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.
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.
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