Stock Markets

The U.S. stock markets had a bit of a reprieve this week with a small decline. That comes after six continuous weeks of advances and new highs. The volatility level continues to be low, but still a concern. The news on the U.S./China trade made things murky for investors who seem unsure if there is indeed a “Phase 1” trade deal ready to be completed before the year closes. The preliminary U.S. Purchasing Managers’ Index for November indicated an uptick in economic activity. This supports what most analysts see as the passing of the worst of the manufacturing slowdown.

U.S. Economy

In the US economic outlook, it’s not simply where things are headed that counts, but also how they will arrive at the end mark. As evidenced this year yet again, stocks go through significant rallies followed by pullbacks. The underlying drivers and the make-up of the components serve as indicators or predictors as to how long those trends may continue. So, while the market has continued strong over the last while (gains of 26.0% in 2019 and 6.6% in just the last three months), the question is will this continue? Analysts seem to agree on a couple of aspects here: they doubt that the market will continue with this magnitude. Mainly, they say, another 20%-plus gain is unlikely in 2020. They also doubt its continued steadiness. Since the market has rallied with virtually no volatility, that would need to continue. But overall, they think the direction will continue with a prolonged bull market led by more moderate gains on a bumpier road toward those gains. The underlying fundamentals, they say, are in place to support this path.

Metals and Mining

Gold managed to hang above US$1,460 an ounce Friday supported by the concerns that a trade deal between the US and China may not close by the end of the year as previously expected. For most of the week gold traded in the US$1,465 range but climbed on Wednesday more than US$9 an ounce to finish out the week as the only precious metal to eke out gains. The price surge for the safe haven metal can be pinned on the US Congress passing two bills that are specifically in support of human rights issues for Hong Kong. The legislation was of course condemned by China. Silver on the other hand was unable to get past the US$17.19 level which was its high point in the week. Silver reacted to the positive tariff talks, pushing the metal lower, despite the fact that it has gained a double-digit uptick year-to-date, climbing 12 percent. Still, it has been slightly outpaced by gold, which is up 14 percent. The steady player in the precious metals game was platinum, which hovered at the US$900 mark before dropping 2.6 percent post market open. Platinum has also enjoyed a double-digit gain over the last 12 months, but nothing like palladium. That metal has gained 12 percent year-to-date and looks balanced for 2019. According to a recent report from the World Platinum Council, record growth in platinum ETFs is the driving factor in the 12 percent increase in demand for palladium. Overall, the industrial platinum group metal prices are up more than 40 percent year-to-date. That can be attributed to the strong demand by the automotive sector. Palladium fell to US$1,731.50 at 10:46 a.m. EST Friday.

Energy and Oil

Global oil prices rebounded midweek this week with signs of a tighter physical market and more rumors that OPEC+ may extend production cuts. In reality, the market is awaiting direction from the U.S.-China trade war and until a firm answer emerges, every murmur has an immediate price impact. So, while markets are optimistic, everyone is cautious at this point.

Natural gas spot price movements were mixed this week. The Henry Hub spot price fell from $2.62 per million British thermal units (MMBtu) last week to $2.47/MMBtu this week.

At the New York Mercantile Exchange (Nymex), the price of the December 2019 contract decreased 4¢, from $2.600/MMBtu last week to $2.559/MMBtu this week. The price of the 12-month strip averaging December 2019 through November 2020 futures contracts declined 6¢/MMBtu to $2.427/MMBtu.

World Markets

European equity markets were under pressure from the uncertainty about the future of a U.S.-China trade deal, aka ‘Phase One’. The pan-European STOXX Europe 600 Index lost 0.3%, while the German DAX was off 0.5%. The UK’s FTSE 100 Index gained about 0.5% in proportion with a decline in the British pound that echoed the U.S. dollar. Typically, UK stocks gain when the pound falls since a majority of companies that make up the index benefit from overseas revenues. The telling Purchasing managers’ indexes (PMIs) in the eurozone showed manufacturing activity shrank at a slower pace in November, while services numbers dropped slightly. The region’s manufacturing PMI rose to a three-month high of 46.6 in November. That is still in contraction territory. Data show that Germany’s manufacturing PMIs rose for the second straight month and Germany’s Statistics Office confirmed that the German economy grew 1%, narrowly missing the recession numbers.

Chinese stocks were down for the week sparked by the U.S. support for a bill in aid of protestors in Hong Kong. This also pivoted the expectations for a partial trade deal that was supposed to be completed by November. On the week, the benchmark Shanghai Composite Index declined 0.2% and the large-cap CSI 300 Index, which tracks stocks listed on the Shanghai and Shenzhen exchanges, fell a tiny 0.7%. In both cases, the markets fell to their lowest points Friday well after the U.S. House and Senate each passed a bill supporting human rights in Hong Kong. The passage of the bill compiled the uncertainty surrounding talks on the ’phase one’ trade deal, which most expect is the gateway for greater progress across the board.

The Week Ahead

While this week will be shortened by the Thanksgiving Holiday, there are still several important economic data that will come out in the run-up. Key data emerging this week include consumer confidence, new home sales, third-quarter GDP (second estimate), as well as with capex order, Chicago PMI, durable goods orders and personal income on the eve of the holiday.

Key Topics to Watch

• Chicago Fed national activity index
• Advance trade in goods
• Case-Shiller home price index
• Consumer confidence index
• New home sales
• Weekly jobless claims
• GDP revision
• Durable goods orders
• Core capex orders
• Chicago PMI
• Personal income        
• Consumer spending
• Core inflation
• Pending home sales index

Markets Index Wrap Up

Stock Markets

In what is the longest streak in two years, U.S. stocks reached another all-time record high, gaining for the sixth straight week this week.  US-China trade negotiations remain fluid and, the possibility of a limited deal between the two countries has been the real power behind the month-long market rally. The news seems mixed with softer October retail sales and industrial production in China, but in the Eurozone, it turns out that GDP was better than expected. Even global manufacturing, which was in a slump, appears to be improving. That’s based on the global manufacturing Purchasing Manager’s Index which has now risen for three straight months. Analysts seem convinced that underlying fundamentals will still support the bull market for stocks, but they caution that they don’t expect the relatively low volatility to last forever.

U.S. Economy

Although Washington is going through a lot of turmoil and drama right now, it does not appear to have leaked onto Wall Street. Last week saw four new daily record highs reached which brings the total in 2019 so far to 22 new highs. The market appears to keep rising steadily and volatility has continued to sink. In fact, a full seven percent of the S&P 500’s rise that totaled 24% this year to date, has taken place in just the last six weeks. That appears to echo a growing optimism from the apparent progress in the US -China trade war, along with solid third-quarter corporate earnings, and the data indicates that the U.S. and global economies are not on a course to a sure recession. Offsetting that, the fluctuations in the stock market have been pretty mild, with the volatility index (or VIX index) which measures short-term volatility, falling to its lowest the lowest level in 2019. For these reasons, analysts don’t think the bull market is done moving up, but investors should still prepare for tougher markets than we’ve had since summer.

Metals and Mining

All of the precious metals were affected negatively again this week while the markets responded to growing hopes around a summation of the US-China trade deal. Gold tumbled on Friday as the sentiments pushed investors to renew their appetite for riskier assets, which immediately pushed gold lower. The US dollar got a boost when comments from White House officials sparked belief that they may be close to a deal and that there may be an end nearing in the battle over trade. However, gold appears primed to make gains for the week. Any serious declines are likely to be contained until official word of a confirmed deal is sealed. In 2019, gold has been largely supported by the trade war, which has fueled gains of over 14 percent as disputes between two of the world’s largest economies caused turmoil in the markets and sustained investors concerned over a global slowing of economies. Silver also headed downward on Friday, but, much like its counterpart gold, made marginal gains for the week. Silver got bumped as its safe haven appeal declined. The uncertainty of an actual trade agreement coming to a final broad agreement has many industry experts suggesting silver will rebound. In other precious metals sectors, platinum was able to offset gold and silvers’ trends, with small gains of just under 0.6 percent on Friday. Things were not so rosy for palladium, which fell 0.64 percent by Friday morning. That decline was relatively marginal since palladium is still supported by the same factors that helped it break records last month. Palladium is a true star in 2019, gaining over 40 percent, with its significant increases attributed largely to stricter environmental regulations around car emissions that use the metal in pollution control devices.

Energy and Oil

This was a big week for oil market data and projections as both OPEC and the IEA released some key reports for the industry. Even with this spurt of new data, oil closed out the week with virtually no change the previous week. In terms of volatility things were mostly quiet with the U.S.-China trade war hanging over all oil market indexes. Weak demand and rising non-OPEC supply presents a “major challenge” to OPEC next year, according to a new report from the IEA. The agency said that non-OPEC supply could grow by 2.3 mb/d in 2020, higher than the 1.8 mb/d this year. The other news that resounded was reports that offshore oil production could hit a peak in 2020 before heading into decline. After supply additions next year, a bunch of new projects go forward, according to a Sanford Bernstein Report just out. Natural gas spot prices fell at most locations this week. Henry Hub spot prices fell from $2.78 per million British thermal units (MMBtu) last week to $2.62/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the December 2019 contract decreased 23¢, from $2.828/MMBtu last week to $2.600/MMBtu this week. The price of the 12-month strip averaging December 2019 through November 2020 futures contracts declined 8¢/MMBtu to $2.487/MMBtu.

World Markets

In Europe, the equity markets were mostly higher again this week, led by support for a U.S.-China trade deal that paired with continued strength in U.S. stocks. The pan-European STOXX Europe 600 Index gained 0.2%, and the German DAX rose 0.08%, while the UK’s FTSE 100 Index dropped about 1%. The latest data out of Germany showed the economy there avoided recession, but just technically, growing 0.1% in the third quarter. No question Germany’s manufacturing sector has been dampened by the U.S.-China trade dispute, Brexit uncertainty, and a disruption in its auto industry. The manufacturing recession has not spilled into the services sector so far. The EU Statistics office reported that the eurozone economy grew at 0.2% over the previous quarter for a total 1.2% in 2019. The UK also managed to avoid recession, but the economy there grew at its slowest annual rate in the last decade. The UK economy grew a total of 1% in the last quarter.

Chinese stocks recorded a weekly decline as a group of weak results reinforced the U.S.-China trade war’s impact on the economy. The talks over a partial “phase one” trade deal appear to be dragging on with no firm commitment to set a quick end the dispute. The benchmark Shanghai Composite Index lost 2.5%, its largest weekly decline since September, and the large-cap CSI 300 Index, fell 2.4%. Evidence of China’s slowing economy appeared on Thursday, when the government reported disappointing data for three key areas: industrial output, retail sales, and fixed-asset investment. Industrial output and retail sales which were showing strength also grew less than expected for October.

The Week Ahead

Relevant economic data to be released this week include housing starts, the leading economic index, housing starts, Markit Manufacturing Index and consumer sentiment on Friday. A few last retailers are still scheduled to report quarterly earnings results next week.

Key Topics to Watch

• Home builders’ index 
• Housing starts
• Building permits
• Advance services                     
• FOMC minutes                                                
• Weekly jobless claims
• Philly Fed index
• Existing home sales
• Leading economic indicators
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• Consumer sentiment index

Markets Index Wrap Up

Stock Markets

U.S. stocks extended recent gains this week, ending higher for the fifth week in a row. The continued signs of progress with U.S.-China trade negotiations accompanied by better-than-expected corporate earnings for the season, have helped ease the fears of recession for the whole month and moved investor sentiment into the positive zone. Treasury yields climbed to their highest level in three months this week on the backs of stabilizing global growth. There remain many uncertainties where trade is concerned, but earnings are projected to bottom out this year and then reaccelerate in 2010 to a possible mid-single-digit pace. That’s a real positive for investors. Analysts are suggesting this sets the stage for moderate returns in a bull market that is welcomed in November.

U.S. Economy

There are several issues dominating the market recently, including the trade issues, political battles consuming Washington, Fed rate shifts, and broader geopolitical uncertainties. The more fundamental drivers have taken the lead on this recently, namely corporate earnings results. These are driving to the markets to new all-time highs and continue to be the focus. 

Already, about 90% of S&P 500 companies have reported results, indicating that the third-quarter earnings season is about to close. It looks as though corporate profits are on track to register just a meager decline when compared with a year ago. But in the bigger picture, the results have been better than expected, mostly as a result of the latest signs of progress on trade negotiations, which clearly pushed the markets to new highs.

Metals and Mining

Gold prices tumbled Friday as hopes surrounding US-China trade talks caused the dollar to gain momentum and pushed gold down as a result. The US dollar began moving upwards when news broke that China and the US had agreed to roll back tariffs as part of a potential deal to end their ongoing trade war. Even so, Gold continues to be supported by concerns that emerged as officials spoke out against giving up punitive tariffs. On the whole, gold has gained more than 14 percent in 2019, mainly as a direct result of fears about the trade war between the super giants. Gold is set for its largest weekly decline in two and a half years. Silver is slumping on the week and was also down about 6 percent by the end of Friday’s session — its biggest slump since October 2016. Like gold, silver is being pushed by the steady dollar, as investors pulled back. The other precious players, platinum and palladium, came down this week. Platinum lost over 1 percent on Friday and 5 percent for the week. Palladium’s decline was only marginal, as it remains supported by the same factors that helped it break records last week. Palladium is the real runner and has gained 43 percent since the beginning of the year.

Energy and Oil

Oil prices fell back on Friday as traders awaited more backing that the U.S.-China trade deal will become a reality. From the news reports this week, it is expected that both sides would lower tariffs as part of the phase one agreement. Unfortunately, the deal has been moved to a December completion. In following the news, oil demand growth remained weak in the short term, stemming from slow progress on the US-China trade war, and from long-term growth of alternative transportation methods, which are gaining steam. OPEC unhappily is projecting oil demand growth of about 1 million b/d this year. However, the International Energy Agency predicted oil demand would grow by just 0.25 million b/d a year on average post-2025. Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $2.67/MMBtu last week to $2.78/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the December 2019 contract increased 14¢, from $2.691/MMBtu last week to $2.828/MMBtu this week. The price of the 12-month strip averaging December 2019 through November 2020 futures contracts climbed 7¢/MMBtu to $2.567/MMBtu.

World Markets

Markets in in Europe remained mostly higher this week following suit with the rally on Wall Street fueled by optimism about a U.S.-China trade deal, and for the most part, solid corporate earnings reports. The pan-European STOXX Europe 600 Index rose for the fifth week in a row, gaining about 1.4%. The German DAX rose about 2%, while the UK’s FTSE 100 Index gained about 0.8%.

As the earnings season slows down, it’s worth noting that of the 80% of the STOXX 600 that have reported numbers, 50% of the companies have surpassed consensus estimates on both the topline and bottom line. That is the highest level in the last six quarters. Of the winners, health care and basic materials sectors have surpassed the most on earnings per share; utilities and consumer goods followed the leaders. The International Monetary Fund (IMF) said that the eurozone is likely to grow less than expected in 2019. It claims the recession in manufacturing sector could spill into the services sector. The IMF forecast is down from its April estimate of 1.3% to a new 1.2%. That comes after expansion in 2018 of 1.96%. The IMF attributes the slowdown mostly to slow growth in Germany, which is the eurozone’s largest economy. It was also hobbled by stagnation in Italy. In Germany, exports rose a higher-than-expected 1.5% in September after adjusting for seasonal and calendar effects.

In China, stocks advanced for the week based on hopes that a comprehensive U.S.-China trade would emerge following news that both sides agreed to roll back tariffs on each other’s goods as part of a phase one trade deal. For the week, the benchmark Shanghai Composite Index edged up 0.2%, and the large-cap CSI 300 Index, rose 0.5%. Both indexes fell Friday as Beijing and Washington sent mixed messages about the likelihood of an imminent breakthrough. In any case, news of a plan to remove tariffs in stages was strong enough to raise sentiment, since investors appear to have embraced it as a sign of de-escalation in the U.S.-China trade war and a boost to the global economy.

The Week Ahead

Only about 10% of the S&P 500 companies will report earnings as the earnings season comes to an end this week. Bond markets are closed on Monday in observance of Veteran’s Day. The significant economic data rolling out this week includes inflation numbers, the Consumer Price Index, Householder Debt and on Friday, the industrial production and retail sales figures.

Key Topics to Watch

• NFIB small-business index
• Consumer price index
• Core CPI
• Household debt
• Nel Kashkari speaks                                        
• Federal budget
• Weekly jobless claims
• Producer price index
• Retail sales
• Retail sales ex-autos
• Import prices ex-fuel
• Empire state index
• Industrial production
• Capacity utilization
• Business inventories

Markets Index Wrap Up

Stock Markets

U.S. stocks reached new record highs following the October jobs report which indicated that the economy added more jobs than expected. That is positive despite potential impact from significant events such as the GM worker strike and the loss of temporary U.S. Census jobs. In an expected move, the U.S. Federal Reserve cut interest rates for the third time this year. They followed the announcement which indicated a pause in the lowering of rates in order to react more closely to changing economic tides. The third-quarter GDP estimate slowed last week from 2.0% to 1.9%, but possibly showed that several risks have lessened. Those include the lowering of U.S./China trade tensions, the ongoing uncertainty of the Brexit situation, and manufacturing weakness, which seems to have leveled. Analysts agree that the U.S. economy is pretty solid, supported by the three legs that have been driving growth: a strong labor market, rising corporate earnings, and interest rates that remain in check.

U.S. Economy

The data seems to support that there is still good support fueling the stock market. Most evident is the fact that stock prices rose 1.5% last week and hit a new record high. The rise was supported by what is seen as slowing economic and corporate data that remains positive and still surpassed market expectations. There are four growth trends that appeared in the recent data that should help offset risks from slowing domestic and global growth, as well as trade uncertainty. They will likely keep the bull market in full swing, but also slower than in the previous term.

The trends to watch are:

A healthy labor market supports consumer spending – The economy added 128,000 jobs in October, well above the consensus estimate and stronger than the 100,000 jobs needed to support new entrants into the workforce each month. Average hourly earnings grew by 3% from a year ago, besting consumer-price inflation over the same time period.

GDP growth is slowing but still positive driven by consumers – GDP data released last week showed that the economy grew by an estimated 1.9% in the period from July through September, slightly lower than the 2% pace posted in the previous three months. Consumers continue to show resilience in the face of these concerns.

The Fed monetary policy is well positioned for the bull market – The Federal Reserve delivered on a third straight reduction in benchmark interest rates, reducing the federal funds target to 1.5%-1.75% from 1.75% -2.0%. By stating that monetary policy was “in a good place,” the Federal Reserve chair signaled a pause in future rate cuts to assess the state of the economy.

Positive corporate earnings are supporting growth in share process with added volatility – The corporate sector is also showing earnings growth. Approximately 80% of firms that have reported third-quarter earnings so far have beat analysts’ estimates. Corporate results thus far have also reinforced our view that earnings will continue to grow at a measured pace.

Metals and Mining

Gold prices fell slightly on Friday based on stronger data from China, which pushed investors’ risk tolerance. Market watchers are also awaiting employment data from the US, which should give some perspective on its trade dispute with China and its impact on the US economy. Despite the downtrend, gold has support from trade uncertainties and the recent interest rate cut by the US Fed. Analysts say that shrinking interest rates and ongoing trade war concerns will help prop up gold in the medium to long term. Despite being down at the end of the week, gold was set for a weekly gain. Silver once again followed gold’s direction and dipped slightly. It continues to trade over the US$18 per ounce level. There is strong industry support for silver set against the current political and economic climate. With other precious metals, platinum was relatively flat on Friday, and hung around the US$900 per ounce level. It is trending upward for the most part based on gold’s momentum. Palladium was again the precious metal leader, hitting an all-time high of US$1,824.50 per ounce during Wednesday’s session. Its gains have been largely attributed to stricter environmental regulations surrounding car emissions and the demand that flows from them.

Energy and Oil

On Friday morning oil received a jolt on unexpectedly positive manufacturing data from China and a continued rig count collapse. Neither of these put to rest concerns about an economic slowdown. It appears that economic uncertainty will dominate the oil market narrative, and markets will hinge on the next movements in the ongoing trade war between the U.S. and China.  Brent crude climbed back above $62/barrel in intraday trade toward the end of October, before heading back down again. That was based mostly on growing concerns about weak Chinese industrial growth, following data showing Chinese industrial company profits had fallen for the second month in a row. Earlier data put India’s oil imports in September at three-year lows. India and China have accounted for more than 50% of global oil demand growth over the past decade. Earlier optimism suggests that given the right conditions, oil prices could shrug off the current weakness of a slowing global economy, but it will be an uncertain struggle with some serious bumps along the way. Natural gas spot prices rose at most locations this week. Henry Hub spot prices rose from $2.28 per million British thermal units (MMBtu) last week to $2.67/MMBtu this week. At the New York Mercantile Exchange (Nymex), the November 2019 contract expired at $2.597/MMBtu, up 32¢/MMBtu from last week. The December 2019 contract increased to $2.691/MMBtu, up 26¢/MMBtu from last week to this week. The price of the 12-month strip averaging December 2019 through November 2020 futures contracts climbed 14¢/MMBtu to $2.498/MMBtu.

World Markets

European stocks hit a 22-month high after the EU granted a Brexit extension. Highs were also supported by encouraging Chinese manufacturing data, and strong asset inflows into the region. The pan-European STOXX Europe 600 Index hit a 22-month high Monday and rose for the week. The German DAX and Italy’s FTSE MIB Index also gained, while the UK’s FTSE 100 Index dropped. Following UK Prime Minister Boris Johnson winning backing for a December 12 general election, the country headed immediately into election campaigning. Thanks to the plan, the UK will now have the ability to leave the bloc if the UK and the EU ratify the withdrawal deal that Johnson agreed to in October.

In China, stocks showed a strong weekly gain as positive earnings from mainland companies and data showing an upswing in private manufacturing activity helped dispel concerns about U.S.-China trade battles. The benchmark Shanghai Composite Index edged up 0.1%, and the large-cap CSI 300 Index rose 1.4% on the week. The Caixin/Markit manufacturing purchasing managers’ index (PMI) unexpectedly rose to 51.7 in October – its best reading since February 2017. The strong showing for the influential Caixin PMI survey, which tracks roughly 500 private factories, helped to support the positive condition of China’s economy despite the impact of U.S. tariffs. However, other data on the week made it clear that U.S. tariffs have had a toll the country’s manufacturing sector. China’s official factory activity gauge, the manufacturing PMI, fell to an eight-month low of 49.3 in October—the sixth straight month the index has stayed below 50. China’s economy grew below its forecast 6.0% in the third quarter. That is China’s slowest growth pace since 1992.

The Week Ahead

A number of important economic data points will be released this week including durable goods, the services Purchasing Manager’s Index, ISM manufacturing, weekly jobless claim, consumer sentiment index and the University of Michigan’s consumer sentiment this Friday.

Key Topics to Watch

• Factory orders
• Trade deficit
• Markit services PMI
• ISM non-manufacturing index
• Job openings
• Productivity
• Unit labor costs
• Weekly jobless claims
• Consumer credit
• Consumer sentiment index
• Wholesale inventories

Markets Index Wrap Up

Stock Markets

U.S. stocks closed near record highs this week as they rose for the third straight week. The primary driver of market action continues to be earnings. Nearly all third-quarter results coming in so far have been better than expected. The markets got an additional lift as reports that the U.S. and China are close to finalizing sections of the trade deal emerged. The softening of trade rhetoric helped international stocks, which have outperformed U.S. stocks this month. As a marker, both emerging-market and developed-market stocks are off their all-time highs reached in 2007 by about 16%. Analysts suggest that expectations for international markets may be overly pessimistic, creating some opportunities for investors who can think long-term.

U.S. Economy

With the stock market up 20% in 2019 and reaching another all-time high last week, markets are trying to assess the charging bull and its effects on bond interest. It begs the questions, where’s the red flag of warning?

In previous cycles we saw skyrocketing home prices and easy mortgages for borrowers with no income, and prior to that a stock market P/E ratio near 40 times and astronomical stock price gains in dot-coms with no foreseeable profits.

At present, there are no obvious looming excesses or bubbles that demonstrate an imminent threat. However, the prevalence of negative interest rates abroad is a sign worth watching. To predict negative rates red flags, we suggest four key areas:

1. Why and where are interest rates negative? 
2. Will negative rates work?
3. Will the U.S. see negative rates?
4. What should investors do in this rate environment?

Subzero rates should not drive suboptimal decisions. Although global economies face headwinds, it’s not a time to avoid international diversification of portfolios. Reviewers suggest that negative rates are a sign of extremely pessimistic expectations for international markets which can create an excellent opportunity for long-term investors.

Metals and Mining

Precious metals were up this week as concerns surrounding Brexit and a slow in global economic growth once again pushed prices. Gold rallied on Friday as the Brexit question once again entered murky waters as Prime Minister Boris Johnson demanded a December 12 election and EU ambassadors are left considering the length for an extension to the exit deal. Based on these events, it is unlikely that EU governments will make a Brexit decision this week. That sent investors to seek out the precious metals as a favorite safe haven. Concerns surrounding global economic health and the outcome of the US and China trade deal also helped to support for gold. Data was released Thursday that showed new orders for key US-made capital goods and shipments declined last month. That’s a signal that business investment continues to lose ground as the trade war continues. As of 10:07 a.m. EDT on Friday, gold was trading at US$1,512.80 per ounce. Silver, which had previously taken its own track, followed gold’s lead this week, also making gains of over 1 percent for the week and once again trading over the US$18 per ounce level. Industry insiders believe that silver is primed to make substantial gains. The other precious metals, platinum and palladium were up once again this week. Platinum rose close to 2 percent Friday breaking through the US$900 per ounce level. Palladium was once again on top of the precious metals heap for the week. It hit an all-time high of US$1,785.50 during Thursday’s session. Palladium has rallied all year, gaining 36.5 percent since January.

Energy and Oil

Oil was down at the start of trading on Friday but was poised to close out the week with modest gains thanks to EIA inventory drawdowns and rumors of OPEC+ cuts. Reports are that top U.S. and Chinese trade negotiators have discussed a plan in which China would buy more farm products in exchange for the U.S. removing some tariffs. The outlines of what is a partial deal are important because they would in essence try to move the trading relationship to positions before the trade war erupted, without having to deal with the larger hot button issues of intellectual property. However, there is a lot of ground to cover. President Trump has currently agreed to cancelling the October 15 tariff increase on $250 billion worth of goods, but that’s all. China says that it will offer more purchases, but in return it also wants the tariffs planned for this December totally scrapped. Natural gas spot price movements were mixed this week. Henry Hub spot prices rose from $2.25 per million British thermal units (MMBtu) last week to $2.28/MMBtu this week.  At the New York Mercantile Exchange (Nymex), the price of the November 2019 contract decreased 2¢, from $2.303/MMBtu last week to $2.282/MMBtu this week. The price of the 12-month strip averaging November 2019 through October 2020 futures contracts declined 3¢/MMBtu to $2.348/MMBtu.

World Markets

Europe’s equity markets ended mostly higher this week, lifted by the strong start to the 3rd quarter earnings season. Once again it was Brexit uncertainty and U.S.-China trade tensions that helped to slow gains. The pan-European STOXX Europe 600 Index gained 1.5%, while the German DAX and the UK’s FTSE 100 Index both rose more than 2%. The British pound came under pressure this week set against Brexit uncertainty. French President Emmanuel Macron blocked a European Union (EU) attempt to delay Brexit for three months as the sole dissenter at the EU leadership meeting in Brussels. Macron says he wants to allow a Brexit delay until November 30, but other EU governments are willing to postpone Brexit until January 31. That would allow time for a general election which UK Prime Minister Boris Johnson asked to hold on December 12. He will need to secure the backing of two-thirds of Parliament to secure the motion. It will go before the House of Commons on Monday.

Stocks in China stocks also posted a weekly gain, as a string of positive earnings reports and a liquidity injection by the central bank boosted buying. For the week, the benchmark Shanghai Composite Index edged up 0.6%, and the large-cap CSI 300 Index added 0.7%. Decent third-quarter earnings reports from a few significant companies eased worries about corporate earnings weakness. China reported last week that its economy grew a below-forecast 6.0% in the third quarter, marking its slowest growth pace since 1992.

The Week Ahead

The third-quarter earnings season is moving forward as a full one-third of the S&P 500 companies will be reporting earnings through the week. Several significant economic data points will emerge this week including consumer confidence figures, third-quarter GDP growth, and September job reports at weeks end. On Wednesday, the Federal Reserve will render its important rate decision.

Key Topics to Watch

• Advance trade in goods
• Chicago Fed national activity
• Case-Shiller home prices
• Consumer confidence index
• Pending home sales
• Gross domestic product (GDP)
• FOMC announcement
• Weekly jobless claims
• Employment cost index
• Personal income
• Consumer spending
• Core inflation
• Chicago PMI
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Markit manufacturing PMI
• ISM manufacturing index
• Construction spending
• Varies  Motor vehicle sales

Markets Index Wrap Up

Stock Markets

U.S. stocks ended slighter higher in a week when better-than-expected earnings and some newfound optimism for a positive Brexit outcome were contrasted against continuing global growth concerns. This is the kickoff of the important third-quarter U.S. earnings season. Major banks were reporting solid earnings last week despite depressed investor expectations, which lead the entire group higher. Another positive investor note was news from the EU and U.K. that they agreed in principle on a new Brexit deal following several days of negotiations. As usual, uncertainty seems to surround the deal because it will still need the approval of Parliament this weekend. In data issued this week, U.S. retail sales were a slight disappointment, while the International Monetary Fund (IMF) lowered its projections once again, this time placing global growth this year from 3.5% down to 3%. Analysts content that consumer spending is still well supported, and they believe global growth will stabilize as turmoil subsides over these events. They also expect that volatility will be similar to historical averages previously reached at this point of the growth cycle.

U.S. Economy

It’s hard for investors to know exactly which headlines to track in this very busy season. First and most obvious is the kickoff to the third-quarter earnings season. On that front, the market received new economic data showing that growth is slipping. Right alongside that, there are multiple geopolitical events to track such as Brexit, which appears to be gaining legs.  So, where should investors focus their efforts? Several economic and political events are heating up in what is the latter stages of a bull market, not to mention the fact that the U.S. is about to head into the 2020 presidential-election season. Here’s some key areas that analysts focus on to help you follow investing and the U.S. economy:

1. Know the key stats and know when fundamentals are slowing but still growing.
2. Follow corporate earnings carefully to assess the record highs, and when stocks appear overpriced.
3. Watch for the game changers, such as trade deals that could quickly become catalysts for slumping global growth.
4. Beware of flashy news headlines that might create short-term volatility.
5. Stay focused on proven, long-term financial goals.

Metals and Mining

Gold had a negative reaction to news of the Brexit deal this week.  It was down slightly Friday after Britain and the EU struck a deal over the exit.  That’s more than three years after Britons voted to exit the bloc. Once the threat of negative economic outcomes from a failed deal were lifted, investors eased up on all of the precious metals group as a safe haven. Despite gold’s reaction to the deal, the overall losses were limited once again due to ongoing weak economic data from the industrial leading countries including the US and China. China revealed that its third-quarter economic growth slowed to its weakest pace in close to three decades. The news followed reports that US retail sales fell for the first time in seven months in September. The US Federal Reserve will meet at the end of October in order to decide if further interest rate cuts will be made this year. Silver did not appear to have the same reaction to the Brexit deal and global economic worries. It was relatively steady on Friday but remains outside of the US$18 per ounce level that it reached in the previous month. The other precious metals, platinum and palladium were mixed, with platinum remaining flat on Friday below the US$900 per ounce level and palladium dipping slightly. Palladium was the most successful precious metal for the week, climbing over 3 percent. The World Platinum Investment Council (WPIC) released a report last month that states platinum demand is expected to climb by 9 percent this year. During the first half of 2019, a surge in exchange-traded fund (ETF) activity accounted for 855,000 ounces of investment demand.

Energy and Oil

The current trade war woes and economic concerns have kept a cap on oil prices this week, despite the bullish geopolitical news in the Middle East. Oil prices were down on the week as the global economy continues to struggle with the realities of the U.S.-China trade war and crude inventories continue to build. As a result of the current weak demand coupled with growing supply, and the increasing likelihood of a global glut in 2020,  a majority of analysts are betting that OPEC will add deeper cuts when they meet in December. On the U.S. front, several U.S. shale drillers saw their credit outlooks cut by analysts in the past week. Low oil prices and struggles with profits have hurt investor sentiment in the sector. Natural gas spot prices rose at most locations this week. Henry Hub spot prices rose from $2.22 per million British thermal units (MMBtu) last week to $2.25/MMBtu this week.  At the New York Mercantile Exchange (Nymex), the price of the November 2019 contract increased 7¢, from $2.234/MMBtu last week to $2.303/MMBtu this week. The price of the 12-month strip averaging November 2019 through October 2020 futures contracts climbed 1¢/MMBtu to $2.377/MMBtu.

World Markets

Equity markets in Europe were mixed after the UK and the European Union (EU) struck a tentative deal, agreeing to new terms. Gains were held back by concerns about UK Prime Minster Boris Johnson’s ability to convince Parliament to approve the deal.  Other news pressured stocks to trigger new worries about slowing global growth. The pan-European STOXX Europe 600 Index was flat, the German DAX was up 1.4%, and the UK’s FTSE 100 Index fell about 1%. The pound jumped to its highest level in five months and was 1.7% higher on the week after leaders of 27 EU countries endorsed the new agreement. At the same time, the German government lowered its growth forecast for 2020 to 1% from 1.5% and left its 2019 growth forecast unchanged.

China’s stocks ended on a weekly loss after its third-quarter economic growth forecasts came up short. Analysts expect its part of the toll of the U.S. trade battle and raising the recession risk for the global economy. For the week, the benchmark Shanghai Composite Index fell 1.2% and the large-cap CSI 300 Index, fell 1.1%. Both gauges recorded their biggest one-day drops on Friday, after China reported that its gross domestic product (GDP) rose 6.0% from July to September from a year earlier. Even with this slowing, year-to-date 6.2% expansion indicates the country can still hit its full-year growth target of 6.0% to 6.5%. It should be noted that the latest quarter’s GDP signifies China’s slowest growth pace since 1992. That was the first year that the Chinese began releasing quarterly growth data.

The Week Ahead

The earnings season is getting into full swing with roughly 20% of S&P 500 companies releasing earnings reports over the coming week. Some of the key economic data that will emerge with week includes existing home sales, new home sales, core capex orders, manufacturing PMI flash and on Friday, the important consumer sentiment numbers.

Key Topics to Watch

• Existing home sales
• Weekly jobless claims
• Durable goods orders
• Core capex orders
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• New home sales
• Consumer sentiment index

Markets Index Wrap Up

Stock Markets

U.S. stocks and the global group all rose this week buoyed by optimism that Chinese and U.S. officials had made real progress in negotiations late in the week. They expect that the groundwork for a truce on additional tariffs will allay further volatility. There were also positive comments from leaders on the Brexit issue which helped the positive outlook. Together these events were a catalyst for leading international developed-market stocks which had their biggest single weekly rise in four months’ time. Analysts were quick to note that reduced uncertainty can be a catalyst for improved returns in international equities. They should take in to account that negotiations are ongoing and clearly things have changed on past U.S. – China agreements in principle.

U.S. Economy

U.S stocks appear on track to finish strong this year. The S&P 500 is near a record high, even though there was significant volatility in the past quarter. That due to fears of recessions creeping in as a result of slower global growth and trade tensions that were on high alert. Gyrations in the on again, off again U.S./China trade front continue to effect market swings. Stocks rose Friday on the optimism that a phased approach to a trade deal has been reached. Obviously, additional phases of agreement or a larger deal that includes key issues like intellectual property, technology transfers and enforcement will need to be reached over time, but this progress is very encouraging. So, trade issues will continue to fuel volatility. General consensus is that stocks will continue to rise but at a slower pace than they have over the past few years. In summary, they expect slower growth but no recession. They are currently predicting the economy will grow in the 1.5%-2% range next year.

Metals and Mining

Volatility is alive and well in the gold market as Wall Street taking near-term momentum away from the bulls with prices expected to fall next week. The gold price spent fell under US$1,500 per ounce this week. That was due mostly to pressure by progress on US-China negotiations and a possible positive outcome to the Brexit debacle. China and the US are reportedly closer to reaching a deal on trade negotiations and plans are coming into place for the UK’s exit from the European Union. So, optimism over the U.S.-China trade situation has fueled a stock market rally, which is the reason for gold underperforming in the last couple of days. Kitco’s Jim Wyckoff spoke to the media about Brexit.

“There are reports that the UK and the EU may be making some progress on a Brexit that won’t be a hard Brexit and that’s lifting European spirit so all that is working against the gold market,” he said.

Gold was on track Friday for a weekly loss, sitting at US$1,483.50. Silver was trading at US$17.46 per ounce at the same time, while platinum was trading hands at US$895 per ounce and palladium, which has been the lead precious metal, was solid at US$1,679 per ounce.

Energy and Oil

On Friday, Iran claimed that someone aimed suspected missiles at one of its oil tankers as it traversed the Red Sea, about 60 miles from Saudi Arabia, causing mild damage to the tanker itself along with oil to spill into the Red Sea. Oil prices got a slight 2% boost off the event. There was no fire following the event, the oil spill was brief, and the vessels are stable. The reason for the attack remains entirely unclear. The entire region is experiencing a massive upheaval with the latest upset being a Turkish invasion of northern Syria. That followed the US withdrawal from the area which allowed Turkey to overpower its Kurdish allies in the region. Oil is lagging overall due to poor fundamentals, with OPEC cutting its oil demand growth forecast this week for the third consecutive month. Despite Iraq’s political woes and a possible staging ground for a US-Iran conflict, oil prices don’t appear to be affected. Natural gas spot price movements were mixed this week. Henry Hub spot prices fell from $2.30 per million British thermal units (MMBtu) last week to $2.22/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the November 2019 contract decreased 1¢, from $2.247/MMBtu last week to $2.234/MMBtu this week. The price of the 12-month strip averaging November 2019 through October 2020 futures contracts declined 2¢/MMBtu to $2.368/MMBtu.

World Markets

Equity markets in Europe rallied to fresh signs of progress on U.S.-China trade talks and Brexit negotiations. The pan-European STOXX Europe 600 Index gained 2.7%, while the German DAX was up 4.2%, and UK’s FTSE 100 Index gained more than 1%. The British pound jumped almost 3% against the U.S. dollar. That was based on hopes that a Brexit deal could be achieved after the prime ministers of the UK and Ireland reported that they could envision “a pathway to a possible deal.” Further fueling optimism, the European Commission said the European Union (EU) and UK have “agreed to intensive negotiations in the coming days.” The commission said that the EU insists that a deal must avoid “a hard border on the island of Ireland, protect the all-island economy and the Good Friday agreement, and safeguard the integrity of the single market.”

Stocks in China also surged following numerous reports of tentative progress in the high-level trade talks that concluded Friday in Washington. For the week, the benchmark Shanghai Composite Index gained 2.4%, and the large-cap CSI 300 Index climbed 2.5%. Both indexes rose to their highest levels of the week on Friday, after President Trump told reporters that U.S. and Chinese officials “had a very, very good negotiation.”

In a strategic move, the head of the International Monetary Fund warned during the week that the U.S.’s trade war could cost the global economy about $700 billion by 2020.

The Week Ahead

For market data this is the week that third-quarter earnings start to report. We should see the first round of about 6% of S&P 500 companies reporting their earnings as the week falls. Several key economic data being released during the week include retail sales, housing starts, and on Friday, the important leading index data will come out.

Key Topics to Watch

• Empire state index
• Retail sales
• Retail sales ex-autos
• Business inventories
• Home builders’ index
• Weekly jobless claims
• Housing starts Sept.
• Building permits
• Philly Fed index
• Industrial production
• Capacity utilization
• Leading economic indicators

Markets Index Wrap Up

Stock Markets

U.S. stocks were in decline for a third straight week but offset by a rise in bonds, which helped to settle the volatility for most investors with balanced portfolios. A series of disappointing U.S. economic data points supported worries about the potential slowdown in manufacturing that analysts suggest could spread to other parts of the U.S. economy. The Purchasing Managers’ Index (PMI) indicated that manufacturing activity went down a second month in a row in September. The services index also showed decline but is still well positioned to expand. The final data item on the week was September’s jobs report. It showed that despite a slowdown in hiring, the labor market remains tight. That bodes well for both consumers and the economy. Analysts say that fundamentals appear strong enough to remain constructive but warn that the slowing economic data and geopolitical risks will likely contribute to higher volatility, overall.

U.S. Economy

The latter stages of a bull market show signs of change but actually predicting the end of the cycle is not as simple predicting the end of a season or event. The current investment cycle is overlain by the single longest economic expansion in U.S. history. That data is coupled with the second longest and strongest bull market on record. Obviously, as things wear on, investors begin watching for signs that the end is near or perhaps of a looming recession. Data emerging this week clearly says that economic growth is slowing from its exceptional pace of one year ago. Analysts contend that rather than indicating an assured future date for the end this expansion cycle, that the data indicated instead that we may hang in this cycle of a modestly growing economy and that out current bull market may be with us for some time yet.

Metals and Mining

Gold rose Friday based on the increased concerns of a possible downturn in global economic growth. It seems that gold is also being supported by expectations of additional US interest rate cuts, which increased in the past week. Gold had a brief rally as investors reacted to data from the US showing that the services sector activity slowed to a three-year low last month. That followed the manufacturing sector, which is at the weakest levels in a decade.  Adding to gold’s appeal is the increased chances that there will be another interest rate cut before the year is over. Silver did not respond to the global economic concerns the way gold did but was pretty well steady on Friday. Silver still remains outside of the US$18 per ounce level that it reached in September. A potential interest rate cut could give silver a boost, according to many industry insiders who say it is prime to make substantial gains. As for the other precious group, platinum lost over 1 percent on Friday, to fall below the US$900 per ounce level in what was its largest weekly decline since May. The WPIC says it expects demand to outpace supply, reducing the surplus of platinum from 375,000 ounces to 345,000 ounces. The most active precious metal for the week was Palladium which rose over 1 percent on Friday. Panelists polled by FocusEconomics believe that, Palladium will be the big winner with prices supported throughout the year.

Energy and Oil

Oil prices rose early on Friday on U.S. unemployment data, which seemed to ease some of the concerns about a looming recession. As of 10:31 a.m. EDT on Friday, WTI Crude was up 1.22 percent at US$53.09, and Brent Crude was trading up 1.73 percent at US$58.71, but were set for a second consecutive week of losses. Last week, oil prices posted a weekly loss and just had their worst quarter this year, and the worst three-month performance since Q4 2018 when prices crashed by 40 percent. That came only as the U.S. granted six-month waivers to the eight largest Iranian oil buyers. Concerns about global oil demand growth trumped geopolitics in Q3 and the fact that U.S. sanctions on Iran and Venezuela further tightened and cut off some more oil supply to the market, in addition to the cuts by the OPEC+ group. Natural gas spot prices fell at most locations this week. Henry Hub spot prices fell from $2.51 per million British thermal units (MMBtu) last week to $2.30/MMBtu this week.  At the New York Mercantile Exchange (Nymex), the October 2019 contract expired Thursday at $2.428/MMBtu, down 7¢/MMBtu from last week. The November 2019 contract decreased to $2.247/MMBtu, down 27¢/MMBtu from last week to this. The price of the 12-month strip averaging November 2019 through October 2020 futures contracts declined 11¢/MMBtu to $2.386/MMBtu.

World Markets

European stocks fell this week on data and tariff sentiments. The pan-European STOXX Europe 600 Index and the German DAX index both fell almost 3%, while the UK’s FTSE 100 Index fell more than 3.5%. That comes as weak economic data was released and announced U.S. tariffs on European Union (EU) exports piled on concerns about the region’s economic health. Fears of recession rose as U.S., UK, and eurozone data showed that weakness in the manufacturing sector may be moving into the services sector. The UK services purchasing managers’ index (PMI) fell below 50, the level that separates expansion from contraction.

Mainland stock markets reopen on Tuesday, October 8, after being closed from October 1–7 to mark the 70th anniversary of the founding of the People’s Republic of China. It’s obvious that trade developments will dominate headlines when Chinese stock markets reopen, based on the resumption of U.S. trade talks on Thursday and Friday. The upcoming round of trade talks occurs as the U.S. prepares to hike tariffs on $250 billion in Chinese goods to 30%, currently slated for October 15th. That could move once again, since the original tariff escalation was scheduled to kick in October 1st, but the Trump administration agreed to delay the increase to avoid a conflict with the Chinese National Day holiday.

The Week Ahead

Several significant economic data points will be released this week including the consumer credit figures, Producer Price Index (PPI), job openings, inflation figures, and possibly most important, consumer sentiment comes out on Friday. The focus will see some important shift as the trade negotiations as U.S. and China trade representatives begin Thursday and Friday as previously scheduled.

Key Topics to Watch

• Consumer credit
• NFIB small-business index
• Producer price index
• Job openings
• Wholesale inventories
• FOMC minutes                                                
• Weekly jobless claims
• Consumer price index
• Core CPI
• Import price index ex-fuels
• Consumer sentiment index

Markets Index Wrap Up

Stock Markets

U.S. stocks were in decline last week as U.S. politics dominated the news cycle around the globe. In a preemptive move, the House Democrats announced they would initiate inquiry in their attempt to launch impeachment efforts against President Trump. An impeachment requires a supermajority vote by the Republican controlled Senate and the findings of a major crime, which makes the chances of an actual conviction in this case almost non-existent. So, while this development in the Democrats’ ongoing battle adds to the political risks affecting the markets, it appears that stocks are more likely to reflect what is actually taking place in the economy and not the woes of the Washington swamp.

U.S. Economy

The inquiry into impeachment of President Trump was front and center all week long. But despite the bluster the inquiry seemed to cause on the political front, markets pretty well held their ground. Stock prices declined only 1% on the week. What this says is that markets responded more directly to policy developments than the news cycle this week. The actual developments included news that the U.S. and China plan to resume trade talks in mid-October. But there are real concerns that the White House is considering limiting investment in China even with negotiations. The two countries have had measured progress towards a trade deal over the last 2 years and that has been ratcheting up the impact on tariffs and trade restrictions. While progress may be slow, analyst think a trade deal will be reached (eventually) between these two world-leading economies. That would be a significant catalyst for global growth.

Metals and Mining

Gold declined this week as a result of pressure from the stronger US dollar. The metal was tracking its worst week in nearly 6 months as investors moved to the greenback over gold’s luster. The dollar reached a three-week peak Friday, but political tensions within the US have investors keeping close watch on gold. After US Democratic House Speaker Nancy Pelosi announced the launch of an official impeachment investigation on Tuesday, gold rose to US$1,534.10 per ounce. Speaking at the Denver Gold Forum, Frank Holmes, CEO and chief investment officer at US Global Investors told the media that gold has the potential to go much higher even without what he termed a major calamity. Holmes pointed out that gold would not reach US$10,000 per ounce without something catastrophic happening, but he believes a gradual rise to a significantly higher price is possible. Silver fell on the week but remains within reach of the important US$18 per ounce level. As if to parity gold, investors moved from silver in favor of the US dollar. In all, it dropped 2 percent for the week. In other precious metals, platinum steadied, continuing to trade above the US$900 per ounce level. Platinum has surged over the last month based on increased safe haven demand and some long-range concerns about supply. For its part, palladium lost slightly, but headed towards its eighth consecutive weekly gain. Panelists polled by FocusEconomics believe that, while prices are likely to dip slightly, palladium will continue to see strong support through 2019.

Energy and Oil

It appears that oil prices are responding to the rhetoric over Iran, as WTI and Brent have begun inching higher. The first salvo came Thursday following the Pentagon’s vow to deploy equipment and personnel to Saudi Arabia in an effort to boost its defenses. WTI pared losses from the day before on news of a US crude buildup, and Brent then finished higher Thursday. Ultimately, the Pentagon’s announcement doesn’t really have any effect on market moves in the long term. Oil headed lower Friday for a weekly loss. These moves can be attributed to real market contributors including fast paced recovery of Saudi production and slowing Chinese economic growth that is dampening the demand forecasts. Natural gas spot prices fell at most locations this week. Henry Hub spot prices fell from $2.68/MMBtu last week to $2.51/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the October 2019 contract decreased 14¢ from $2.637/MMBtu last week to $2.502/MMBtu this week. The price of the 12-month strip averaging October 2019 through September 2020 futures contracts declined 8¢/MMBtu to $2.505/MMBtu.

World Markets

Stock markets in Europe moved lower on the week, while weak economic data and U.S.-China trade tensions helped to curtail sentiment for growth in the region. The pan-European STOXX Europe 600 Index dropped 0.48%, the German DAX was down 0.85%, and the euro lost 1.2% against the U.S. dollar. The UK’s FTSE 100 Index rose 0.6%, mostly on hopes for lower UK interest rates. Even though UK stocks rose, the pound came under some pressure, falling 1.4% against the U.S. dollar. That followed Bank of England (BOE) policymaker Michael Saunders’ announcement that the BOE might consider lowering rates even if a Brexit deal is reached. The flash eurozone manufacturing purchasing managers index (PMI) fell to its worst level in nearly seven years, at 45.6 in September, down from 47 in August. Readings below 50 indicate worsening conditions. German manufacturing PMI fell to 41.4 in September from 43.5. That’s the worst reading in over a decade.

Ahead of a weeklong holiday, Chinese stocks lowered as a lack of positive signs gave investors very little incentive. The benchmark Shanghai Composite Index sank 2.5%, and the large-cap CSI 300 Index gave up 2.1%. In economic news, China reported that profits at industrial companies fell in August, reversing the previous month’s gain. That is set against slowing industrial production and sales and dropping producer prices. The fall in producer prices is troubling for Beijing, which has been stepping up easing measures in efforts to boost the slowing economy.

The Week Ahead

Several important economic indicators coming out this week include the Manufacturing Purchasing Manager’s Index, construction spending, durable orders, factory orders and on Friday, the telltale September jobs report.

Key Topics to Watch

• Chicago PMI   
• Markit manufacturing PMI
• ISM manufacturing index
• Construction spending
• Motor vehicle sales
• ADP employment
• Weekly jobless claims
• Markit services PMI
• ISM nonmanufacturing index
• Factory orders
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Foreign trade deficit

Markets Index Wrap Up

Stock Markets

After three straight weeks of gains, stocks ended lower overall last week. Several events engaged investors including a spike in oil prices and the Federal Reserve’s second rate cut this year. An unprovoked attack on key Saudi oil placements set off the worst oil supply disruption on record. Estimates suggest 6% of the world’s production was impacted in the event. In response, oil prices jumped 15% but later gave back gains, ending the week 6% higher after officials confirmed that global oil production will be pretty well back to normal by the end of the month. The Federal Reserve lowered its rate by a quarter point as a measure against risks from slowing global growth and the ever-present trade tensions. Analysts expect that accommodative Fed measures can help extend the current expansion, but they also say that aggressive market expectations for the Fed to continue cutting rates could promote volatility over the near term.

U.S. Economy

The Fed rate cuts that we have seen this year are clearly more a choice of wanting to have to offset potential slowing rather than aiding a failing economy. There’s plenty of evidence to support this:

• Unemployment remains at 3.7%, one-tenth of a percent from the lowest level in 50 years. There have now been 107 consecutive months of job growth, the longest streak on record. Wages are rising at an average of 3.2% making it the strongest year in over a decade.
• U.S. GDP growth has averaged 2.7% over the past two years.
• With the economy in pretty decent shape and likely to get ongoing support from household spending, we don’t expect the Fed to aggressively cut rates further from here.
• Core inflation has averaged 2.1% thus far in 2019, below the Fed’s intended longer-term 2% target.
• The slowdown in the manufacturing sector is at least partly a result of the tariff uncertainty.

The bottom line is that the Fed’s preemptive actions could provide the momentum to extend the current economic expansion, or at the very least, prevent monetary conditions from becoming too restrictive, which could serve as a catalyst for a recession.

Metals and Mining

Gold ended steady this week after losing some momentum in mid-week following the US Federal Reserve’s decision to cut interest rates by 25 points to a new target range of 1.75 percent to 2 percent.

The Fed also has taken quite a quite dovish outlook for future possible decreases. Fed Chair, Jerome Powell said the Fed would be keeping an eye on geopolitical concerns and has not ruled out further cuts in the future. Even as gold weakened over the last few weeks, market watchers are expecting that ongoing geopolitical concerns continue to support gold. Also adding to gold’s safe haven investment appeal was an announcement from the US that it was building a coalition to shield itself from Iranian threats following last week’s attack on Saudi oil infrastructure. Silver rebounded Friday to get even closer of the US$18 per ounce level. Silver is being supported by the recent interest rate cut and ongoing geopolitical issues. In other precious metals, platinum was up close to 1 percent Friday, and continues to trade above the US$900 per ounce level. Analysts see the price of the metal rising slightly from its current level as they believe it will continue to trail behind its sister metal palladium. Palladium made solid gains once again, climbing over 1 percent this week.

Energy and Oil

It was what many say was the wildest week for oil in recent history. Prices first spiked, then fell back again, and then gained slowly on Thursday and Friday. There are still some large unanswered questions over Saudi Arabia’s ability to repair its infrastructure damaged by a drone strike as quickly as it claims. The U.S and Saudis are measuring next steps following the attack. Nothing has been left off the table, even more military action is possible.

Analysts suggest that if oil prices move higher because of the outage in Saudi Arabia, it could generate higher U.S. shale drilling rates. But an increase in associated natural gas output would be bearish for gas, they say. “Appalachia producers in particular need to show restraint in order to keep the market balanced into 2020,” Goldman Sachs said in a research note. The events of this week have certainly changed the landscape from both a fundamental and technical viewpoint.

Unless we move back below the 50-day average, an unlikely thing given the renewed focus on geopolitical risk, oil will, likely settle into a new, higher range as the year comes to an end. If that’s true, we are potentially at the bottom. So, setting positions for a move higher could be positive.

Natural gas spot prices fell at most locations this week. Henry Hub spot prices rose from $2.59 per million British thermal units (MMBtu) last week to $2.68/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the October 2019 contract rose 9¢, from $2.552/MMBtu last week to $2.637/MMBtu this week. The price of the 12-month strip averaging October 2019 through September 2020 futures contracts rose by 3¢/MMBtu to $2.587/MMBtu.

World Markets

European stock markets were mostly stuck in a range this week. That was set against trade negotiations between the U.S. and China resuming after nearly two months, as well as hopes for a Brexit deal on the rise. The pan-European STOXX Europe 600 Index gained 0.4%, while the German DAX and the UK’s FTSE 100 Index both declined slightly.  The British pound traded in a narrow range this week, held steady by hopes for a Brexit deal. Pressure increased on the likelihood that the Bank of England (BoE) will cut short-term rates. European Commission President Jean-Claude Juncker seemed to raise the prospect of a Brexit deal. In his comments, he suggested he was ready to scrap the Irish backstop if UK Prime Minister Boris Johnson could come up with a potential alternative to consider.

Chinese stocks moved down over the week as a whole group of indicators reiterated the continued toll the U.S. trade war is taking on the country’s economy. The benchmark Shanghai Composite Index lost 0.8% and the large-cap CSI 300 Index fell 0.9%. The declines fell on the heels of a trio of indicators released last weekend that showed key drivers of China’s economy slowing. The growth in both industrial output and retail sales in August missed expectations. Meanwhile industrial output had its lowest monthly gain since 2002. In a final note, fixed-asset investment slowed to 5.5% in the first eight months of the year. That was also below expectations.

The Week Ahead

Reporting is relatively light this week with some key economic data being released including the preliminary September Purchasing Manager’s Index, consumer confidence, Case-Shiller home price index, final second-quarter GDP, and likely most important, personal income and spending released on Friday.

Key Topics to Watch

• Chicago Fed national activity
• Markit manufacturing PMI
• Markit services PMI (flash)
• Case-Shiller home price index
• Consumer confidence index
• Weekly jobless claims
• GDP revision
• Advance trade in goods
• Pending home sales index
• Durable goods orders
• Core capex orders
• Personal income
• Consumer spending
• Core inflation
• Consumer sentiment index

Markets Index Wrap Up