U.S. stocks rallied once again last week to a another all-time high. That accounts for the 26th record high of the current year. Clearly there is continued optimism that the US and China are making progress in their efforts to pound out a “Phase 1” trade deal, hopefully before year-end. Other data reinforced the notion that the economy is strong with a continued solid base. First, a decrease in the number of people applying for first-time unemployment benefits emerged, followed by an increase in personal spending for October. With October being the eighth straight monthly increase, analysts feel comfortable suggesting that consumers are in pretty healthy shape as we head into holiday spending and the end of the year.
U.S. stocks markets are experiencing their best year since 2014. At the same time, bonds are have risen more than the past 17 years. So, while performance remains strong, investors shouldn’t take this term for granted. Analysts are convinced that conditions are in place for an extension to the bull market. Of course, that’s not without some volatility. The Thanksgiving holiday signals we are headed into the homestretch for the year with all eyes on the very important and telltale holiday shopping season. By the numbers it is promising:
- Stock markets have historically done well after Thanksgiving. Beginning in 1950, the average return in December has slotted in at 1.5%. The market post-holiday gain in that time period is a gain of 81%.
- Since 1950, the market has entered Thanksgiving with a year-to-date gain of 20% or more 18 times. This year has followed that trend. In each historical case, the following year produced an average return of 16%.
- Analysts agree that 2019’s rally reflects positive fundamentals that created and still support this market.
Metals and Mining
Gold started to stabilize Friday after dropping slowly during the majority of the week. The metal is fully on track to end up with its worst month in three years. In all, it could lose as much as US$58.60 per ounce since the beginning of November. So far, the US-China tariff stalemate has added volatility to the precious metals market, with gold benefiting most. Now, the White House is backing pro-Hong Kong protester legislation passed by Congress last week. This will certainly add tension to the overall discussion.
The crux of the legislation signed President Donald Trump earlier this week, declares the US must review Hong Kong annually to ensure they are sufficiently autonomous from China. Otherwise Hong Kong’s special status for trading will be taken away, and therefore damaging China. Of course, Beijing immediately voiced its criticism of the action and warned of countermeasures. Those new concerns helped gold rally on Friday morning to trade at US$1,459.68 at 10:21 a.m. EST. Silver and platinum have also trended lower over the 30-day period. Silver is down just over US$1 per ounce for the month, locking it into the US$17 range. Platinum has dropped about US$50 since the beginning of the month. According to a recent report from the World Platinum Council, global demand is expected to fall 10 percent in 2020. It seems that palladium is the only metal to have performed well over the 30 days. Palladium looks to be closing in on gold’s all time high of US$1,900 set in 2011. It is unequivocally the most successful precious commodity in 2019, gaining US$534 an ounce since starting the year at US$1,287.
Energy and Oil
The blatant uncertainty over global economic and oil demand growth will continue to put pressure on oil prices next year as the oversupply in the market will likely persist. That’s according to the monthly Reuters poll of economists and analysts issued Friday. According to the 42 experts, Brent Crude will average US$62.50 per barrel in 2020. The economists expect WTI Crude to average US$57.30 a barrel next year, also up from last month’s US$56.98 estimate. The analysts expect weak demand growth in the first half of 2020 due to weak economic growth. Most also agree that there is too much oil in the market. Demand growth could be anywhere in the range of 800,000 bpd to 1.4 million bpd, according to the experts surveyed by Reuters. The big story for the week was the spot prices for natural gas which fell sharply on Friday as forecasts for warm weather surprised traders who were hoping for increased demand. After all, this is normally cold season in the United States. Natural gas prices were trading down 7.52% on Friday afternoon at $2.313. Losses mounted all week starting out at $2.738 on Sunday – a loss of 15.5% for the week. As a result of some moderately warmer weather in the short term, US demand is expected to increase only to 104.7 Bcf/d over the same timeframe, compared with US natural gas production that is expected to hover around 92.7 Bcf/d—a 6% increase over year-ago levels. The EIA has estimated that total natural gas use actually fell 5% compared to the previous week, with natural gas use for power consumption declining even more, by 7%. Overall, natural gas prices are down sharply year on year, with prices as of November 30, 2018, sitting at $4.339, a loss of $2.026 or 47% y/y.
European stock markets were higher this week lifted by a rally on Wall Street. Still, worries emerged that U.S.-China trade tensions would escalate after President Trump showed support for Hong Kong protests. That action quickly capped the previous gains. The pan-European STOXX Europe 600 Index rose 1.1%. The German DAX gained about 0.7%, and the UK’s FTSE 100 Index was up about 0.5%. The British pound rose 0.7% against the U.S. dollar as another poll came out suggesting that a Conservative Party win was the likely result of the upcoming December UK elections. British Prime Minister Boris Johnson promises that he will deliver a new Brexit deal to Parliament even before Christmas. In Germany, the consumer sentiment rose unexpectedly in December. The improved mood among buyers is expected to give a boost to household spending and support the export-driven German economy.
Chinese stocks fell for a third week as President Trump’s signing of a bill supporting the Hong Kong protesters drew a sour response from Beijing. It also served to unhinge the bilateral trade talks aimed at forging a Phase One trade deal between the countries. For the week, the benchmark Shanghai Composite Index declined 0.5% and the large-cap CSI 300 Index, which tracks blue chips listed on the Shanghai and Shenzhen exchanges, gave up 0.6%. Both indexes fell to their lowest levels on Friday. That followed logically the day after China officially criticized the U.S. legislation and said it would take “firm countermeasures” if the U.S. continued to interfere in Hong Kong. Officials from both countries signaled during the week that an interim US-China trade deal is close, although it isn’t expected to include the bigger items such as intellectual property, or technology transfer.
The Week Ahead
In the post-Thanksgiving week, a few key data will be released that point to the way will be sending off 2019. Important items of note include jobs, the ISM manufacturing index and services PMI, motor vehicle sales, the unemployment rate, and consumer sentiment index which should reflect the average person’s view of how the economy is looking.
Key Topics to Watch
- Markit manufacturing PMI
- ISM manufacturing index
- Construction spending
- Motor vehicle sales
- ADP employment
- Markit services PMI
- ISM nonmanufacturing index
- Weekly jobless claims
- Trade deficit
- Factory orders
- Nonfarm payrolls
- Unemployment rate
- Average hourly earnings
- Consumer sentiment index
- Wholesale inventories
- Consumer credit
Markets Index Wrap Up