Stock Markets
Stocks edged higher last week as the market’s historic rally extended to the first week of December. Despite a notable slowdown in hiring that was revealed in the November jobs report, major indexes closed at record highs and Treasury yields rose, reflecting expectations for additional fiscal stimulus. The U.S. economy added 245,000 jobs in November, missing estimates amid a spike in COVID-19 infections and renewed restrictions in activity. The unemployment rate declined to 6.7% from 6.9%, but the participation rate also declined, indicating that more people exited the labor force. The silver lining is that the downshift in job gains could apply pressure to lawmakers to reach an agreement for a new stimulus package before the end of the year. Oil extended its gains to a nine-month high after OPEC and its allies agreed to increase production more gradually than previously planned, and the dollar hit a new two-and-a-half-year low against major currencies.
US Economy
Stocks take their direction from economic, earnings and policy fundamentals, not the calendar. That said, December has historically been a positive month for the market, with an average monthly gain of 1.6%. When the stock market enters December on a positive note, that momentum has often been carried through the remainder of the year. Over the past 75 years, when stocks have started the final month of the year with a year-to-date gain of 10% or more (as is the case this year), the market posted a positive gain for December 82% of the time. And the market rose by an average of 7.8% over the following year.
Stocks have now recouped the bear-market losses from earlier this year, reaching a new record last week. With equities up more than 60% since late-March, this has been the fastest recovery from a 30%-plus market drop on record. Markets don’t travel in a straight line indefinitely, and while analysts think 2021 will be a positive year for the markets, they expect the path ahead to be bumpier than the one we’ve traveled over the past eight months. The good news: Recovering the losses from a bear market didn’t mark an exhaustion point for stocks. Looking back at the bear markets since WWII, once the market returned to the previous high, the market gained an average of 14.3% over the following year.
Metals and Mining
After four weeks of declines, the gold price strengthened this week amid speculation that the US may pass a US$908 billion stimulus package before the new year. Gold steadily retreated in November after positive news in the pharmaceutical sector regarding COVID-19 vaccines. The yellow metal’s climb coincides with a dramatic decrease in the value of the greenback. The US Dollar Index slipped to its lowest point in two and half years this week, falling below 90.6. Gold entered the first week of December trading at US$1,773 per ounce and had moved 3.4 Although Q4 has brought added headwinds for gold, there are catalysts pointing to higher prices in 2021. Central banks have also begun purchasing gold again after becoming net sellers in August and September. “(Year-to-date) central bank net purchases continue to sit between 200-300 tonnes,” reads a report from the World Gold Council. Gold was trading for US$1,833.43 on Friday. The silver price started December with momentum, surging 8 percent between Monday and Tuesday. Adding another 1.9 percent to its value, the white metal topped out at US$24.26 per ounce after hours on Thursday. 2020 has been a breakout year for silver, which added as much as 57 percent to its price when it rocketed to US$28.32 in August. Pressure has pushed the white metal back, and it has held above US$22 since. On Friday, silver was moving for US$24.03. After falling to an 18 year low of US$608 per ounce in March, platinum has climbed to a four year high. The automotive metal broke the US$1,070 threshold as markets opened Friday. Since November, platinum has added 24.4 percent to its value, driven higher by production challenges out of South Africa. Most significant are the output constraints that sector leader Anglo American has experienced at its Anglo converter plant. Platinum was selling for US$1,046 on Friday While platinum has steadily trended higher during the first week in December, palladium has experienced volatility. Stable growth in November was upended this week. Hitting US$2,295 per ounce on Tuesday, prices had tumbled 5 percent to US$2,162 by Thursday. The metal has since moved back above US$2,200.
Copper continued its ascent into record territory this week, reaching a fresh seven year high on Friday. The red metal has added 14 percent to its value since early November and is still poised to climb higher. As of Friday morning, copper was priced at US$7,767. Zinc started the session strong, marking a year-to-date high of US$2,809 per tonne. Values fell back as the week progressed, but still maintained record levels. By week’s end, zinc was holding at US$2,747. Nickel prices rose to a one year high in late November, driven higher by positive electric vehicle fundamentals. After climbing to US$16,373 per tonne, prices have slipped back below US$1,600 since the beginning of December. On Friday morning, nickel prices were sitting in the US$15,937 range. In the lead space, prices also faced headwinds this week. A month of growth in November brought prices to US$2,117.50 per tonne, a level unseen since mid-January. However, the higher threshold was unsustainable, and the metal slipped back to US$2,046 at the end of the five-day period.
Energy and Oil
Oil prices rose after OPEC+ agreed to partial increases in production beginning in January, preventing a breakdown in the agreement. Brent inched close to $50 per barrel in a sign of confidence in the deal. It seems that OPEC+ has agreed to monthly increases. Discord characterized the OPEC+ meeting this week, and concerns grew that the group would fail to agree to postponing the planned production increases. But in the end, instead of allowing cuts to ease by 2 mb/d, the group agreed to monthly incremental production increases of just 0.5 mb/d. They also agreed to meet monthly going forward in early 2021 to assess the health of the market. The deal was not as bullish as market analysts had expected, but neither was it a failure. The reaction in oil prices suggests OPEC+ did enough to maintain market stability. Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $2.28 per million British thermal units (MMBtu) last week to $2.70/MMBtu this week. At the New York Mercantile Exchange (Nymex), the December 2020 contract expired last week at $2.896/MMBtu. The January 2021 contract price decreased to $2.780/MMBtu, down 18¢/MMBtu from last week to this week. The price of the 12-month strip averaging January 2021 through December 2021 futures contracts declined 8¢/MMBtu to $2.773/MMBtu.
World Markets
Shares in Europe paused after last month’s strong rally. In local currency terms, the pan-European STOXX Europe 600 Index ended the week with a modest 0.21% gain. Major European indexes were mixed: France’s CAC 40 ticked up 0.20%, Germany’s DAX Index fell 0.28%, and Italy’s FTSE MIB slipped 0.78%. The UK’s FTSE 100 Index, however, gained 2.87%, reaching nine-month highs on news that the UK had approved the coronavirus vaccine developed by Pfizer and BioNTech.
Core eurozone bond yields increased overall, lifted early in the week by expectations for further economic stimulus in the U.S. and encouraging developments related to coronavirus vaccines. Core bond yields pulled back somewhat on news that the eurozone purchasing managers’ index (PMI) had declined from the previous month, driven by weakness in the services segment of the economy. Consumer prices in the eurozone declined 0.3% year over year in November, the fourth consecutive month of negative inflation.
Chinese stocks posted their third straight weekly gain, aided by solid economic data. The large-cap CSI 300 Index rose 1.7%, and the benchmark Shanghai Composite Index gained 1.1%, according to Reuters. The yield on China’s 10-year sovereign bond edged lower 3 basis points to end at 3.33%. In currency markets, the renminbi appreciated by 0.5% against the U.S. dollar to CNY 6.5342.
The Week Ahead
Important economic data being released include the small business optimism index on Tuesday, inflation on Thursday, and consumer sentiment on Friday.
Key Topics to Watch
- Consumer credit
- Productivity (revison)
- Unit labor costs (revision)
- Job openings
- Wholesale inventories
- Initial jobless claims (state program, SA)
- Initial jobless claims (total, NSA)
- Continuing jobless claims (state program, SA)
- Continuing jobless claims (total, NSA)
- Consumer price index
- 8Core CPI
- Federal budget
- Producer price index (final demand)
- Consumer sentiment index
Market Summary
