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.
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.
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