Stock Markets

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

US Economy

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

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

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

Low interest rates – which are likely to linger on.

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

Metals and Mining

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

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

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

Energy and Oil

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

World Markets

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

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

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

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

The Week Ahead

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

Key Topics to Watch              

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

Markets Index Wrap Up

Stock Markets

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

US Economy

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

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

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

Metals and Mining

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

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

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

Energy and Oil

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

World Markets

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

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

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

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

The Week Ahead

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

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

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

US Economy

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

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

Metals and Mining

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

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

Energy and Oil

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

World Markets

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

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

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

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

The Week Ahead

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

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

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

U.S. Economy

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

Metals and Mining

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

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

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

Energy and Oil

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

World Markets

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

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

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

The Week Ahead

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

Key Topics to Watch

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

Markets Index Wrap Up

Stock Markets

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

U.S. Economy

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

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

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

Stock Market Performance

Metals and Mining

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

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

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

Energy and Oil

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

World Markets

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

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

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

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

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

The Week Ahead

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

Key Topics to Watch

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

Markets Index Wrap Up

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

Stocks ended the week higher, with the month of May marking the start of the gradual reopening of the domestic and global economy. A steady but slow decline in new infections has allowed the partial lifting of restrictions, boosting investor confidence. The more cyclical sectors, like financials and industrials, outperformed last week, while European equities reacted positively to a proposed €750 billion recovery fund by the European Commission. The proposal requires approval by all EU members and includes €500 billion of grants to member countries. Analysts think investment leadership will continue to rotate, supporting the case for enhanced portfolio diversification and appropriate exposure to different asset classes, geographies

U.S. Economy

May marked the transition from a national April lockdown to a gradual reopening of the domestic and global economy. Markets have continued to rally with the reopening due to optimism around an economic recovery later this year as well as promising news of rapid progress and a shortened timeline for resolutions. Last week the S&P Index hit a milestone, topping 3000 for the first time since February. The S&P 500 closed the month up 32% from the March 23 low and down just 9.6% from the February high1.

The durability of the market rally is likely dependent on the path to recovery from the current economic downturn. U.S. GDP is forecast to decline 40% annualized in the second quarter, the largest quarterly decline since the Great Depression. While there is wide agreement about a recovery taking shape in the second half of the year, there is less clarity on how long it will take the economy to rebound back to pre-pandemic levels and resume its previous growth trajectory. The magnitude and duration of recessions can vary dramatically.

Metals and Mining

After slipping below US$1,700 mid-week gold has climbed almost 2 percent to US$1,727. The yellow metal’s late week gains have been attributed to a weak US dollar and renewed anxiety over relations between the American nation and China. President Trump released a statement Friday regarding China’s decision to approve a national security law in Hong Kong. The mid-week slump saw gold fall as low US$1,696, its first time below US$1,700 since early April. An insatiable demand and Q1 production declines may work as another price catalyst for the currency metal. In its monthly report for May, the World Gold Council noted that production was down 3 percent during the first quarter of the year. The gold price has already climbed 11.4 percent since January and has potential to move higher. Silver also made gains this session adding as much as 3.9 percent from Monday. Since the mid-March liquidation, the white metal has surged 49 percent. Its year-to-date low (11.94) saw the metal shed 33.7 percent from its January high of US$18.02. News that South Africa would move to begin reopening its economy supported platinum prices early in the week. The metal gained 2.5 percent from Monday to Tuesday, as the world’s largest platinum producing country announced plans to allow miners to resume operations. Continued demand declines from end use sectors weighed on prices keeping the metal locked below US$830. Sister metal palladium followed a similar trajectory on reports that South Africa’s mining sector had received the green light. The metal hit its highest value for May -US$1,954- this week but was still 29 percent lower than its year-to-date high US$2,754 (February 26).

The base metals faced volatility for the last week of May, dragging prices lower across the board. Copper started the session at US$5,341 before falling 1.1 percent lower to US$5,278.50. Prices are likely to continue facing headwinds, as the International Wrought Copper Council (IWCC) anticipates a significant oversupply. Zinc also trended lower throughout the week dropping 2.8 percent from Monday. Supply chain disruptions have impacted zinc’s ability to grow since the coronavirus was declared a pandemic. According to Fastmarkets analysts the current downturn reduced mine production by 742,000 tonnes. Despite nickel also reacting to market pressures for the final session in May, Fast Metals analysts are projecting positive price growth in the months ahead. Lead fell lower throughout the week but was still able to end the month 21 percent higher than its mid-month low (US$1,576.50). Analysts are less optimistic about lead’s recovery post-downturn noting the metal will likely remain range bound below US$1,700.

Energy and Oil

Oil prices have held onto the gains from the last few weeks, but the recent rally seems to have stalled as demand shows signs of not returning to normal any time soon. Meanwhile, U.S.-China tensions weighed heavily on financial and commodity markets this week. The Phase 1 trade deal between Washington and Beijing is at risk of falling apart. President Trump is set to make a major announcement regarding China, and amid escalating tension and China’s moves in Hong Kong, the actions will likely be punitive. China had previously pledged to make $52 billion in oil purchases over two years, a total that was always going to be hard to meet. A number of U.S. shale oil executives continue to receive hefty compensation despite consistently posting unimpressive returns. Part of the problem is the practice of basing compensation off of a company’s performance relative to its peers. Meanwhile, the oil majors continue to take on debt to pay dividends. Two conflicting reports surfaced this week, about what OPEC+ will do next; one claiming that Russia was considering extending the OPEC+ production cuts beyond June, while the other said the opposite – that Russia would push for loosening the cuts. Saudi Arabia appears ready to extend, but in Moscow some Russian oil companies may find an extension difficult.  A wave of refining capacity built over the past few years has squeezed margins, and the downturn in the oil market could push uncompetitive facilities offline permanently. Natural gas spot price movements were mixed this week. The Henry Hub spot price fell from $1.83 per million British thermal units (MMBtu) last week to $1.72/MMBtu this week. At the New York Mercantile Exchange (Nymex), the June 2020 contract expired Thursday at $1.722/MMBtu, down 5¢/MMBtu from last week. The July 2020 contract price decreased to $1.886/MMBtu, down 2¢/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 $2.451/MMBtu.

World Markets

Stocks in Europe posted strong gains, as optimism fueled by reopening economies and proposals for more European stimulus offset fears of a second wave of malidies and increased U.S.-China tensions. The pan-European STOXX Europe 600 Index ended the week 3.0% higher. Germany’s DAX Index climbed 5.01%, the CAC 40 in France advanced 6.02%, and Italy’s FTSE MIB Index gained 4.90%. The UK’s FTSE 100 Index added 1.32%. Peripheral eurozone bond yields, meanwhile, fell markedly on the week. Comments from European Central Bank Vice President Francois Villeroy de Galhau sparked fresh hopes of further stimulus and helped to send the Italian 10-year bond yield from around 1.6% on Monday to 1.44% on Friday. Optimism over a proposed European recovery fund also suppressed yields.

Investors in Chinese equity markets were in a cautious mood ahead of President Trump’s response to Beijing’s move to curtail Hong Kong’s autonomy by imposing national security laws on the territory. Flows were light with many investors waiting on the sidelines. The Shanghai Composite A-share index edged 1.4% higher over the week, while the CSI 300 large-cap index gained 1.1%. Investors worry that a punitive U.S. response to China could result in a tit-for-tat escalation from Beijing, further straining ties between the two countries and dampening prospects for a global economic recovery in 2020.

Profits at China’s major industrial firms improved in April, according to official data released on Wednesday. April’s annual decline narrowed to 4.3% after a much steeper 34.9% drop in March. On a year-to-date basis, the profit squeeze eased from -29.5% in March to -17.2% in April for private enterprises but was unchanged at -46.0% for state-owned enterprises. Government statistician Zhu Hong warned that April’s improvement was unlikely to last given a slow recovery and falling industrial prices.

The Week Ahead

Important economic data being released include the ISM manufacturing Purchasing Managers’ Index (PMI) on Monday, the services PMI on Wednesday, and the May jobs report on Friday.

Key Topics to Watch

• Markit manufacturing PMI
• ISM manufacturing index
• Construction spending                                  
• Varies  Motor vehicle sales                           
• ADP employment report
• Markit services PMI
• ISM nonmanufacturing index
• Factory orders
• Initial jobless claims (regular state program, SA)
• Initial jobless claims (total, not seasonally adjusted)
• Trade deficit
• Productivity (revision) Q1
• Unit labor costs (revision)
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Consumer credit

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