Weekly Market Review – July 20, 2019

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

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