are expecting the inflationary tone set across economies globally to translate to higher prices for all commodities. On Friday, zinc was priced at US$2,379.50 per tonne. Lead experienced the most modest decline this period, falling from US$1,871.50 per tonne to US$1,856 by Friday. However, lead has been on a downtrend for most of September. After approaching year-to-date high territory early in the month at US$1,984, prices continuously fell and hit US$1,856 this week.

Energy and Oil

Oil prices continue to exhibit a familiar trading pattern, bouncing around in a narrow range. EIA data was bullish last week, showing inventory declines. But that optimism has been offset by concerns about the coronavirus and new restrictions in Europe. Still reeling from historic wildfires, California Governor Gavin Newsom is seeking to end the internal-combustion engine. Governor Newsom ordered state regulators to come up with rules to phase out the sale of new gasoline or diesel vehicles by 2035. The move will have a dramatic impact on in-state refiners and oil producers, but because California consumes nearly 1 mb/d of oil, the impact will be felt globally. However, successful implementation is uncertain as it relates to ongoing legal battles, the makeup of the Supreme Court and the outcome of the presidential election. The UK is aiming to bring forward its ban on gasoline and diesel vehicles from 2040 to 2030. Prime Minister Boris Johnson is expected to roll out the announcement this autumn in an effort to accelerate the transition to electric vehicles. Three out of four oil executives surveyed by the Dallas Federal Reserve believe that U.S. oil production has already hit a peak. The Fed survey also shows business activity rebounding a bit from a low point in the second quarter, but nearly half of the respondents said that WTI would need to rise to $51-$55 for drilling activity to accelerate. Another third said WTI would need to increase to $56-$60, while 15 percent of respondents said it would require WTI above $60. The EIA reported a crude stock draw of 1.6 million barrels for the week ending on September 18. Notably, distillate stocks also declined, falling by 3.4 million barrels. A glut of diesel had become a particular concern in recent weeks, so the drawdown was positive news for oil markets.

Natural gas spot price movements are mixed this week. The Henry Hub spot price fell from $2.06 per million British thermal units last week to $1.74/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the October 2020 contract decreased 14¢, from $2.267/MMBtu last week to $2.125/MMBtu this week. The price of the 12-month strip averaging October 2020 through September 2021 futures contracts climbed 3¢/MMBtu to $2.911/MMBtu. The net injections to working gas totaled 66 billion cubic feet (Bcf) for the week ending September 18. Working natural gas stocks totaled 3,680 Bcf, which is 16% more than the year-ago level and 12% more than the five-year (2015–19) average for this week.

World Markets

Shares in Europe tumbled as a surge in coronavirus infections prompted some countries to implement stricter containment measures. Signs that the economic recovery may be stalling also weighed on stocks. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 3.60% lower, while Germany’s DAX Index dropped 4.93%, France’s CAC 40 fell 4.99%, and Italy’s FTSE MIB slid 4.23%. The UK’s FTSE 100 Index lost 2.74%.

IHS Markit’s composite purchasing managers’ index (PMI) showed that the recovery in eurozone business activity lost steam in September as rising coronavirus infection rates and social distancing weakened demand in the services sector. An early estimate of the September PMI came in at 50.1, down from 50.9 in August. (A PMI reading of 50 marks the level between expansion and contraction.) The services portion of the index slipped below 50, hitting a four-month low. The manufacturing index, however, reached a 31-month high on stronger exports.

Stocks in China fell in tandem with the global correction, with the benchmark Shanghai Composite Index and CSI 300 Index dropping 3.6% and 3.5%, respectively, in their biggest weekly loss since mid-July. In fixed income markets, the yield on China’s sovereign 10-year bond shed three basis points to 3.13%. China’s central bank left its loan prime rate, the reference rate for new bank loans, on hold for the fifth straight month, as expected. The yuan weakened to CNY 6.82 per U.S. dollar in a risk-off week characterized by broad dollar strength.

The Week Ahead

Important weekly economic data coming out next week includes personal consumption, the unemployment rate, and the Consumer Confidence Index.

Key Topics to Watch

• Advance trade in goods
• Case-Shiller national home price index (year-over-year change)
• Consumer confidence index                                      
• ADP employment report
• GDP revision (SAAR)
• Chicago PMI
• Pending home sales index                 
• Initial jobless claims (regular state program, SA)
• Initial jobless claims) (total, NSA)
• Continuing jobless claims (regular state program)
• Continuing jobless claims (total, NSA)
• Personal income
• Consumer spending
• Core inflation
• Markit manufacturing index
• ISM manufacturing index
• Construction spending
• Varies  Motor vehicle sales (SAAR)   
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Consumer sentiment index
• Factory orders Aug.               

Market Summary

Stock Markets

Stocks climbed higher for the third week in a row, oil jumped, and Treasury yields rose to an 11-week high following a surprising gain in payrolls last month. The U.S. economy added 2.5 million jobs in May, while the unemployment rate declined to 13.3% from April’s record level, suggesting that an economic recovery is under way faster than previously thought. Even though economic activity will likely take a while to return to pre-crisis levels, last week’s employment data may be laying the foundation for a long-term recovery. Following last week’s rally, the S&P 500 has now erased its losses for the year. Some uncertainties that could trigger higher volatility remain, but the recent market advance highlights the importance of staying invested, even through the most difficult times.

U.S. Economy

Driving through fog is difficult. It’s hard to see the road and even harder to see the destination. In the same sense the path from recession to recovery can be just as hard to make out. As the economy emerges from the unprecedented lockdown, investors continue to look for signs that the recovery is going in the right direction. In a week when civil protests were widespread in cities across the U.S. and geopolitical tensions between the U.S. and China continued to be elevated, the market kept its focus on economic and corporate drivers of long-term equity performance. That focus was rewarded last week by the release of the May jobs report showing that the unemployment rate defied analyst forecasts and, instead of increasing, declined to 13.3% from 14.7% in April.

The S&P 500 closed the week up 5% and just 6% from the February record high; its best week in 8 weeks. All told, the index has risen 43% from the March lows even as fundamental conditions deteriorated considerably over this time period due to the economic lockdown and shuttering of businesses. Though the path between the strength of the equity rally and the current weakness in the underlying fundamentals is still clouded in a haze of uncertainty due to the unknown next stages, three positive indicators are beginning to slowly clear the way.

Metals and Mining

Increased European stimulus and investor risk appetite weighed on the gold price this week. Slipping below US$1,680 per ounce on Friday morning, optimism that the economy is starting to rebound led to the yellow metal’s poorest showing since early May. Interest in other assets classes stalled the other precious metals, while the base metals space pulled off a broad gain. The session started with gold above US$1,730 with the metal struggling to hold above US$1,700 over the next few days. A Thursday (June 4) announcement from the European Central Bank expanding the economic stimulus package dragged prices to a 30-day low of US$1,679.97. Heightened interest in other sectors is a potential opportunity in the gold space. Despite the current price dip. After trending higher weekly in May, silver fell below US$18 per ounce this week. Though considered both a precious and industrial metal, silver has faced challenges on both fronts this week. Decreasing safe have demand, paired with logistical and demand challenges from industrial end users have weighed on the metal’s ability to lock in gains in June. A Silver Institute report conducted by CRU Group also notes that demand from the photovoltaic solar sector may have peaked in 2019 at 100 million ounces (Moz). Platinum sat flatly at the US$820 level for the last week in May, however the autocatalyst metal has experienced intense volatility for the first week of June. Starting the period at US$829, renewed mine activity in South Africa, helped the metal edge above US$846 late in the day Monday. In the days since platinum has shed 7.2 percent. Mid-week palladium fell from its weekly high of US$1,915 per ounce to US$1,772. The 7 percent slip was reversed early Friday as the price surged back above US$1,850. Platinum’s industrial troubles are also present in the palladium sector, however an existing supply crunch prior to COVID-19 closures has allowed the automotive metal to insulate some of its value.

Base metals performed well this week locking in gains across the board. Copper started the week valued at US$5,376.50 per tonne and steadily climbed higher. Economic recovery and optimism have been catalysts for the red metal which experienced its best performance in 13-weeks. Zinc also made gains this week benefiting from improved sentiment. Edging as high as US$2,025.50 per tonne on Tuesday the metal regained losses registered when the pandemic stagnated end use sectors. Nickel made large moves this week, climbing from its Monday value of US$12,418 per tonne and rocketing to US$12,812. A resurgence in stainless steel demand for electric vehicles in China is the most prominent tail wind propelling the base metal at present. While some analysts are concerned that stockpiling in the nickel sector may lead to a price slip in the future, others believe demand will quickly eat up existing surpluses and bolster the price in the long term. A decrease in lead mine production during the first quarter of 2020 has benefited prices for the metal in June. It is estimated that output fell 3.4 percent over the three-month period, which was offset by a 7.4 percent decrease in lead metal usage across the globe. Rising demand and the restarts to industrial sectors are driving the metal’s price 3.7 percent higher this week.

Energy and Oil

Oil prices jumped yet again on positive news from OPEC+ as well as a far better than expected jobs report. Brent surged by more than $2 per barrel while WTI approached the $40 mark. OPEC+ made a breakthrough in negotiations and the group is slated to meet on to sign off on the deal, which calls for a one-month extension of the 9.7 mb/d cuts. A sticking point had been the poor compliance rate from Iraq, but the Iraqi government agreed to strict compliance, although there could be a domestic backlash from doing so. The U.S. unemployment rate unexpectedly fell to 13.3 percent in May, with the return of 2.5 million jobs. Economists had expected the unemployment rate to jump to around 20 percent. The numbers led to a wave of optimism around economic recovery. In other moves, the Libyan National Army (LNA) retreated from Tripoli, ending a 14-month assault on the capital. The civil war has also become a proxy battle between other world powers. The prime minister of the Government of National Accord (GNA) traveled to Ankara to meet with Turkish President Recep Tayyip Erdogan.

So far in 2020, there have been 19 oil and gas producers in North America that have filed for bankruptcy, according to Haynes and Boone. Ultra Petroleum, Whiting Petroleum and Diamond Offshore were the three highest-profile bankruptcies. Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $1.72 per million British thermal units (MMBtu) last week to $1.77/MMBtu this week.  At the New York Mercantile Exchange (Nymex), the June 2020 contract expired last week at $1.722/MMBtu. The July 2020 contract price decreased to $1.821/MMBtu, down 6¢/MMBtu from last week to this week. The price of the 12-month strip averaging July 2020 through June 2021 futures contracts declined 1¢/MMBtu to $2.438/MMBtu.

World Markets

Shares in Europe surged as countries eased lockdown restrictions and the European Central Bank (ECB) injected fresh stimulus into the eurozone economy. The pan-European STOXX Europe 600 Index ended the week 6.91% higher. Germany’s Xetra DAX Index climbed 10.60%, the CAC 40 in France advanced 10.47%, and Italy’s FTSE MIB Index gained 10.71%. The UK’s FTSE 100 Index added 6.45%.

Core eurozone bond yields climbed on the week as the ECB increased its support for eurozone economies. In Germany, the 10-year bund yield traded at around -0.3% on Friday, up some 11 basis points (0.11%) from the start of the week. Peripheral eurozone bond yields fell markedly on the news, with the Italian 10-year yield slipping to its lowest level since March.

Equity markets in China rose for the week, aided by a thaw in U.S.-China relations. The domestic CSI 300 Index added 3.4%, and the benchmark Shanghai Composite Index gained 2.8%.

U.S. Trade Representative Robert Lighthizer said on Thursday he felt “very good” about progress under the phase one agreement with China, which he said was honoring the pact and fulfilling its commitments on structural change. Lighthizer’s comments at a virtual event held by the Economic Club of New York were seen as an olive branch toward China. However, bilateral tensions are expected to persist ahead of the U.S. presidential election in November after China’s decision to implement a controversial national security law in Hong Kong.

The Week Ahead

Important economic data being released include inflation and the Federal Reserve rate decision on Wednesday and consumer sentiment on Friday.

Key Topics to Watch

• NFIB small-business index
• Job openings
• Wholesale inventories
• Consumer price index May
• Core CPI
• Federal budget
• FOMC announcement                                   
• Jerome Powell press conference                                           
• Initial jobless claims
• Initial jobless claims
• Producer price index
• Quarterly services survey                  
• Import price index
• Consumer sentiment index

Markets Index Wrap Up

Stock Markets

Global stocks finished higher on optimism over the reopening of the economies and some positive news about progress on vaccine trials. Later in the week some caution returned that raised geopolitical tensions, as China planned to impose a new security law on Hong Kong and as a U.S. Senate bill was introduced that could force Chinese firms to delist from U.S. exchanges. Analysts think investors can be confident in a longer-term recovery but should position portfolios and expectations to weather periods of volatility along the way.

U.S. Economy

Optimism about a possible new round of monetary and fiscal stimulus also seemed to support sentiment. On Sunday night, Federal Reserve Chair Jerome Powell stated that the central bank had other tools available to counteract the slowdown, telling an interviewer that “there is really no limit to what we can do.” On Thursday, Treasury Secretary Steven Mnuchin told reporters that the White House preferred to wait to see how the economy was responding to existing fiscal stimulus measures, although he acknowledged that there was a “strong likelihood” that more support would be needed.

The week’s economic data confirmed the view that the labor market had yet to turn the corner. Thursday’s jobless claims report showed that an additional 2.4 million Americans had filed for benefits in the previous week, bringing the trailing nine-week total to nearly 39 million. T. Rowe Price Chief U.S. Economist Alan Levenson believes it is possible that millions of displaced workers will be rehired in the summer months as the economy reopens, although he cautions that many other expected temporary layoffs could turn into permanent job losses. Most restaurants are likely to reopen at 50% capacity, for example, and numerous retail jobs may never return due to the accelerated shift to online purchases.

Metals and Mining

The gold price faced numerous challenges this session, leaving the yellow metal on track for its first week of losses since early April. Positive economic data and industrial activity from countries emerging from shutdowns weighed on gold’s movement late in the period. The currency metal reached its highest point since October 2012 on Monday, then was locked just below US$1,750 per ounce until Thursday, when it fell to its session low at US$1,719.30.

The other precious metals faced similar challenges, except for palladium which marked its first week of gains since the end of March. Countering the risk appetite country restarts had raised was mounting trade tensions between the US and China benefiting gold as investors sought safety. Volatility also impacted the silver price this week pushing the white metal below US$16.80 per ounce before a rebound brought it back above US$17. Despite much of the attention focusing on its yellow sister metal, silver is expected to outperform gold in the long term, according to Brien Lundin editor of Gold Newsletter. Platinum prices also fluctuated greatly this session, starting the week at US$813 per ounce, climbing as high as US$866 and then falling off to US$809. A Metals Focus platinum group metals (PGMs) report released on Wednesday, noted that platinum’s performance in 2020 will be positively correlated to gold. Palladium surged 5 percent this week moving as high as US$2,069 per ounce for the first time since April 7. The gains were short-lived when the autocatalyst metal subsequently slid as low as US$1,817 a 12 percent decrease. The metal was also a topic during the Metals Focus PGMs webinar which followed the outlook release. The metals consultancy firm sees the metal recovering during the second half of 2020, driven by tight supply and renewed demand.

A re-emergence from lockdowns may have dragged on the precious metals this week, however it bolstered the base metals sector with the majority of the sector — except zinc — ending the week in the green. The copper price ticked 2 percent higher this week despite reports that LME stocks of the red metal in Rotterdam are swelling. According to data from Fastmarkets, stores of copper now total 84,925 tonnes, with 73,700 tonnes now on-warrant. That figure is almost 10 tonnes higher than the beginning of the month, indicating European consumption is still down. After starting the year above US$2,000 per tonne, zinc has faced increasing pressure from weak demand due to current trends. While the metal briefly moved as high as US$2,021 this week its ascent was upended late in the period when it fell back below US$2,000. Things may get worse as seasonal demand in China — which is propping up prices currently— is anticipated to drop in June and July. Nickel performed well during the second last week of May, edging higher after starting the session at US$11,950 per tonne. By week’s end the metal had grew by 6.7 percent. Primary nickel consumption is comprised of the stainless-steel sector, however growing demand from the electric vehicle sector could be a problem for producers down the road. Lead ended the week 4.8 percent higher from its Monday value of US$1,578.50 per tonne. Current demand for lead has been another casualty of supply chain interruptions and country lockdowns, but the metal is expected to perform better in the medium term.

Energy and Oil

The long rally for oil prices came to a halt on Friday over fears about a slower-than-expected economic recovery in China. The Chinese government broke with tradition and declined to set a growth target for 2020 due to “great uncertainty.” Markets were also disappointed with the tepid size of government stimulus from Beijing. Meanwhile, rising U.S.-China tension adds to the concerns. Despite questions about economic growth, China’s oil imports are set to rise by about 2 percent this year. In fact, China’s oil demand is already back to about 90 percent of pre-pandemic levels. Some poorer oil-producing countries that previously made oil prepayment deals – deals that consist of a payment of cash to the country, repaid by oil exports – are under serious pressure as they need to deliver more oil to satisfy the terms of the deal. For instance, Kurdistan is struggling to repay a $500 million prepayment deal with Glencore. A new study from the Dallas Federal Reserve found that the slide in oil prices has been negative for the U.S. economy, outweighing the benefits to the consumer from lower gasoline prices. The decline results in lower fixed investment from the oil industry, and it also may put stress on the banking system. Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $1.56 per million British thermal units (MMBtu) last week to $1.83/MMBtu this week.  At the New York Mercantile Exchange (Nymex), the price of the June 2020 contract increased 16¢, from $1.616/MMBtu last week to $1.771/MMBtu to this week. The price of the 12-month strip averaging June 2020 through May 2021 futures contracts climbed 4¢/MMBtu to $2.399/MMBtu.

World Markets

Equities ended the week higher on hopes of an economic recovery as countries began to emerge from lockdowns, but renewed U.S.-China tensions curbed the gains. The pan-European STOXX Europe 600 Index rose 3.63%. Among major European country stock indexes, Germany’s Xetra DAX Index climbed 6.10%, France’s CAC 40 gained 4.34%, and Italy’s FTSE MIB Index added 2.79%. The UK’s FTSE 100 Index advanced 3.45%.

Germany and France proposed a EUR 500 billion European Union (EU) recovery fund, giving impetus to a coordinated European fiscal response to current economics. The proposal would be linked to the EU’s next seven-year budget cycle from 2021–2027, and the funds would not be available until then. The European Commission would raise the money in the capital markets and use it to support EU spending rather than loans to national governments. However, Austria, the Netherlands, Denmark, and Sweden oppose the plan, saying they would only accept a rescue fund that gave out loans.

The week brought no key data releases but plenty of political issues for markets to digest. There was a further deterioration in U.S.-China relations as the White House stepped up pressure on China, while Beijing announced plans to impose national security legislation on Hong Kong. Asian markets weakened on Friday, with Hong Kong’s Hang Seng Index plunging 5.6% to close 3.6% lower week on week. Mainland A-shares also fell on Friday, with the large-cap CSI 300 Index down 2.2% from the previous week.

The Week Ahead

U.S. financial markets will be closed May 25 in observance of Memorial Day. Important economic data being released include new home sales on Monday, durable goods orders on Thursday, and consumer sentiment on Friday.

Key Topics to Watch

• Chicago Fed national activity index
• Case-Shiller home price index (year-over-year)
• FHFA home price index
• Consumer confidence index
• New home sales
• Beige book                                               
• Initial jobless claims
• GDP second estimate (annual rate)
• Durable goods orders       April
• Core capital goods orders
• 8Advance trade in goods
• Personal income
• Consumer spending
• Core inflation
• Chicago PMI
• Consumer sentiment index (final)

Markets Index Wrap Up

Stock Markets

Stocks erased most of the prior week’s gains after a string of disappointing economic releases and escalating tensions between the U.S. and China. U.S. retail sales and industrial production registered their steepest declines on record for the month of April, reflecting the full and sudden stop of economic activity. The U.S. administration moved to block semiconductor shipments to Huawei, adding to investor caution. The most recent inflation reading showed a sharp decline in core inflation from 2.1% to 1.4%, the largest decline since 1957. Analysts say the impact from the current economics is deflationary, which implies that central banks will maintain very accommodative monetary policies for the foreseeable future.

U.S. Economy

The S&P finished the week down more than 2%, posting the biggest weekly decline since March, in what has been a robust 27% rally from the March 23 low. Analysts expect the market recovery to date has been driven in large part by the unprecedented level of monetary and fiscal support for the economy. However, the size of the federal response has prompted concerns that inflation could spike over time in response to higher-than-average federal debt levels and ultra-low interest rates.  While it is likely that inflation rises moderately from current levels, they think that the risk of hyperinflation is low for the following key reasons:

• Large-scale federal support is needed to help the economy weather the worst downturn since the Great Depression.
• Current impact is deflationary in the short term, with inflation likely to increase from low levels as the economy recovers.
• Over the past few decades, inflation has remained at moderate levels.

Metals and Mining

The price of gold continued to climb higher this week as renewed trade tensions between the US and China only added to recession woes and circumstantial uncertainty. Moving above US$1,740 per ounce, gold has climbed 18.6 percent since the mid-March sell-off and is poised to keep edging higher. The yellow metals ascent this week comes on the back of mounting concern the economic recovery will be more prolonged than originally expected and less likely to take the “V” formation many analysts had hoped. Widespread uncertainty may be headwinds for markets but is a motivator for safe haven investors who usually choose gold.

Silver also performed well this week, starting at US$15.51 per ounce Monday and growing by 6.4 percent to US$16.57. The white metal is now back in the pre-shutdown territory and expected to rise higher through investor appetite and weak economic data. Prices also grew for platinum this week and edged closely to the US$800 per ounce mark Friday morning. While automotive demand has slumped in the last three months, purchases of platinum coins has increased to record levels according to a research note from the World Platinum Investment Council. Sister metal palladium experienced another week of loses, marking over a month of downward momentum. Prices have already shed 35.3 percent since hitting an all-time high in late February of US$2,671 per ounce. The metal is likely to continue facing pressure from depleting auto demand and an industry that is looking to move away from palladium heavy catalytic convertors, towards a tri-metal blend.

In the base metals category, tough talk from US President Trump relating to trade with China has weighed on price growth, as is the concern that a second round of impacts could further hinder economic recovery. Copper started the week at US$5,234 per tonne moved a few dollars higher a day later, then fell to US$5,155.50. News that China’s industrial production climbed 3.9 percent in April following two straight months of declines was not enough to bring the red metal back. News that July copper contracts are up modestly could be beneficial. Zinc was faced with similar issues this period, breaking past US$2,000 per tonne on May 12, before settling back below US$1,950. Nickel also ended the five-day period lower, falling from US$12,275 a tonne on Monday, to US$12,084 Thursday. Demand has plummeted due to pandemic closures. Lead, made the most dramatic dip this session, falling 3.2 percent from US$1,629.50 per tonne to US$1,576. The drop is the metals worst performance since November 2015.

Energy and Oil

Oil prices appear to be rising relentlessly, with WTI bouncing above $28 per barrel, nearly at a two-month high. Market sentiment has been gaining steam as supply shut-ins mount and demand begins to come back. Still, the risk of another wave of impact presents a major risk to the rally. OPEC+ says it could keep cuts beyond June. “The ministers want to keep the same oil production cuts now which are about 10 million bpd, after June. They don’t want to reduce the size of the cuts. This is the basic scenario that’s being discussed now,” an OPEC+ source told the media. Analysts see optimism in data. Oil time spreads have seen a narrowing contango, a sign of tightening in the oil market. Storage fears are subsiding. Due to sharp cuts in oil production, the pace of inventory builds has slowed dramatically, easing fears of an acute shortage in storage capacity.

On the bigger picture Wood MacKenzie is predicting that oil demand may not recover until 2026. Wood Mackenzie outlined several scenarios in a new report, all of which paint a pessimistic outlook for oil demand. The firm said it could take years for demand to recover, but ultimately, demand will probably peak within the next decade. Alongside that prediction, the US Fed warns that economic damage will persist.  Chairman Jerome Powell warned of an “extended period” of economic damage. St. Louis Fed Chair James Bullard warned job losses could be permanent and businesses could fail “on a grand scale.” Natural gas spot prices fell at most locations this week. The Henry Hub spot price fell from $1.88 per million British thermal units (MMBtu) last week to this week.  At the New York Mercantile Exchange (Nymex), the price of the June 2020 contract decreased 33¢, from $1.944/MMBtu last week to $1.616/MMBtu this week. The price of the 12-month strip averaging June 2020 through May 2021 futures contracts declined 20¢/MMBtu to $2.362/MMBtu.

World Markets

Equities in Europe fell on growing fears of a prolonged recession that could be made worse by a possible second wave of impact. The pan-European STOXX Europe 600 Index ended the week 3.44% lower. Germany’s Xetra DAX Index slid 3.84%, France’s CAC 40 dropped 5.248%, and Italy’s FTSE MIB Index declined 2.84%. The UK’s FTSE 100 Index lost 1.97%. The eurozone economy contracted by a record 3.8% in the first quarter compared with the final three months of 2019, according to a flash estimate from Eurostat. France’s economy shrank 5.8%, the worst result among the 19 participating countries, followed by Slovakia (5.4%) and Spain (5.2%). Italy’s gross domestic product (GDP) withered 4.7%. The largest economy, Germany, shrank 2.2%.

European Central Bank (ECB) Vice President Luis de Guindos said in a speech that the eurozone economy had already put the worst of the downturn behind it. He said the economy could rebound in 2021, expanding by as much as 6%, although he acknowledged the level of uncertainty was high.

In a week when the S&P 500 came under selling pressure, mainland A-shares were able to hold steady until midweek, before weakening on renewed anti-China threats from U.S. President Trump. The CSI 300 large-cap index closed the week 1.3% lower, while the Shanghai Composite lost 0.9%. Stocks were supported over the week by better-than-expected April economic and credit data and by promises of more fiscal stimulus from Finance Minister Liu Kun. In the bond markets, China continued to attract foreign money, with a 14th consecutive week of flows into central government bonds and a total monthly inflow in April of USD 7.25 billion, partly related to China’s inclusion in key international bond indices. Overseas investor appetite for Chinese sovereign bonds should remain firm given a backdrop of monetary easing and falling inflation.

The Week Ahead

Important economic data being released include housing starts on Tuesday, the Fed meeting minutes on Wednesday, and the May preliminary PMIs on Thursday.

Key Topics to Watch

• NAHB home builders index                           
• Housing starts (annual rate)
• Building permits (annual rate)                       
• Advance services                                                                               
• Initial jobless claims
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• Existing home sales (annual rate)
• Leading economic indicators  April

Markets Index Wrap Up

Stock Markets

Stocks finished higher last week, with energy and technology stocks leading the way. Oil recorded its first back-to-back weekly gain since February, as oil companies are cutting production faster than expected and as signs of increased demand emerged. On the economic front, the April employment report showed that a record 20.5 million jobs were lost last month, erasing roughly all the jobs that the economy had added in this past decade’s expansion. The silver lining was that 80% of the job losses were reported as temporary layoffs. The S&P 500 has now recouped about half its losses from the record high earlier in the year on hopes that economic activity may be bottoming as restrictions ease and economies reopen. We think that a recovery will take shape, but there will be bumps along the way.

U.S. Economy

The week brought a host of data showing an unprecedented contraction in economic activity, but investors seemed to take hope that the economy was bottoming. On Tuesday, several gauges showed a record contraction in both manufacturing and services activity in April, but the Institute for Supply Management’s non-manufacturing purchasing managers’ index fell much less than feared. On Thursday, stocks rose despite the Labor Department’s report of another 3.2 million Americans filing for unemployment insurance in the previous week, with investors apparently reassured that this marked the fifth straight weekly decline in the number of initial jobless claims.

Metals and Mining

Gold continued its ascent above US$1,700 per ounce this week, driven by continued weak economic data and massive job losses. Gaining 1.7 percent week-over-week, the yellow metal dipped to US$1,684.10 on Wednesday before rebounding 2.4 percent to reach US$1,724.80 in pre-trading hours on Friday. While the rest of the precious metals were a mixed bag, the broader base metals market made significant gains this period as Chinese demand began to increase again.

Since breaking past US$1,700 on May 1, gold has retained its worth save for a brief two-day period this week, which saw the currency metal slip — offering a value opportunity for those interested to get in. Soaring unemployment numbers in the US, which recorded 22 million job losses in April, were compounded by almost 2 million lost jobs in Canada, helping to push gold above US$1,720 on Friday. Despite that dismal data, gold exchange-traded funds (ETFs) have continued to make historic gains. In April, gold-backed ETFs added 170 tonnes, increasing holdings to 3,355 tonnes, an all-time high. Gold’s safe haven nature could be tested in the coming weeks as there is speculation that the US Federal Reserve may announce another round of economic stimulus measures. Silver also made positive moves on Friday, climbing as high as US$15.62 per ounce for the first time since mid-March, before the rush to cash drove commodities lower. Platinum squeaked out a modest week-over-week gain. Mine closures in South Africa — the leader in output — are likely to lead to supply constraints later in the year, setting the stage for a potential shortage, according to a note from Bank of America Merrill Lynch. As mentioned, mine closures have also impacted the palladium space, and could lead to potential price growth later in the year as stores of the metal deplete. In the meantime, the autocatalyst metal is feeling pressure from broken supply chains and weak automotive sales, both of which impeded any growth this week. Starting the session at US$1,832 per ounce, palladium fell as low US$1,691 this week before clawing its way back above US$1,700. After hitting an all-time high of US$2,754 in late February, the metal has lost over 35 percent of its value.

In the base metals space, copper has made a week of straight gains as Chinese demand for the unwrought metal grew by 4.4 percent month-over-month to 460,000 tonnes in April. The value of the base metal increased 3.3 percent for week. Promise that the need for the red metal will climb as countries emerge from current situations bodes well for prices. Zinc also edged higher in Friday’s session, adding 6.2 percent to its value. Recent activity has been driven by rising demand for zinc futures on Chinese markets. Nickel surged ahead this week by over 4 percent, rising from US$11,785 per tonne on Monday to US$12,224 on Thursday. Demand from Asian nations propelled nickel futures higher. While the news is good for the versatile metal, it is still well off its year-to-date high of US$14,285, reached in mid-January. In the lead space, prices also trended higher, starting the session at US$1,592.50 per tonne and ticking up to US$1,619.50. The catalyst driving the other base metals also motivated lead.

Energy and Oil

Oil rally may be going too far. Oil prices have doubled in a little more than a week on mounting supply shut-ins and hopes of a demand rebound. But analysts are warning that the newfound optimism is premature. “Even following a gradual resumption of economic activity, demand may remain below the 2019 level for years to come,” Commerzbank analysts said. U.S. and Canadian oil production is on track to decline by 1.7 mb/d by the end of June, according to Reuters. “When prices went negative it really accelerated some of the cuts,” Allyson Cutright, director at Rapidan Energy Group, told the media. In addition, frac sand mines are closing down, laying off workers and cutting output. “The obvious answer,” Blake Gendron, an oilfield analyst with Wolfe Research, told the media “is rapid consolidation.”

In a turn on the energy front, Middle East oil producers are looking to renewables. “Solar power is the cheapest kilowatt-hour in the Middle East,” Benjamin Attia, an analyst at Wood Mackenzie, said. Solar can meet most of the electricity demand growth going forward in much of the Middle East. Globally, renewable deals are still moving forward despite the crisis in energy markets. The IEA said that renewables will be the only source of energy to grow this year. “I’m feeling strangely positive because I’m in renewables. If I was in chemicals or aviation or shipping, then I wouldn’t be,” Mortimer Menzel, a partner at Augusta and Co, a clean energy advisory firm, told the media.

Natural gas spot price movements increased this week. The Henry Hub spot price rose from $1.70 per million British thermal units (MMBtu) last week to $1.88/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the June 2020 contract increased 8¢, from $1.869/MMBtu last week to $1.944/MMBtu to this week. The price of the 12-month strip averaging June 2020 through May 2021 futures contracts climbed 2¢/MMBtu to $2.557/MMBtu.

World Markets

Equities in Europe reversed course and ended higher amid late signs of easing U.S.-China tensions and optimism that economies would start to recover as lockdown restrictions are lifted. The pan-European STOXX Europe 600 Index rose 0.92%. The main country indexes, however, were mixed. Germany’s Xetra DAX Index ended up 0.24%, France’s CAC 40 slipped 0.59%, and Italy’s FTSE MIB Index dropped 1.84%. The UK’s FTSE 100 Index, which was closed on Friday for a public holiday, rose 3% after an unexpected increase in Chinese exports fueled hopes for a quick economic recovery.

In a holiday-shortened week, China A-shares resumed their gradual uptrend on Wednesday. The Shanghai Composite and CSI 300 large-cap indices both finished up around 1.25% from their pre-holiday April 30 close.

The public health risks in China continue to fade rapidly. All of China’s provinces have downgraded their emergency threat levels to Level II or below. Ahead of key college entrance examinations in early July, all provinces have reopened their high schools to graduating students. The National People’s Congress (NPC) is also confirmed to open on May 21 in Beijing, with over 5,000 delegates attending in person. In an effort to calm rising trade tensions, Vice Premier Liu He spoke with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Friday, according to China’s official press agency. During the discussion, they reportedly reaffirmed their commitment to an initial trade deal reached in January and pledged to improve cooperation between the two nations. 

The Week Ahead

Important economic data being released include inflation on Tuesday and consumer sentiment and retail sales on Friday.

Key Topics to Watch

• NFIB small-business index
• Consumer price index
• Core CPI
• Federal budget
• Producer price index             
• Initial jobless claims               
• Import price index                 
• Retail sales
• Retail sales ex-autos
• Empire state index
• Industrial production
• Capacity utilization
• Job openings
• Consumer sentiment index
• Business inventories

Markets Index Wrap Up

Stock Markets

Even though stocks finished mixed the last week of April, the S&P 500 posted its best month since 1987. Synchronized stimulus initiatives globally improved sentiment from the March stock-market bottom. Volatility has subsided some but remains elevated. Economic data, including first-quarter U.S. GDP, point to broad weakness, marking the start of the recession, and companies are pulling full-year guidance due to the uncertainty. Economic activity will worsen because containment measures were expanded in the beginning of the second quarter, but the market is discounting that and focusing on the upcoming reopening of the economy. The Fed held its benchmark rate at 0.0%-0.25% last week and pledged to keep rates near zero until employment and inflation recover. The recent rebound in stocks highlights, analysts say, show that a disciplined investment strategy is the best way to navigate volatility. They believe the economy will start to recover, but the recovery will be phased in and gradual, with periodic setbacks along the way.

U.S. Economy

The S&P 500 ended the month of April with the highest gains since 1987, up 12.9% for the month. April was indeed a quick turnaround to the fastest bear-market decline in 90 years, with stocks up 26.6% from the March 23 low. The month of April is also characterized by the unprecedented stoppage of economic activity and a worldwide shutdown of business and social interactions. In contrast to the previous month, May is likely to be marked by a historic reopening of the global economy, from a sudden stoppage to a new normal, reflecting the still present, though receding, risks. Three key investment themes taking root now that will likely seed the recovery to come:

1. The second quarter will reflect more of the economic toll than the first quarter, with green shoots of recovery expected to appear in the second half of the year.
2. Central banks are the tillers of the soil, weeding out illiquidity in the credit markets and planting stimulus deeper and wider than ever before to seed an economic recovery.
3. Earnings fog clouds the outlook for the year, with a sunnier forecast for a 2021 rebound in corporate fundamentals.

Metals and Mining

The gold price finished the month of April in the red, slipping as low as US$1,671.80 per ounce in pre-trading hours on Friday. The fall ended the yellow metal’s steady ascent, which began after a pronounced period of liquidation in March brought gold as low as US$1,471.

Growing optimism that easing lockdowns will bolster markets and that economic activity will resume weighed on the broader precious metals sector as well this week, with silver and palladium also sliding back from their Monday prices. In the face of this week’s headwinds, gold has still climbed 8.2 percent year-to-date and is nearing historic highs, said CPM Group’s Jeffrey Christian during a World Gold Forum presentation. Describing gold’s movements as a stealth bull market, he explained, “Our estimate is that the average might be US$1,640 to US$1,650. That compares to an annual average of US$1,670 at its peak in 2012.”

For much of April, silver traded flatly between US$15 per ounce and US$15.40, trapped by declining industrial demand. Unlike gold, which gained back its mid-March losses, the white metal has been unable to even approach its February high of US$18.60. That may change as investor demand is projected to grow in the space this year due to renewed safe haven diversification appetite.

Platinum also experienced volatility this session, trending as high as US$764 per ounce and then tumbling to US$746 before the morning bell on Friday. The autocatalyst metal has slipped 22.3 percent year-to-date and is likely to continue to face price pressure from a disrupted auto manufacturing sector. Palladium is facing similar challenges as broken supply chains and global lockdowns ended its steady 18-month ascent. The sector also faces challenges down the line, as substitutions in the auto sector see the amount of palladium used in catalytic convertors reduced for an increase in platinum.

The base metals sector saw some positivity this week, with copper and zinc pulling out small gains, while nickel stumbled lower. Copper began the period at US$5,165.50 a tonne and gradually edged higher. Looking ahead, the red metal is projected to play an important role as society emerges from stoppages. Confidence that an end to economic slows could be in sight also benefited zinc this week. The metal was able to climb US$1,891 per tonne to US$1,930 on Wednesday. Renewed tensions regarding trade talks between China and the US on Thursday were reflected in a slight decline. Nickel faced its own demand decline challenges this week, which weighed on its price. After plateauing at the US$12,250 per tonne range, prices slid mid-week. Lead also fell lower after climbing to US$1,623 per tonne on Tuesday, its highest value this week. The metal then continually fell lower for the remainder of the period.

Energy and Oil

Oil is set to post its first weekly gain in more than a month as production cuts and some relatively positive news regarding the coronavirus boosted sentiment. The OPEC+ deal began Friday, while shut in wells have begun to pile up in meaningful volumes. The U.S. Federal Reserve revised its Main Street Lending Program to allow larger and more indebted companies to qualify for lending. The announcement received criticism from multiple corners. “The major changes announced today mirror the top requests of the oil and gas industry,” a congressional watchdog said. “That raises questions about how the changes promote the broader public interest — especially when these companies will still have no real obligation to retain or rehire their workers.” Even the powerful American Petroleum Institute spoke out. “You can’t have capitalism on the way up and socialism on the way down,” an API executive said.

With U.S. storage about to hit tank tops in a matter of weeks and the world deep in the throes of the biggest economic challenge in modern history, the inevitable has begun to unfold: The arduous and costly process of well shut-ins. ExxonMobil reported a first quarter loss of $610 million, compared to a profit of $2.4 billion a year earlier. It was the first quarterly loss in 32 years. The loss was made worse by $3 billion in write downs. Chevron said it would shut down 400,000 bpd and scrap 60 percent of its drilling rigs. In the Permian, Chevron cut rigs from 17 to 5.  Latin America has a nameplate refining capacity of 7.5 mb/d, but they are operating significantly below that level. Many facilities are aging and were operating below capacity before the downturn but plunging demand has substantially curtailed output.

Natural gas spot prices are mixed at most locations this week. The Henry Hub spot price fell from $1.87 per million British thermal units (MMBtu) last week to $1.70/MMBtu this week. At the New York Mercantile Exchange (Nymex), the May 2020 contract expired Tuesday at $1.794/MMBtu, down 15¢/MMBtu from last week. The June 2020 contract price decreased to $1.869/MMBtu, down 18¢/MMBtu from last week to this week. The price of the 12-month strip averaging June 2020 through May 2021 futures contracts declined 7¢/MMBtu to $2.535/MMBtu.

World Markets

European equities rose as investors welcomed announcements that lockdown measures will soon start being lifted. However, the European Central Bank’s decision not to inject more stimulus into the economy eroded gains. The pan-European STOXX Europe 600 Index ended the week 2.60% higher. Germany’s Xetra DAX Index surged 5.08%, France’s CAC 40 climbed 4.07%, and Italy’s FTSE MIB Index gained 4.93%. The UK’s FTSE 100 Index rose 0.73%.

The European Central Bank (ECB) left its key deposit rate at a record low of -0.5% and reaffirmed its plan to buy more than €1 trillion of bonds to shore up financial markets. It also expanded its loans to banks through targeted longer-term refinancing operations (TLTROs), offering them at an interest rate as low as -1% from June. The bank further announced a round of fresh lending starting in May with a rate of -0.25% “to support liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop.” ECB President Christine Lagarde said the central bank was “fully committed to doing everything possible within its mandate to support every citizen of the eurozone” but that “an ambitious and coordinated fiscal stance is critical.”

Financial markets in China were shut on Friday for an extended Labor Day holiday and were set to open again on Wednesday, May 6. Over the shortened week, the CSI 300 large-cap index rose 3.0%, beating the Shanghai Composite, which gained 1.8%.

In an attempt to boost consumer spending, the Labor Day holiday is one day longer than last year. Most analysts believe a mood of caution will prevail, however, as workers worry about job security, global recession, and a potential fallout from the current crisis. Per capita disposable income fell by 3.9% in the first quarter, so any rebound due to pent-up consumption may be brief. Cinemas remain closed, and shopping malls are imposing social distancing and frequent temperature checks. While a few travel restrictions remain, with some local governments discouraging travel between provinces, signs suggest that economic and social activity continue to normalize across China.

The Week Ahead

The earnings season continues this week, with about one-third of the companies in the S&P 500 reporting first-quarter results. Important economic data being released include factory orders on Monday, the non-manufacturing Purchasing Managers’ Index (PMI) on Tuesday, and April’s jobs report on Friday.

Key Topics to Watch

• Factory orders            
• Trade deficit
• Markit services PMI
• ISM non-manufacturing index
• ADP employment report                               
• Initial jobless claims
• Productivity
• Unit labor costs
• Non-farm payrolls
• Unemployment rate
• Average hourly earnings
• Wholesale inventories

Markets Index Wrap Up