Stock Markets
The S&P 500 closed at a new record high and global equities posted a second week of gains following news of progress in developing a COVID-19 vaccine. Stocks surged on Monday after Pfizer and BioNTech announced that their vaccine had 90% effectiveness in their large study, triggering a wave of hope and optimism that a medical solution will address the health crisis and accelerate the economic recovery. Cyclical sectors that have been negatively impacted by the pandemic and are more sensitive to the reopening of the economy outperformed last week, while sectors that have benefited from the pandemic underperformed. A similar rotation occurred across asset classes, with small-cap and international stocks outpacing U.S. large-caps. The encouraging vaccine news is consistent with the view that the economic recovery will be sustainable heading into and through 2021, but near-term uncertainties could still trigger volatility. Mass production and widespread distribution of a vaccine will likely take months, and in the meantime the virus will continue to shape the direction of the economy, suggesting that balance and diversification across sectors and asset classes are warranted.
US Economy
In what surely qualifies as some of the more encouraging news of the year, the announcement that a Pfizer vaccine showed promising trial results powered markets higher last week. The coast isn’t clear, but the light at the end of the pandemic tunnel got a bit brighter. With U.S. equities up an impressive 10% in just the past two weeks, and with the spotlight likely to shine intensely not only on virus-case counts, but also on policy responses and the path of the recovery as we head into the holiday season things appear positive but guarded.
Gains were solid but not steady last week, with the S&P 500 rising 2.2% in see-saw fashion. Analysts think the improved prospects for a vaccine establish a bit of a safety net under the market, but they won’t prevent spells of weakness. The spike in new COVID-19 cases and hospitalizations will likely be the key instigator of market swings in the weeks ahead. The strong rally in U.S. stocks since midsummer has been driven by progress in reopening the economy. The surge in infections stunts that progress, with several areas, including Chicago and New York, imposing tighter restrictions to mitigate the spread. Analysts don’t think we’ll return to the lockdown measures of earlier this year, but the pace of the rebound in economic activity is likely to stall somewhat in the coming months. We suspect market sentiment will oscillate between vaccine optimism and near-term infection and reopening concerns.
Metals and Mining
Gold prices were on track for their weakest performance since September, falling 5 percent Monday (November 9) as markets opened. News of a potential COVID-19 vaccine from Pfizer paired with US election results appearing to favor Biden pushed the currency metal lower. The positivity aided in a stock market rally as well as a rise in bond yields leading to a minor gold liquidation. The optimism waned mid-week as coronavirus cases in North America and Europe surged higher. The analyst also noted gold will face headwinds moving towards US$1,900 per ounce. Dipping as low as US$1,858 gold prices began to trend higher on Wednesday but remained well off the US$1,900 threshold. In the face of November’s price dip, the October gold ETF report logged an 11th consecutive month of net inflows. In its latest report, the World Gold Council notes gold ETF holdings rose by 20.3 tonnes in October. An ounce of gold was priced at US$1,889 on Friday. Silver prices mirrored gold’s performance, falling sharply to start the week. After edging to a 6-week high US$25.92 per ounce, values tumbled to US$23.77 midday Monday. Trading near US$24 for the remainder of the session prices climbed higher Friday, approaching the US$25 level. Silver was moving for US$24.66 on Friday. Prices for platinum also faced volatility dropping as low as US$846 per ounce. A brief rally late Monday held until late Tuesday when prices hit US$883. The uptick was quickly reversed when platinum fell back to US$854 Wednesday. By Friday morning prices had crept back to US$883. Unlike the other precious metals, palladium’s reaction to market positivity was delayed. Holding above US$2,300 per ounce off production challenges in South Africa early in the week, values slid to US$2,188 to end the day Wednesday. Palladium has not recovered those mid-session losses and was trading for US$2,196 on Friday.
The base metals space fared similarly, with a broad decline registering mid-week. Copper opened the period trading at a year-to-date high of US$7,034 per tonne. The value of the red metal has not breached the US$7,000 level since June 2018. By Wednesday the momentum was lost when prices slumped to US$6,68.50. Concern surging COVID-19 cases in various countries will lead to a new round of lockdowns has dampened economic recovery hopes. The uncertainty has also made forecasting difficult. Roskill estimates global GDP is likely to decline 3.9 percent this year. This will be followed by a 5.7 percent rebound in 2021. Copper was selling for US$6,904 a tonne Friday. Zinc prices hit an 18-month high of US$2,664.50 per tonne Monday driven by market optimism. Zinc’s upward trend has prompted Fastmarkets to forecast an upside target price of US$2,800 for the metal. By Friday zinc had pulled back to trade for US$2,593. Nickel opened the session at US$15,862 per tonne and was able to end the week slightly higher at US$15,874. Lead also made a strong showing mid-week reversing a small dip, to close the week at US$1,868.50 per tonne.
Energy and Oil
Oil prices surged early in the week on enormously optimistic vaccine news. But prices withered as the week wore on, as the short-term Covid-19 outlook continues to darken. The U.S. posted nearly 160,000 positive cases on Thursday, more than doubling the daily case-count in less than two weeks. Crude is still set to close out the week with price gains, but the short-run outlook is pessimistic. At the same time, new restrictions may hurt demand. The vaccine won’t be widely available for months at the earliest, and in the meantime, new partial stay-at-home orders have been announced in a growing number of places. Last week, Austria, France, Germany, the UK, and Portugal all began implementing a wide variety of restrictions that will no doubt compound the oil demand problem. The IEA downgraded its demand outlook by 1.2 mb/d for the fourth quarter in its latest Oil Market Report. “With a Covid-19 vaccine unlikely to ride to the rescue of the global oil market for some time, the combination of weaker demand and rising oil supply provide a difficult backdrop” to the OPEC+ meeting, the IEA said. “Unless the fundamentals change, the task of rebalancing the market will make slow progress.” On one positive note, the U.S. could add 23 GW of wind capacity this year, substantially more than the previous record set back in 2012 at 13.2 GW. One of the main drivers is the phasing down of the federal production tax credit.
Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $2.60 per million British thermal units (MMBtu) last week to $2.77/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the December 2020 contract decreased 1¢, from $3.046/MMBtu last week to $3.031/MMBtu this week. The price of the 12-month strip averaging December 2020 through November 2021 futures contracts declined 1¢/MMBtu to $2.991/MMBtu.
World Markets
Shares in Europe rallied with global markets on encouraging news regarding the development of a vaccine to combat the novel coronavirus, although surging coronavirus infections and lockdowns in key European economies capped the gains. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 5.13% higher. Major European indexes also posted strong gains: Germany’s DAX Index climbed 4.78%, France’s CAC 40 surged 7.45%, and Italy’s FTSE MIB added 6.21%. The UK’s FTSE 100 Index rose 6.88%.
Core eurozone bond yields climbed after Pfizer and BioNTech disclosed that their vaccine candidate had exhibited strong efficacy in Phase III trials. The movement in 10-year German bond prices was especially pronounced. Yields subsequently moderated on rising coronavirus cases, ongoing lockdown measures, and the European Central Bank’s (ECB’s) dovish comments. Peripheral eurozone bond yields largely tracked their peers in the core European economies.
Chinese stocks declined slightly for the week as unfavorable macro news outweighed generally positive corporate earnings. The Shanghai Composite Index shed 0.1%, while the large-cap CSI Index ended down 0.6%. In credit markets, the yield on China’s 10-year sovereign bond increased by six basis points to end at 3.28%, as solid monthly trade data underscored the strong post-pandemic recovery. Corporate bonds sold off following a default by state-owned Yongcheng Coal & Electricity, an event that proved disruptive to China’s money markets and led the country’s central bank to inject liquidity into the financial system. Foreign flows into China’s bond market slowed in October following an especially strong third quarter, which recorded inflows of USD 21 billion for each month. In currency trading, the renminbi stayed broadly unchanged and ended at 6.610 against the U.S. dollar.
The Week Ahead
Important economic data being released include retail sales and industrial production on Tuesday, building permits on Wednesday, and the leading index on Friday.
Key Topics to Watch
- Empire state index
- Retail sales
- Retail sales ex-autos
- Import price index
- Industrial production
- Capacity utilization
- Business inventories
- Home builders index
- Housing starts
- Building permits
- Initial jobless claims (state program, SA)
- Initial jobless claims (total, NSA)
- Continuing jobless claims (state program, SA)
- Continuing jobless claims (total, NSA)
- Philly Fed index
- Existing home sales
- Index of leading economic indicators
Market Summary
