Stock Markets

It appeared that stocks would finish the week higher Friday until China unveiled a new round of retaliatory tariffs. That was met with a swift reply by President Trump vowing to respond, which sent things reeling. As trade tensions escalated, China announced that it will impose tariffs ranging from 5% to 10% on $75 billion U.S. goods in two batches on Sept. 1 and Dec. 15. That was punctuated with a 25% tariff on U.S. automobiles. Fed Chair Powell meeting at the annual central bank summit in Jackson Hole, Wyoming, left the option for another rate cut on the table, likely when the committee meets next month. That’s in answer to the risks to global and U.S. growth created by ongoing trade uncertainty. The Fed and trade lead the media buzz, however the economic and corporate data continue to be positive. Earnings reports from several high-profile retailers last week were solid, demonstrating that consumer strength, which is the main driver of the U.S. economy, remains intact.

U.S. Economy

The U.S. economic numbers seem to outweigh current concerns. The weekly jobless claims fell to their second-lowest level in the past four months last week. Alongside that news, wages have now grown above 3% for 12 consecutive months which is the longest such continuous streak since 2007. The unemployment rate is also down to 3.7% from 4% at the beginning of the year and nearing the 50-year low. It seems that the recession signal from the inverted yield curve is getting a lot of traction, but in reality, it’s household spending that will rule the future outlook. Over the past four U.S. recessions, unemployment rose by a minimum of 0.5% before each recession began, which indicated deteriorating consumer conditions. That is not on the U.S. economic radar at present. 

Analysts believe that the Fed will lower rates, even if not as aggressively as the market seems to be anticipating. Economic data suggests moderate cuts may be appropriate to support a softening in growth. But as the Fed incorporates trade risks in its response, it could get more aggressive in rate cuts. Policy easing from the Fed is a supportive factor for the stock market and could be an additional catalyst for near-term swings in both interest rates and stock prices. 

Metals and Mining

Gold prices were making gains of over $24 an ounce in late-morning trading Friday after the U.S.-China trade war kicked into a higher gear based on China’s newly announced trade tariffs on U.S. goods followed by Trump’ s retaliation in a series of threatening tweets – even going so far as to demand that U.S. businesses find ways to stop doing business with China. Trump also tweeted about who remains the bigger enemy: China’s President Xi or the Federal Reserve? That certainly helped to unnerve the marketplace heading into the weekend, all of which is bullish for the safe-haven gold mentality. As of the week’s end, December gold was last up $23.60 at $1,532.10. Silver was up slightly on Friday, still holding strong above the US$17 per ounce level. Silver continues to be supported by interest from investors thanks to the same concerns about the state of the US economy and ongoing geopolitical issues. Analysts suggest that Silver’s recent rally could lend credence to the theory that it will outperform gold in the not so distant future. Platinum was relatively flat on the week and is still unable to break through the important US$900 per ounce level. For its part, palladium was down close to 2 percent on Friday, and continues to trade below the gold. That’s not to say there are still many market participants in palladium’s corner. Metals Focus for instance, has stated that it believes the metal will continue to rise, forecasting that autocatalyst demand will more than likely go up by 3.6 percent in 2019, setting records at 8.59 million ounces due to tighter emission standards. As of 10:18 a.m. EDT Friday, palladium was trading at US$1,444 per ounce.

Energy and Oil

Oil plunged on Friday after the China announcement on new tariffs on U.S. goods, which included crude oil. The move reignited fears of economic recession. That focused all eyes on the Jackson Hole symposium, an elite financial summit that could give some insight into the U.S. Federal Reserve thinking. U.S. State Department special representative for Iran, Brian Hook, said that Iran’s oil exports have plunged below 100,000 bpd, although independent assessments from S&P Global Platts puts the figure closer to 450,000 bpd.

Natural gas spot prices rose at most locations this week with Henry Hub spot prices rising from $2.15 per million British thermal units (MMBtu) last Wednesday to $2.25/MMBtu this week. The Nymex price of the September 2019 contract increased 3¢, from $2.143/MMBtu last Wednesday to $2.170/MMBtu this week. The price of the 12-month strip averaging September 2019 through August 2020 futures contracts climbed 1¢/MMBtu to $2.329/MMBtu.  Net injections to working gas totaled 59 billion cubic feet (Bcf) for the week ending August 16.  As a side note, natural gas prices in Europe fell to a 10-year low as cheap LNG washes over the continent. Gas storage in many European countries is significantly higher than the five-year average.

World Markets

Most major European markets rose throughout the week but continued under pressure after the new spurt of U.S. and China tariffs threats. The pan-European STOXX Europe 600 Index, the German DAX, and Italy’s FTSE MIB Index all rose, while the UK’s FTSE 100 Index dropped. The European Central Bank signaled Thursday that a stimulus package to address the region’s slowdown may be about to land. Signs that Germany may be entering a recession seemed to stack up during the week. The IHS Purchasing Managers’ Index showed orders at German factories and services companies dropped at the fastest pace in six years, and companies expect output to fall in the next 12 months. The German economy contracted 0.1% for the three months ended June 30.

As might be expected, Chinese stocks advanced as positive corporate earnings reports and monetary policy changes buoyed investor sentiment and helped to offset U.S. trade-related concerns. For the week, the benchmark Shanghai Composite Index added 2.6%, and the large-cap CSI 300 Index, which tracks blue chips listed on the Shanghai and Shenzhen exchanges, rose 3.0%. The news issued on Friday helped push the markets over the edge as they ended the biggest weekly gain for both indices since June.

The Week Ahead

Outside of trade battle news, this will be a relatively light week for reporting as the summer holiday season winds to a close. Key economic data due for release in the U.S. include durable goods orders, core capex orders, consumer spending, core inflation, a revised second-quarter GDP report on Thursday, and the important consumer confidence index on Friday.

• Key Topics to Watch

• Durable goods orders

• Core capex orders

• Consumer confidence index

• GDP revision

• Personal income

• Consumer spending

• Core inflation

• Consumer sentiment index

Markets Index Wrap Up

Stock Markets

This is the third straight week that stocks declined, pressured by ongoing signs of a global economic slowdown and concerns about the yield-curve. The White House helped trigger a short-term rally when it announced that some tariffs scheduled to take place in September would be delayed possibly until December instead. The rally was, however, short lived. For the first time since 2007, 10-year rates dipped below two-year rates and 30-year yields fell to a new low around 2%. The news was not all bad though. Figures showed that U.S. productivity grew at a healthy pace, while retail sales for the month of July were positive; up the most they have been in the past four months. Most economist feel that recession fears are being overhyped, but they acknowledge the fact that global uncertainties may extend the current volatility.

U.S. Economy

The U.S. economy saw some good data this week. Retail sales signaled that consumers continue to spend at a solid pace. July retail sales were up 0.7% from the June and increased for the fifth straight month in a row. Data out last week also showed that consumer prices have risen. The Federal Reserve sees this as a positive economic signal. Without a doubt, consumer spending has been fueling growth for the current expansion, making up 70% of the economy and helping to create a positive environment for stocks to make gains. Although consumer sentiment edged down last week, analysts contend that a strong labor market, steady wage growth, and growing household net worth are helping consumer spending avert sentiments from any trade uncertainties.

Metals and Mining

Gold pricing consolidated this week as traders took gold to its highest daily closing price this year. Gold futures basis – the most active December contract – is currently trading down $6.30 and fixed at $1524.50. The result of this week’s trading, even with Friday’s moderate selloff is that gold has now closed at a new record high for the week. Gold opened on Monday at $1509 per ounce and effectively closed at $1524.50 for a net weekly gain of $15.50. Although gold is still making weekly gains and staying above the US$1,500 per ounce level, the metal is weighed down by a stronger US dollar that has strength on data that showed US retail sales surged last month, helping curb some recession fears. Silver is continuing its recent rally and maintaining levels around the US$17 per ounce range. Like gold, silver has been gaining more interest from investors thanks to concerns surrounding the state of the US economy and ongoing geopolitical issues. In other precious metals, platinum remained pretty flat, unable to break through the US$900 per ounce level. Analysts believe the price of silver rising slightly from its current level thanks to strong investment demand. Palladium, which has been strong this period, was up slightly on the week, but remains out of the US$1,500 per ounce range. There are still many market participants in palladium’s corner, with Metals Focus stating that it believes the metal will continue to rise.

Energy and Oil

Oil prices rebounded Friday on the back of some positive U.S. crude data, but the rebound isn’t likely to last as the world economies continue to struggle. Data showed that retail sales in the U.S. remain strong, but fears of a global slowdown have not retreated. The inverted yield curve also served to create concerns about a potential economic recession. Crude oil was not removed from the global selloff this week, as the data from China and Germany this week raised more red flags. The WTO is quoted as saying that that trade volumes could contract in the third quarter. The Trump administration is working to end regulation on methane emissions. The energy industry has said that it could prevent the federal government from regulating methane from oil wells and infrastructure, so they are against the action. Natural gas spot price movements were mixed this week with Henry Hub spot prices rising from $2.12 per million British thermal units last Wednesday to $2.15/MMBtu this week. At the New York Mercantile Exchange, the price of the September 2019 contract increased 6¢, from $2.083/MMBtu last Wednesday to $2.143/MMBtu a week later. The price of the 12-month strip averaging September 2019 through August 2020 futures contracts rose 2¢/MMBtu to $2.323/MMBtu.

World Markets

European stock markets came under pressure throughout the week from the fresh round of U.S.-China trade tensions coupled with growing signs of recession. The pan-European STOXX Europe 600 Index lost about 0.5%, the UK’s FTSE 100 Index dropped 1.8%, and the German DAX index dropped about 1.3%. Eurostat reported that the eurozone economy barely grew in the second quarter of 2019, expanding just 0.2%, as economies across the bloc lost steam. Germany, which the region’s largest economy, shrank by 0.1% in the second quarter, according to stats just out. The gross domestic product flash estimates numbers, including year-on-year growth of 1.1% from the second quarter of 2019, were in line with economists’ forecasts. The report showed that Spain’s economy grew 0.5%, France’s expanded 0.2%, and Italy’s economic growth was flat for the same period. Other signs of slowing were seen in the 1.6% June downturn in eurozone industrial production.

Chinese stocks ended up on the week after Beijing pledged to roll out measures that will boost disposable incomes for the next two years. The idea is to offset the slowing economy. The statement from the National Development and Reform Commission, China’s state planning agency, included few details, but raised hopes that China’s government would step up efforts to stimulate domestic demand. For the week, the benchmark Shanghai Composite Index added 1.77%, and the large-cap CSI 300 Index, rose 2.11%. A number of solid earnings reports from some of China’s biggest companies also help to lift investor mood.

The Week Ahead

This will be a light week for economic data and reporting following the heavy S&P reporting that just ended. Key economic data being issued this week include existing home sales and the Federal Reserve’s July meeting minutes, flash PMIs on Thursday, the leading economic indicators for July and on Friday, new home sales figures.

Key Topics to Watch

–           Existing home sales

–           Weekly jobless claims

–           Markit manufacturing PMI (flash)

–           Leading economic indicators (July)

–           New home sales

Markets Index Wrap Up

Stock Markets

Escalating trade tensions between the U.S. and China helped stocks to finish the week modestly lower. Bond yields fell to their lowest point in three years on volatility. An unexpected drop in China’s currency had global markets reacting widely. The drop in value was seen as a response to the recently announced tariffs on Chinese goods scheduled for September. Chinese investors were reassured as officials sought to explain that they don’t plan to embark on a currency devaluation campaign. Analysts believe that a form of an agreement or some compromise can be reached, but with no immediate time horizon. They say the head-to-head trade antics will likely continue to fuel volatility and pullbacks as things go forward. Overall, they say that the outlook is still positive based on economic expansion, modest rises in corporate profits, and low interest rates.

U.S. Economy

Familiar themes entered the picture again last week, with the current dust up in the U.S.-China trade battle and a significant drop in interest rates both working to move stocks lower. However, there’s no denying that both stocks and bonds have done well this year. As witness, just two weeks ago, the S&P 500 was at an all-time high, and bonds are on pace for their best year over all since 2002. That’s not to downplay the fact that the stock market just endured its worst day of the year on Monday. The Dow averaged intraday swings of 460 points during the week – a sign that anxiety is rising that things may be trending to a drop. There are three items to focus on as market volatility enters the scene:

1. It’s unlikely that the current trade war will end anytime soon, but it’s also unlikely that the economy will tip as a result.

• Falling rates are a sign of the prevailing headwinds, but the yield curve isn’t a definitive sign of any expected trouble.

• Sizable swings and significant daily market drops are not indicative of the wider market action.

Trade fears have surfaced frequently along with worries over the yield curve/falling rates. But so far, the markets reacted similarly each time, pulling back before reconnecting to the greater fundamentals that set the course. The past instances may have caused the market to take periodic jogs off the main path, but not halt or reverse their momentum. 

Metals and Mining

In bull-market runs, any price pullbacks are viewed as bargain-buying opportunities. That’s how gold ended on Friday. Early gains were lost, but buyers stepped in on the dip.  Gold held steady just above the US$1,500 per ounce level. The metal saw its biggest weekly gain in more than three years, in a week when it broke through US$1,500 for the first time in six years. Gold is also seeing support from a down US dollar and the tepid stance on policy from the world’s central banks. The central banks of New Zealand, Thailand and India surprised markets as they all cut interest rates. In all, gold has risen 4.3 percent on the week and about 17 percent for the year. Geopolitical issues are also helping silver, which broke US$17 per ounce midweek. Silver’s rally positioned it to deliver a weekly gain of almost 5 percent. Palladium was up just under 1 percent on Friday, managing to stay within the US$1,400 per ounce range. It appears to be falling behind gold’s luster for the first time since late last year. Platinum remained relatively flat on the week after experiencing dips in the previous two sessions.

Energy and Oil

In its news this week, Saudi Arabia buoyed hopes with a promise to keep oil exports below 7 million bpd. But as markets go, the overall sentiment for oil appears to be very bearish. News from the IEA late in the week referred to global oil demand as “fragile” and characterized the global economy of showing signs of slowing. The agency said in its monthly report that, “The situation is becoming even more uncertain: the U.S.-China trade dispute remains unresolved and in September new tariffs are due to be imposed,”. Oil consumption declined in May by 160,000 bpd year-on-year. Between January and May, demand was up by a marginal 520,000 bpd. That’s the weakest increase since 2008. Overall, the agency cut global demand growth for 2019 to 1.1 mb/d. Natural gas spot prices fell at most locations this week. Henry Hub spot prices fell from $2.23 per million British thermal units (MMBtu) to $2.12/MMBtu. The New York Mercantile Exchange priced the September 2019 contract down 15¢, from $2.233/MMBtu last week to $2.083/MMBtu this week. The price of the 12-month strip averaging September 2019 through August 2020 futures contracts declined 12¢/MMBtu to $2.304/MMBtu.

World Markets

Like the U.S. market, European stock markets ended the week lower thanks to elevated volatility. In general, stocks followed the trading patterns of global markets, with a steep drop on Monday based on news that China allowed the yuan to fall sharply against the U.S. dollar before recovering some losses within the week. The pan-European STOXX Europe 600 Index, the UK’s FTSE 100 Index, and the German DAX all posted significant losses. Wednesday’s data showed that German industrial output decreased 1.5% in June, a decline that was much larger than estimates. The disappointing industrial production number added to fears that trade conflicts could help drive Germany’s economy into recession. UK gross domestic product (GDP) shrank 0.2% in the second quarter. This surprised most analysts who had expected growth to go nearly unchanged. The quarterly drop was the first such contraction in seven years.

As would be expected, China stocks posted their largest weekly drop in three months, with traders preparing for a potentially long U.S.-China economic battle. For the week, the benchmark Shanghai Composite Index shed 3.2% and the large-cap CSI 300 Index fell 3.0%. Chinese technology shares were among the week’s biggest losers after Bloomberg reported late Thursday that the White House was delaying a decision about granting licenses to U.S. companies that applied to resume sales to Huawei Technologies. That Chinese telecom company is blacklisted in the U.S. based on espionage risk.

The Week Ahead

Second-quarter earnings season will slow down next week with less than 3% of companies in the S&P 500 reporting results. Important economic data to eye include the U.S. inflation numbers released Tuesday, retail sales coming out on Thursday, and the all-important consumer sentiment figures released Friday.

Key Topics to Watch

• Federal Budget on Monday

• NFIB Small Business Index report

• Q2 Household debt

• Import price index numbers

• Retail sales figures

• Philly Fed index

• Housing starts

• Consumer sentiment index

Markets Index Wrap Up

Stock Markets

It was the worst week of the year so far for stocks. Worries about escalating trade tensions continue to be a factor in slowing global economic growth driven by President Trump’s announced 10% tariff on $300 billion worth of Chinese goods that will start this September. Oil stocks took a hit too as crude oil prices experienced their largest one-day drop since 2015. Oil did manage a partial recovery by week’s end. The big news which was highly anticipated, came as the Federal Reserve cut rates for the first time in a decade, based on an uncertain outlook, slower business investment, and inflation that remains in check. The Fed officials acknowledged strength in the labor market, still strong consumer spending, and moderate growth. The July jobs report confirmed that, and continues to add strength to the U.S. economy.

U.S. Economy

In a press conference after the rate announcement, the Fed chairman seemed to indicate that further rate cuts were unlikely this year. The Fed believes that the goal towards lower rates had been reached. The markets showed disapproval for the direction the Fed had taken by falling 1% the day of the press conference. And while the timing of future interest rate moves is unknown, most analysts think the economy is moving in the right direction. Three facts underscore this sentiment:

1. Economic fundamentals are positive – as recent data shows that economic fundamentals, though slowing, are still a positive underpinning for the bull market. GDP growth slowed to 2.0% in the second quarter from 3.1% in the first quarter but was above the 1.8% consensus and in line with the average expansion pace.

• Job gains show the economy is headed in the right direction – the U.S. economy is still heading in the right direction. Friday’s jobs report solidified that fact. The number of jobs created in July decreased to 164,000 from the 193,000 in June but is well above the 110,000 that is needed to sustain the present growth rate for the economy.

• Trade tensions are not creating hurdles – last week’s escalation of trade tensions appeared to be already factored in. U.S. manufacturing, which accounts for 20% of the U.S. economy, has weakened over the course of the year as business investment and confidence has fallen off. Despite that fact, the broader market, including the much larger service-sector component of the economy, has so far been able to absorb rising trade tensions in stride.

By most analysts’ estimation, the real risk to a bull market is if the Fed raises interest rates too aggressively and dampens economic growth. 

Metals and Mining

Gold struggled after the US Federal Reserve cut interest rates by a quarter point to a range of 2 to 2.25 percent on Wednesday. The news sparked a rally in the US dollar, which sent the precious metal downward. Gold regained some ground, but declined on Friday after gaining more than 2 percent in the previous session. Again, gold moves were triggered when US President Donald Trump threatened new tariffs on China. Despite the loss, gold appears to be on track for weekly gains. Many analysts believe that this down period for gold won’t last and feel it will continue to climb through the year. Silver experienced the same pressures as gold. The metal ended its rally from the two previous weeks in which it made gains close to 7 percent. Silver has managed to stay within the US$16 per ounce level. Palladium was down just over 1 percent on Friday, slipping out of the US$1,500 per ounce level to the US$1,300 per ounce level. Many market participants believe palladium will continue to rise, perhaps up to a further 3.6 percent in 2019.

Energy and Oil

Oil prices had its worst single-day performance in over four years. President Trump’s unexpected announcement that he would put a 10 percent tariff on $300 billion worth of Chinese imports sparked a selloff in equities and oil prices, which fell by 7 percent on Thursday. China said that it would retaliate if the tariffs go into effect. Trump has left idea that the U.S. could hold off on the table, but only if China offered concessions. The deep sell off on Thursday had traders buying on the dip Friday, giving oil a partial rebound. Oil continues to be a focus, but natural gas has also fallen off, despite hotter temps in the eastern U.S. Nymex prices for September delivery ended at $2.10/MMBtu on Friday. That was another multi-year low. European natural gas and LNG hit 10-year lows in June. Traders are concerned that storage could fill up by the end of summer in parts of Europe making for a rough August market.

World Markets

European stock markets finished lower for the week. Following President Trump’s tweet expressing discontent about China’s purchases of U.S. agricultural products, markets fell Tuesday and again on Friday in response to the U.S. announcement of a new 10% tariffs on Chinese goods. The move reverberated financial markets. The pan-European STOXX Europe 600 Index, the UK’s FTSE 100 Index, German DAX, and Italy’s FTSE MIB Index reported significant losses. A plunge in the British pound, thanks to growing fears of a Brexit no-deal, capped an almost a 4% decline in July. On Thursday, the pound sterling dropped to levels below 1 pound per 1.21 U.S. dollar.

News of Trump’s tariff increase seemed to stun officials in Beijing. Likely because it fell just as U.S. and Chinese officials held two days of talks in Shanghai. Chinese shares slumped. For the week, the benchmark Shanghai Composite Index shed 2.6%, and the large-cap CSI 300 Index sank 2.9%. Both indexes fell more than 1% on Friday, in their reaction to the Trump announcement of the tariff hike while markets were closed in China.

The Week Ahead

Things are coming to an end for the current earnings season with about 13% of S&P 500 companies reporting in on second-quarter results. The economic news load will also lighten up as summer takes hold. Meaningful data this week will include releases of the ISM non-manufacturing index reported, wholesale inventory numbers and an update of inflation numbers released Friday.

Key Topics to Watch

–           Markit services PMI (final)

–           ISM nonmanufacturing index

–           Consumer credit

–           Weekly jobless claims

–           Wholesale inventories

–           Producer price index

Markets Index Wrap Up

Stock Markets

U.S. stocks reached new record highs, spurred by increased corporate earnings results and strong second-quarter GDP numbers. It appears U.S. economic growth slowed in the second quarter thanks to trade and business investment pressures, but consumer spending which has the greatest influence, beat estimates once again, coming in at 4.3%. The solid GDP report comes at an opportune time as the Fed is expected to cut rates next week. That’s in response to increasing risks from slowing global growth. The service sector of the economy, including big providers like Alphabet (Google), is holding steady, and alongside healthy consumer conditions, leads analysts to support the view that economic expansion will continue over 2019.

U.S. Economy

The U.S. stock market has gained 21.8% so far this year and the moves in Fed policy regarding interest rate cuts have helped. Stocks are driven by several factors beyond central bank actions. The momentum of the economy and corporate earnings serves as a guide for overall performance. Earnings announcements this week added perspective to the way ahead for the markets. They supported the fact that the economy is poised to grow but underscored potential threats. Strong trends in the financial and industrial sectors offer a good sign for the outlook. Analysts agree that sustained economic growth over the next two years would create a solid base for earnings growth, even if modest. That would extend the current bull market period.              

Metals and Mining

The metals and mining markets are as focused on the Fed announcement as any. It appears that the week can play out one of two ways — the Federal Reserve introduces a 25-basis point rate cut and gold consolidates, or the central bank doubles down on easing with a 50-basis point cut and potentially gold rallies to new highs, analysts suggest. Gold has traded between $1,430 and $1,411 this week but ended the session down 0.55% on the week. August Comex gold futures ended at $1,418.50. That was up 0.27%. Wednesday’s announcement will be a key factor. Markets are currently pricing in a 78.6% chance of a 25-basis point cut and a 21.4% chance of a 50-basis point cut (source: CME Group’s FedWatch Tool). Markets feel the Fed will begin its easing cycle, but it is more important to see if the central bank is headed on a major easing cycle.

Silver has moved 9.7% higher despite a mere 1.3% gold rally. That equates to a significant 7.4x upside leverage. This is being well received by silver enthusiasts. This outperformance is considered even more impressive because it was driven primarily by big capital inflows into SLV by American stock investors returning to silver.

Energy and Oil

Oil prices ended the essentially flat, based on demand fears and inventory draws offsetting each other. Again, geopolitical factors failed to change the market in either direction. However, fundamentals are certainly playing larger role in oil markets, since the geopolitical issues seem to be impacting pricing less and less. Large oil field services companies are indicating that the industry is going to feel more pain before things get better based on slowing drilling. They see further softening during the fourth fiscal quarter. That follows statements by big providers about similar concerns for contraction in the U.S. shale sector. Temperatures were higher than normal across the Northeast and Great Lakes regions after a heatwave at the beginning of the week. But by week’s end, most of the severe heat began to dissipate, adding downward pressure on prices. Temperatures across the eastern and central United States were generally lower than normal by the end of the week. Henry Hub spot prices fell 16¢ from $2.38/MMBtu last Wednesday to a low of $2.22/MMBtu a week later. At the Chicago Citygate, prices decreased 25¢ from $2.26/MMBtu last Wednesday to a low of $2.01/MMBtu at the same time last week.

World Markets

Markets in Europe rose over all, lifted mostly by positive earnings reports and again supported by indications from the European Central Bank (ECB) that more monetary stimulus will take place. The pan-European STOXX Europe 600 Index, the UK’s FTSE 100 Index, German DAX, and Italy’s FTSE MIB Index all headed higher on the week. The euro fell against the dollar. That came after the ECB kept rates steady but indicated it is willing to cut short-term rates for the first time since 2016. The signal is a significant major policy shift aimed at protecting the European economy. ECB President Mario Draghi didn’t help much, stating that the economy is getting “worse and worse,”.

Chinese stocks advanced as traders in anticipation of high-level trade talks with the U.S. next week. The benchmark Shanghai Composite Index added 0.7% and the large-cap CSI 300 Index, gained 1.3% for the week. U.S. and Chinese negotiators are schedule to hold trade talks in Shanghai on July 30 and 31, the first such talks since negotiations broke down in May.

The Week Ahead

All eyes will be on the actions of Fed this week in what promises to be a very active week of reporting. Earnings will also be a big part. One-third of the S&P 500 companies are scheduled to report second-quarter earnings. The Federal reserve is fully expected to cut rates for the first time since the Financial Crisis of 2008. Other key economic data emerging next week includes consumer spending, the ISM Manufacturing Index, July’s jobs report, and the trade deficit figures.

Key Topics to Watch

–           S&P companies reporting

–           Consumer spending numbers

–           Consumer confidence index

–           ADP employment

–           Fed rate announcement released Wednesday

–           Construction spending for June

–           ISM manufacturing index

–           July Motor vehicle sales

–           Unemployment rate released Friday

–           Trade deficit for June

Markets Index Wrap Up

Stock Markets

Corporate earnings announcements took the spotlight last week as U.S. stocks finished slightly lower overall. Bank earnings were early reporters of second-quarter earnings season with mixed results. Low credit losses coupled with solid loan growth reinforce a healthy consumer outlook – a good sign for the economy. Energy stocks were off, dragged down by oil prices, which declined for five straight days, eventually settling 7% lower based on concerns about slowing global demand. The coming week will offer a heads up on the manufacturing trends as major industrial companies add their earnings to Q2 reports.

U.S. Economy

The U.S. economy has been supported by expectations of Fed rate cuts and continual solid economic and corporate earnings data. Similar strong rallies have pushed stocks to new highs in previous expansions. The Dow market performance in the year following illustrates how stocks don’t normally move higher in a straight-line pattern. This also supports the notion that the future path for the market is largely determined by the fundamental conditions that underlie it. In other words, it’s not just some arbitrary index level acting as the driving force. The Dow peaked in late-1961 at 735. This was underlain by a bull market ending amid a mild economic recession. The Dow peaked at 11,723 during the 1990s bull market which ended in 2000 with the popping of the tech bubble and economic slowdown that followed. Analysts are doubtful that the Dow will reach 37,000 before the next bear-market pullback, but they seem to widely agree that the current bull market is not exhausted yet. In the second half of 2019, the U.S economy will likely experience more volatility and lower returns than the first half of the year. Investors will look for continued positive GDP growth, modestly rising corporate earnings, and a Fed policy designed to extend the expansion.

Metals and Mining

It seems uncertain as to whether The Federal Reserve will cut interest rates by 50 or 25 basis points in its upcoming moves. According to certain analysts, gold will come out as one of the big winners as chaos leads market sentiment. Gold ended the week trading just off a fresh 6-year high, following Federal Reserve president John Williams’ statement that central bankers need to act quickly and lower interest rates at the first sign of economic distress.

Market expectations for a 50-basis point cut rose sharply to a 60% chance, according to the CME FedWatch Tool. The Fed then walked back William’s comments and since the “clarification”, market expectations have moved back in line to more like a 36.9% chance of a 50 bps move.

August gold futures last traded at $1,4257 an ounce, up 1% from last week.

Silver started making more moves in the markets this week, with gains similar to July 2016 when the metal gained nearly 7 percent. As gold interest continues to rise, logically silver is getting more investor attention. As of 9:22 a.m. EDT on Friday, silver remained above the US$16 per ounce level and was trading at US$16.41. As for the other precious metals, platinum was up over 1 percent for the week, and, as of 9:24 a.m. EDT on Friday, the metal was trading at US$856 per ounce — close to US$40 more than last week. Palladium, which has been marching to its own drum, made gains of almost 1 percent on Friday, trading at US$1,513 per ounce as of 9:28 a.m. EDT.

Energy and Oil

Oil prices came off this week based on rising fears of weakening global demand and a renewed supply surplus. The IEA lowered its 2019 demand growth forecast to 1.1 mb/d. The agency’s executive director also indicated they may cut it again if the global economy continues to slow. This is part of a series of downward revisions. The IEA pitched 2019 demand growth at 1.5 mb/d; and in its July Oil Market Report, the IEA held its 1.2 mb/d estimate. A growing number of analysts are questioning the IEA’s demand forecasts.

In a side note, Iran has offered a deal with the U.S. that would include permanent enhanced nuclear inspections in return for the U.S. lifting sanctions. The country’s foreign minister Javad Zarif said it was “a substantial move.” Interestingly, the offer came immediately after the U.S. downed an Iranian drone in the Persian Gulf Thursday. Oil prices fell on the news.

Natural gas prices were quiet despite a major heatwave gripping parts of the U.S. The eastern seaboard is hitting record temperatures with little relief in sight. Still, natural gas prices have barely moved. It appears that ongoing production increases have prevented any kind of tightening in the market. Gas futures slated for August delivery dropped under $2.30 per MMBtu at week’s end.

World Markets

Stock markets in Europe gave way to U.S.-China trade tensions as talks between the two countries stopped. U.S. President Donald Trump sounded the horn with potential tariffs on a further $325 billion worth of Chinese imports. Negotiations retracted over Chinese telecom company Huawei Technologies. The pan-European STOXX Europe 600 Index and the UK’s FTSE 100 Index both made small gains, while the German DAX index dropped about 0.5%, and Italy’s FTSE MIB Index lost nearly 2.4%.

China stocks took a loss, likely as the U.S. trade policy’s impact on China’s economy were absorbed. The benchmark Shanghai Composite Index fell 2.67%, and the large-cap CSI 300 Index, gave up 2.16%. According to reports, China’s export growth slowed 1.3% in June from a year ago. China’s imports fell a bigger-than-expected 7.3% from the reported prior-year period.

The Week Ahead

Earnings season is well underway with about 30% of the S&P 500 companies reporting second-quarter results. Economic data to watch for in the week includes global PMI indicators on, existing home sales, durable goods orders and Q2 housing vacancies, and on Friday, the all-important second-quarter U.S. GDP numbers.

Key Topics to Watch

–           S&P companies reporting

–           PMI Indicators

–           Existing home sales

–           Durable goods orders

–           Q2 housing vacancy numbers

–           U.S. GDP numbers released Friday

Markets Index Wrap Up

Stock Markets

The continued expectations of easing monetary policies across the globe buoyed stocks higher this week. After the Fed chairman’s testimony before Congress, the Dow Jones Industrial Average rallied to a new record high and closed above 27,000. Powell’s comments were clearly aimed at a more accommodative policy that strengthened expectations for a rate cut on the horizon. The European Central Bank (ECB) is also reiterating this sentiment and is considering injecting fresh stimulus to the economy via interest-rate cuts, or the possibly quantitative easing. As the second-quarter earnings season kicks off next week, attention will shift from central banks moves to earnings, which analysts believe may increase volatility.

U.S. Economy

The U.S. economic expansion seems set to continue in good stead. In his words to Congress this week, Chair Powell characterized the economy as “in a good place.” Many endorse the fact that our current economic expansion has endured largely because of moderate pacing of economic growth. The economy’s steady pacing is supported by solid consumer spending, which composes 70% of economic growth. Based on strong unemployment, modest wage growth, and low interest rates, consumers are expected to maintain the current positive trend. As always, there are risks to this optimistic outlook:

• Too low of inflation

Inflation running either too high or too low is a negative. In the current climate the more immediate risk to the bull market is too low inflation more commonly called deflation. The risk here is that deflation could trigger a recession. The Fed has shown its willingness to cut short-term interest rates to correct this.

• U.S.- China trade tensions

Trade tensions between the U.S. and China are a major factor with the potential to slow global growth by dampening business investment and disrupting supply chains. According to OECD (Organization for Economic Co-operation and Development), world trade growth for 2019 has fallen to 2.1% in 2019 from 3.9% in 2018. Trade tensions play a major role.

• Slowing global growth

While trade tensions are currently stealing headlines, other global concerns can be worrisome. These are based around geopolitical uncertainties such as Brexit, burgeoning Italian debt, and a slowing Chinese economy. All these factors have contributed to a slowing of global growth. Based on current trends, analysts expect global economic growth to slow over 2019.

Metals and Mining

The gold market had solid gains for the week with prices holding above critical psychological level at $1,400 an ounce. Gold also benefited from Fed Reserve Chair Jerome Powell’s comments before Congress, which indicated a rate cut on July 31. A softer US dollar, geopolitical issues and a slow in economic growth were the main drivers behind the precious metal’s ability to trend between US$1,270 and US$1,420 per ounce throughout the quarter. August gold futures last traded at $1,418.60 an ounce, up more than 1% since last Friday. Next week will test endurance for gold bulls, as they wait to see if prices can hold above $1,400 an ounce in what should be a relatively uneventful week.

Silver made slight gains of 1.26 percent over the second quarter of this year which just came to a close. The white metal was somewhat stagnant throughout the period, but on a positive sentiment note, it reached its highest level towards the end of June.

Energy and Oil

Global oil demand continues to soften, which analysts say could result in a supply surplus in the second half of this year. The EIA downgraded its forecast for global oil demand growth to just 1.1 million barrels per day (mb/d) this year, down from the 1.2 mb/d the agency forecasted last month and from 1.4 mb/d in May in its latest Short-Term Energy Outlook. They say that the “increasingly weak outlook” for demand could upend global balances. A slowing economic picture now means that inventories could actually increase by 0.1 mb/d. So, even with the OPEC+ cuts extended, the oil market could remain in a state of surplus throughout this year and next.

Natural gas spot prices rose at most locations this week. Henry Hub spot prices rose from $2.24 per million British thermal units (MMBtu) last Wednesday to $2.46/MMBtu Friday.  At the New York Mercantile Exchange (Nymex), the price of the August 2019 contract increased 15¢, from $2.29/MMBtu last Wednesday to $2.444/MMBtu Friday. According to Baker Hughes, for the week ending Tuesday, July 2, the natural gas rig count increased by 1 to a total 174. The number of oil-directed rigs fell by 5 to a total of 788. The total rig count decreased by 4, and it now stands at 963.

World Markets

Stock markets in Europe fell even as continued signs that both the Fed and the European Central Bank (ECB) are endorsing further stimulus measures. The pan-European STOXX Europe 600, the UK’s FTSE 100 Index, the German DAX index, and France’s CAC 40 Index fell as trade tensions expanded to a U.S. and France dust up. The European Commission cut its eurozone growth and inflation estimates citing the fact U.S. trade policy could pose a risk to the group. The commission lowered its inflation rate increase expectation, which it believes will be further from the ECB’s target of close to, but less than 2% over all.

Stocks in China recorded a weekly loss, likely as the U.S. trade policy’s impact on China’s economy sunk in. The benchmark Shanghai Composite Index fell 2.67%, and the large-cap CSI 300 Index, gave up 2.16%. China reported that export growth in June slowed 1.3% from a year ago, while imports fell a bigger-than-expected 7.3% from the prior-year period.

Even as a temporary halt in the trade battle was reached between the U.S and China, analysts believe that the differences between the two countries are complex and are not easy to resolve. This leaves the risk of increased tariffs and other forms of retaliation to potentially escalate quickly if negotiations break down.

The Week Ahead

This week kicks off the second-quarter earnings season when about 10% of S&P 500 companies report earnings all week long. Key economic data coming this week include retail sales, industrial production numbers, housing starts, and the index of leading economic indicators report, along with consumer sentiment released Friday.

Key Topics to Watch

–           First S&P companies reporting

–           June retail sales report

–           June industrial production numbers

–           NAHB homebuilders index released

–           Leading economic indicators report

–           Consumer sentiment

Markets Index Wrap Up

Stock Markets

Stocks managed to extend their recent gains, even with a shortened holiday week; the S&P 500 closed near its record high. All investors felt relief after the U.S. and China agreed to suspend new tariffs and resume negotiations with no specifics. While that was the expected course, the fact that the leaders were able to avoid further escalation of trade tensions and move away from heightened tensions was still viewed as very positive. Another positive emerged as 10-year government bond yields fell to their lowest levels in more than two years based on signs of slower U.S. growth and expectations of additional easing by the central bank.

U.S. stocks may have been the beacon that is leading the way, however international equities are also up double-digits this year, as well as small-cap stocks. Analysts suggest that as the cycle advances, well-diversified portfolios will be better positioned to navigate the swings and keep investors on track toward positive momentum. 

U.S. Economy

Markets seem convinced that there is room for 2019 to continue to its end with a positive outlook. But they caution that there’s more bumps in the road ahead. The first half of the year’s highs in stocks and low interest rates, combined with last week’s data provide key takeaways: last week’s employment report showed that the U.S. economy added 224,000 new jobs in June, the strongest month this year and solidly above the 161,000 average so far in 2019. Monthly payroll gains averaged 223,000 for all of 2018, so the current slowdown in hiring raises fears that the U.S. economy is heading toward recession. The Fed’s apparent willingness to consider rate cuts in an effort to extend the economic expansion lends strong support.

The S&P 500 rose by a strong 17.4% (18.5% including dividends) in the first six months of 2019. Again, that’s the single best first half year since 1997. There has been a total of 10 years during the last 60 when the stock market returned more than 15% in the first half. For a full seven of those 10 years (70%), the market also posted a positive return in the second half of the year. The stock market finished positive for the full year in all 10 of those years averaging a 27% return. 

Metals and Mining

Gold investors have to be enjoying this run as gold remains one of the strongest precious metals and continues on track for its seventh straight week of gains. As the week ended,

gold dipped over 1 percent on Friday, precipitated by the US dollar strengthening ahead of the release of US jobs data.

Analysts say they see the dollar a tad stronger and the euro weak, which usually holds gold back. Unfortunately, the readiness to push prices higher by speculators is also pretty limited.

Silver was down over 1 percent on Friday but could make a rebound based on indications that the Fed will cut interest rates later this month. Market watchers seem to remain positive about the silver, despite its current relatively stagnant nature. Analysts forecast that the silver price will average US$16.20 per ounce in Q4 of this year before rising to an average of US$17 in the fourth quarter of 2020. The other precious metals were mixed with platinum down nearly 2 percent for the week and palladium tracking as the only precious metal to make gains early in the session on Friday, ticking up 0.06 percent. As of 9:00 a.m. EDT, the metal headed for its fifth straight week of gains, trading at US$1,557 per ounce.

Energy and Oil

OPEC and allies gathered this week in what most felt was one of the least heated meetings in recent years, rolling over their production cuts into March 2020. This send signals that the oil market is still over supplied, and demand growth looks weaker for the balance of 2019.

If successful, OPEC’s mission to draw down excess inventories would lead to higher oil prices. Its cartel members need this action to balance their budgets, which are overly reliant on oil exports.

At the same time, higher oil prices are helping U.S. shale production to continue growing which is directly offsetting a lot of supply that OPEC is withholding from the market. OPEC and its Russia-led non-OPEC partners in the production cut deal are focused on reducing inventories and boosting prices. OPEC’s ‘free pass’ to U.S. shale is not expected to last long, according to JP Morgan. The cartel and its largest producer, Saudi Arabia will reclaim market share from U.S. shale, JP Morgan’s head of EMEA oil and gas research Christyan Malek reported to the media this week. 

Natural gas spot prices fell at most locations this week. Henry Hub spot prices fell from $2.36 per million British thermal units last Wednesday to $2.32/MMBtu Friday. At the New York Mercantile Exchange, the July 2019 contract expired Friday at $2.291/MMBtu, up 2¢/MMBtu from last Wednesday. The August 2019 contract remained unchanged Wednesday to Wednesday at $2.268/MMBtu.

World Markets

The pan-European STOXX Europe 600 Index, the UK’s FTSE 100 Index, and exporter-heavy German DAX index all rose throughout the week surrounded by increased hopes that the European Central Bank (ECB) will continue to provide monetary stimulus to keep the region’s economies moving forward. Both stocks and bonds got a bump after International Monetary Fund (IMF) Managing Director Christine Lagarde was nominated to be the next ECB president. Markets believe that she will continue the monetary policy established by current President Mario Draghi.

In Germany, data punctuated the cost that trade tensions mixed with slowing global growth have had on its export-dependent economy. German industrial orders were reported lower in all sectors, dropping 2.2% in May and for a total of 8.6% for the year. Overall, this is sharpest year-on-year drop of industrial orders since 2009.

Chinese stocks posted a weekly gain as a reaction of relief to a temporary cease-fire on tariffs struck by President Trump and Chinese leader Xi Jinping last week. The absence of any further specifics about when or how resumption will take place tempered optimism about long term solutions. The benchmark Shanghai Composite Index added 1.1%, and the large-cap CSI 300 Index, gained 1.8%. Chinese stocks rose immediately after Trump and Xi met at the G20 summit in Japan and agreed to restart talks alongside the U.S. suspending any new tariffs on Chinese goods.

The Week Ahead

It’s a relatively quiet week on reports with a few important indicators coming out including the NFIB small business index report on Tuesday, FOMC meeting minutes released on Wednesday and inflation plus weekly jobless claims reported on Thursday. The producer price index will also come out this week.

Key Topics to Watch

–           May consumer credit report

–           NFIB small business index report

–           FOMC meeting minutes released

–           Inflation numbers issued

–           Weekly jobless claims report Thursday

–           Producer price index

Markets Index Wrap Up

Stock Markets

Stocks finished mixed this week as markets took in the strong gains from the month of June. Investors were in a wait-and-see mode anticipating Friday’s G20 Summit in Japan. The big takeaway would be a trade truce and resumption of negotiations between the U.S. and China, which stalled last month. The week also marked the end the quarter and the first half of 2019. At the year’s midpoint, we reached an important milestone: the 10-year anniversary of the current economic expansion. Of course, some volatility crept in during the second quarter 2019, but the markets remained strong with rising bonds and stocks adding to gains. While this expansion might be the longest, analysts still believe that there is room to run for some time.

Two large mergers of note happened this week. Eldorado Resorts says it will acquire Caesars Entertainment in a deal worth about $17 billion, making the pair the largest U.S. gaming company. Drug maker AbbVie has agreed to acquire rival Allergan for around $63 billion in cash and stock.

U.S. Economy

As we end the 2nd quarter, the current U.S. economic expansion logs in as the longest-running one on record, going back to 2009 and surpassing the 1991-2001 expansion. Obviously, the quality and characteristics of the economy have evolved over time, but can this expansion continue even further? Most analysts are in agreement that it can, but they caution that they don’t believe the next stage will look the same as this current phase. Expansions have typically finished with the end of a bubble, such as housing or tech, from an external shock or based on poorly conceived monetary policies. None of these are at play at the moment. The good news for investors is that bull markets rarely end without an accompanying recession. This expansion is by most estimates performing well enough continue to offer support to the stock market going forward.

Metals and Mining

Gold has been on a tear this month and now gold markets are testing if the precious metal can hold support above $1,400. There is continued and persistent selling pressure after hitting its six-year high this week.

Market sentiment is clearly bullish as prices pushed to a six-year high, but by week’s end, sentiment took a more reserved stance since analysts are questioning aggressive expectations for lower U.S. interest rates that came out of last week’s Fed meeting. Gold’s gains have also been largely supported by expectations of an interest rate cut in July by the Federal Reserve.

So, although Gold is off its highs, it is still experiencing its best month in three years. Gold prices are up almost 1% for the week and up nearly 8% for the month. Silver was also on track for a monthly gain, but then moved down slightly on Friday. As of 12:30 p.m. EDT, silver was trading at US$15.25 per ounce. The other precious metals remain strong, with platinum inching up to US$838 per ounce and palladium closing out the week US$1,518.50 per ounce.

Energy and Oil

Oil prices moved higher at the end of this week, like other markets anticipating the meeting between Donald Trump and Xi Jingping. The sentiment is of course that talks could result in a breakthrough in trade negotiations, an agreement to resume talks, or a collapse and subsequent increase in tariffs. All of these will affect oil prices. OPEC kicks off its meeting in Vienna on Monday. Market bulls will be hoping that the G20 summit will provide a trade breakthrough while the supply side of oil continues to show bullish signals, according to market insiders.

Natural gas spot prices fell at most locations this report week. Henry Hub spot prices fell from $2.36 per million British thermal units (MMBtu) last Wednesday to $2.32/MMBtu yesterday. According to data from PointLogic Energy, total U.S. consumption of natural gas rose by 4% compared with the previous week. Natural gas consumed for power generation climbed by 8% week over week based on slightly warmer than normal temperatures in the US southeast.

European governments are reported to be “doubling down” on efforts to keep economic ties with Iran, in an effort to keep their nuclear deal alive. The EU has tried to develop a financing mechanism to bypass U.S. sanctions, but most foreign companies are unwilling to do business in Iran under the current heated climate.

World Markets

The pan-European STOXX Europe 600 Index, the UK’s FTSE 100 Index, and the exporter-heavy German DAX Index all rose slightly throughout the week based on expectations that the Group of 20 summit would help ease global trade tensions. One soft spot was the yield on the 10-year German bond, which fell to -0.34% as European economic indicators were disappointing.

Chinese stocks were off slightly for the week as traders were moving cautiously in advance of a much-anticipated meeting between President Trump and his Chinese leader Xi Jinping at the G20 summit. The benchmark Shanghai Composite Index declined 0.8% and the large-cap CSI 300 Index lost 0.2%. However, for the month of June both indexes rose off of positive signals on trade earlier in the month. The Shanghai benchmark rose 2.8% and the CSI 300 Index gained 5.4% in June based on optimistic investors expecting the G20 meeting between both leaders would, at least lead to the resumption of trade talks that halted last month.

The Week Ahead

It’s a shortened week for U.S. financial markets with banks and markets closed on Thursday for the U.S Independence Day holiday. Canada will close its banks and markets on Monday for their Independence Day celebrated July 1st. Major economic news includes the ISM manufacturing Purchasing Managers’ Index, May factory order numbers, auto sales reported on Tuesday and June’s jobs report released on Friday.

Key Topics to Watch

–           Post G20 summit trade news

–           ADP employment report

–           ISM nonmanufacturing index report

–           May Factory orders report

–           Nonfarm payrolls June report

–           June unemployment rate report

–           Gold pricing post G20

Markets Index Wrap Up