Weekly Market Review – September 28, 2019

Stock Markets

U.S. stocks were in decline last week as U.S. politics dominated the news cycle around the globe. In a preemptive move, the House Democrats announced they would initiate inquiry in their attempt to launch impeachment efforts against President Trump. An impeachment requires a supermajority vote by the Republican controlled Senate and the findings of a major crime, which makes the chances of an actual conviction in this case almost non-existent. So, while this development in the Democrats’ ongoing battle adds to the political risks affecting the markets, it appears that stocks are more likely to reflect what is actually taking place in the economy and not the woes of the Washington swamp.

U.S. Economy

The inquiry into impeachment of President Trump was front and center all week long. But despite the bluster the inquiry seemed to cause on the political front, markets pretty well held their ground. Stock prices declined only 1% on the week. What this says is that markets responded more directly to policy developments than the news cycle this week. The actual developments included news that the U.S. and China plan to resume trade talks in mid-October. But there are real concerns that the White House is considering limiting investment in China even with negotiations. The two countries have had measured progress towards a trade deal over the last 2 years and that has been ratcheting up the impact on tariffs and trade restrictions. While progress may be slow, analyst think a trade deal will be reached (eventually) between these two world-leading economies. That would be a significant catalyst for global growth.

Metals and Mining

Gold declined this week as a result of pressure from the stronger US dollar. The metal was tracking its worst week in nearly 6 months as investors moved to the greenback over gold’s luster. The dollar reached a three-week peak Friday, but political tensions within the US have investors keeping close watch on gold. After US Democratic House Speaker Nancy Pelosi announced the launch of an official impeachment investigation on Tuesday, gold rose to US$1,534.10 per ounce. Speaking at the Denver Gold Forum, Frank Holmes, CEO and chief investment officer at US Global Investors told the media that gold has the potential to go much higher even without what he termed a major calamity. Holmes pointed out that gold would not reach US$10,000 per ounce without something catastrophic happening, but he believes a gradual rise to a significantly higher price is possible. Silver fell on the week but remains within reach of the important US$18 per ounce level. As if to parity gold, investors moved from silver in favor of the US dollar. In all, it dropped 2 percent for the week. In other precious metals, platinum steadied, continuing to trade above the US$900 per ounce level. Platinum has surged over the last month based on increased safe haven demand and some long-range concerns about supply. For its part, palladium lost slightly, but headed towards its eighth consecutive weekly gain. Panelists polled by FocusEconomics believe that, while prices are likely to dip slightly, palladium will continue to see strong support through 2019.

Energy and Oil

It appears that oil prices are responding to the rhetoric over Iran, as WTI and Brent have begun inching higher. The first salvo came Thursday following the Pentagon’s vow to deploy equipment and personnel to Saudi Arabia in an effort to boost its defenses. WTI pared losses from the day before on news of a US crude buildup, and Brent then finished higher Thursday. Ultimately, the Pentagon’s announcement doesn’t really have any effect on market moves in the long term. Oil headed lower Friday for a weekly loss. These moves can be attributed to real market contributors including fast paced recovery of Saudi production and slowing Chinese economic growth that is dampening the demand forecasts. Natural gas spot prices fell at most locations this week. Henry Hub spot prices fell from $2.68/MMBtu last week to $2.51/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the October 2019 contract decreased 14¢ from $2.637/MMBtu last week to $2.502/MMBtu this week. The price of the 12-month strip averaging October 2019 through September 2020 futures contracts declined 8¢/MMBtu to $2.505/MMBtu.

World Markets

Stock markets in Europe moved lower on the week, while weak economic data and U.S.-China trade tensions helped to curtail sentiment for growth in the region. The pan-European STOXX Europe 600 Index dropped 0.48%, the German DAX was down 0.85%, and the euro lost 1.2% against the U.S. dollar. The UK’s FTSE 100 Index rose 0.6%, mostly on hopes for lower UK interest rates. Even though UK stocks rose, the pound came under some pressure, falling 1.4% against the U.S. dollar. That followed Bank of England (BOE) policymaker Michael Saunders’ announcement that the BOE might consider lowering rates even if a Brexit deal is reached. The flash eurozone manufacturing purchasing managers index (PMI) fell to its worst level in nearly seven years, at 45.6 in September, down from 47 in August. Readings below 50 indicate worsening conditions. German manufacturing PMI fell to 41.4 in September from 43.5. That’s the worst reading in over a decade.

Ahead of a weeklong holiday, Chinese stocks lowered as a lack of positive signs gave investors very little incentive. The benchmark Shanghai Composite Index sank 2.5%, and the large-cap CSI 300 Index gave up 2.1%. In economic news, China reported that profits at industrial companies fell in August, reversing the previous month’s gain. That is set against slowing industrial production and sales and dropping producer prices. The fall in producer prices is troubling for Beijing, which has been stepping up easing measures in efforts to boost the slowing economy.

The Week Ahead

Several important economic indicators coming out this week include the Manufacturing Purchasing Manager’s Index, construction spending, durable orders, factory orders and on Friday, the telltale September jobs report.

Key Topics to Watch

  • Chicago PMI   
  • Markit manufacturing PMI
  • ISM manufacturing index
  • Construction spending
  • Motor vehicle sales
  • ADP employment
  • Weekly jobless claims
  • Markit services PMI
  • ISM nonmanufacturing index
  • Factory orders
  • Nonfarm payrolls
  • Unemployment rate
  • Average hourly earnings
  • Foreign trade deficit

Markets Index Wrap Up

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