Stock Markets
U.S. stocks extended recent gains this week, ending higher for the fifth week in a row. The continued signs of progress with U.S.-China trade negotiations accompanied by better-than-expected corporate earnings for the season, have helped ease the fears of recession for the whole month and moved investor sentiment into the positive zone. Treasury yields climbed to their highest level in three months this week on the backs of stabilizing global growth. There remain many uncertainties where trade is concerned, but earnings are projected to bottom out this year and then reaccelerate in 2010 to a possible mid-single-digit pace. That’s a real positive for investors. Analysts are suggesting this sets the stage for moderate returns in a bull market that is welcomed in November.
U.S. Economy
There are several issues dominating the market recently, including the trade issues, political battles consuming Washington, Fed rate shifts, and broader geopolitical uncertainties. The more fundamental drivers have taken the lead on this recently, namely corporate earnings results. These are driving to the markets to new all-time highs and continue to be the focus.
Already, about 90% of S&P 500 companies have reported results, indicating that the third-quarter earnings season is about to close. It looks as though corporate profits are on track to register just a meager decline when compared with a year ago. But in the bigger picture, the results have been better than expected, mostly as a result of the latest signs of progress on trade negotiations, which clearly pushed the markets to new highs.
Metals and Mining
Gold prices tumbled Friday as hopes surrounding US-China trade talks caused the dollar to gain momentum and pushed gold down as a result. The US dollar began moving upwards when news broke that China and the US had agreed to roll back tariffs as part of a potential deal to end their ongoing trade war. Even so, Gold continues to be supported by concerns that emerged as officials spoke out against giving up punitive tariffs. On the whole, gold has gained more than 14 percent in 2019, mainly as a direct result of fears about the trade war between the super giants. Gold is set for its largest weekly decline in two and a half years. Silver is slumping on the week and was also down about 6 percent by the end of Friday’s session — its biggest slump since October 2016. Like gold, silver is being pushed by the steady dollar, as investors pulled back. The other precious players, platinum and palladium, came down this week. Platinum lost over 1 percent on Friday and 5 percent for the week. Palladium’s decline was only marginal, as it remains supported by the same factors that helped it break records last week. Palladium is the real runner and has gained 43 percent since the beginning of the year.
Energy and Oil
Oil prices fell back on Friday as traders awaited more backing that the U.S.-China trade deal will become a reality. From the news reports this week, it is expected that both sides would lower tariffs as part of the phase one agreement. Unfortunately, the deal has been moved to a December completion. In following the news, oil demand growth remained weak in the short term, stemming from slow progress on the US-China trade war, and from long-term growth of alternative transportation methods, which are gaining steam. OPEC unhappily is projecting oil demand growth of about 1 million b/d this year. However, the International Energy Agency predicted oil demand would grow by just 0.25 million b/d a year on average post-2025. Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $2.67/MMBtu last week to $2.78/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the December 2019 contract increased 14¢, from $2.691/MMBtu last week to $2.828/MMBtu this week. The price of the 12-month strip averaging December 2019 through November 2020 futures contracts climbed 7¢/MMBtu to $2.567/MMBtu.
World Markets
Markets in in Europe remained mostly higher this week following suit with the rally on Wall Street fueled by optimism about a U.S.-China trade deal, and for the most part, solid corporate earnings reports. The pan-European STOXX Europe 600 Index rose for the fifth week in a row, gaining about 1.4%. The German DAX rose about 2%, while the UK’s FTSE 100 Index gained about 0.8%.
As the earnings season slows down, it’s worth noting that of the 80% of the STOXX 600 that have reported numbers, 50% of the companies have surpassed consensus estimates on both the topline and bottom line. That is the highest level in the last six quarters. Of the winners, health care and basic materials sectors have surpassed the most on earnings per share; utilities and consumer goods followed the leaders. The International Monetary Fund (IMF) said that the eurozone is likely to grow less than expected in 2019. It claims the recession in manufacturing sector could spill into the services sector. The IMF forecast is down from its April estimate of 1.3% to a new 1.2%. That comes after expansion in 2018 of 1.96%. The IMF attributes the slowdown mostly to slow growth in Germany, which is the eurozone’s largest economy. It was also hobbled by stagnation in Italy. In Germany, exports rose a higher-than-expected 1.5% in September after adjusting for seasonal and calendar effects.
In China, stocks advanced for the week based on hopes that a comprehensive U.S.-China trade would emerge following news that both sides agreed to roll back tariffs on each other’s goods as part of a phase one trade deal. For the week, the benchmark Shanghai Composite Index edged up 0.2%, and the large-cap CSI 300 Index, rose 0.5%. Both indexes fell Friday as Beijing and Washington sent mixed messages about the likelihood of an imminent breakthrough. In any case, news of a plan to remove tariffs in stages was strong enough to raise sentiment, since investors appear to have embraced it as a sign of de-escalation in the U.S.-China trade war and a boost to the global economy.
The Week Ahead
Only about 10% of the S&P 500 companies will report earnings as the earnings season comes to an end this week. Bond markets are closed on Monday in observance of Veteran’s Day. The significant economic data rolling out this week includes inflation numbers, the Consumer Price Index, Householder Debt and on Friday, the industrial production and retail sales figures.
Key Topics to Watch
- NFIB small-business index
- Consumer price index
- Core CPI
- Household debt
- Nel Kashkari speaks
- Federal budget
- Weekly jobless claims
- Producer price index
- Retail sales
- Retail sales ex-autos
- Import prices ex-fuel
- Empire state index
- Industrial production
- Capacity utilization
- Business inventories
Markets Index Wrap Up
