Weekly Market Review – October 10, 2019

Stock Markets

U.S. stocks and the global group all rose this week buoyed by optimism that Chinese and U.S. officials had made real progress in negotiations late in the week. They expect that the groundwork for a truce on additional tariffs will allay further volatility. There were also positive comments from leaders on the Brexit issue which helped the positive outlook. Together these events were a catalyst for leading international developed-market stocks which had their biggest single weekly rise in four months’ time. Analysts were quick to note that reduced uncertainty can be a catalyst for improved returns in international equities. They should take in to account that negotiations are ongoing and clearly things have changed on past U.S. – China agreements in principle.

U.S. Economy

U.S stocks appear on track to finish strong this year. The S&P 500 is near a record high, even though there was significant volatility in the past quarter. That due to fears of recessions creeping in as a result of slower global growth and trade tensions that were on high alert. Gyrations in the on again, off again U.S./China trade front continue to effect market swings. Stocks rose Friday on the optimism that a phased approach to a trade deal has been reached. Obviously, additional phases of agreement or a larger deal that includes key issues like intellectual property, technology transfers and enforcement will need to be reached over time, but this progress is very encouraging. So, trade issues will continue to fuel volatility. General consensus is that stocks will continue to rise but at a slower pace than they have over the past few years. In summary, they expect slower growth but no recession. They are currently predicting the economy will grow in the 1.5%-2% range next year.

Metals and Mining

Volatility is alive and well in the gold market as Wall Street taking near-term momentum away from the bulls with prices expected to fall next week. The gold price spent fell under US$1,500 per ounce this week. That was due mostly to pressure by progress on US-China negotiations and a possible positive outcome to the Brexit debacle. China and the US are reportedly closer to reaching a deal on trade negotiations and plans are coming into place for the UK’s exit from the European Union. So, optimism over the U.S.-China trade situation has fueled a stock market rally, which is the reason for gold underperforming in the last couple of days. Kitco’s Jim Wyckoff spoke to the media about Brexit.

“There are reports that the UK and the EU may be making some progress on a Brexit that won’t be a hard Brexit and that’s lifting European spirit so all that is working against the gold market,” he said.

Gold was on track Friday for a weekly loss, sitting at US$1,483.50. Silver was trading at US$17.46 per ounce at the same time, while platinum was trading hands at US$895 per ounce and palladium, which has been the lead precious metal, was solid at US$1,679 per ounce.

Energy and Oil

On Friday, Iran claimed that someone aimed suspected missiles at one of its oil tankers as it traversed the Red Sea, about 60 miles from Saudi Arabia, causing mild damage to the tanker itself along with oil to spill into the Red Sea. Oil prices got a slight 2% boost off the event. There was no fire following the event, the oil spill was brief, and the vessels are stable. The reason for the attack remains entirely unclear. The entire region is experiencing a massive upheaval with the latest upset being a Turkish invasion of northern Syria. That followed the US withdrawal from the area which allowed Turkey to overpower its Kurdish allies in the region. Oil is lagging overall due to poor fundamentals, with OPEC cutting its oil demand growth forecast this week for the third consecutive month. Despite Iraq’s political woes and a possible staging ground for a US-Iran conflict, oil prices don’t appear to be affected. Natural gas spot price movements were mixed this week. Henry Hub spot prices fell from $2.30 per million British thermal units (MMBtu) last week to $2.22/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the November 2019 contract decreased 1¢, from $2.247/MMBtu last week to $2.234/MMBtu this week. The price of the 12-month strip averaging November 2019 through October 2020 futures contracts declined 2¢/MMBtu to $2.368/MMBtu.

World Markets

Equity markets in Europe rallied to fresh signs of progress on U.S.-China trade talks and Brexit negotiations. The pan-European STOXX Europe 600 Index gained 2.7%, while the German DAX was up 4.2%, and UK’s FTSE 100 Index gained more than 1%. The British pound jumped almost 3% against the U.S. dollar. That was based on hopes that a Brexit deal could be achieved after the prime ministers of the UK and Ireland reported that they could envision “a pathway to a possible deal.” Further fueling optimism, the European Commission said the European Union (EU) and UK have “agreed to intensive negotiations in the coming days.” The commission said that the EU insists that a deal must avoid “a hard border on the island of Ireland, protect the all-island economy and the Good Friday agreement, and safeguard the integrity of the single market.”

Stocks in China also surged following numerous reports of tentative progress in the high-level trade talks that concluded Friday in Washington. For the week, the benchmark Shanghai Composite Index gained 2.4%, and the large-cap CSI 300 Index climbed 2.5%. Both indexes rose to their highest levels of the week on Friday, after President Trump told reporters that U.S. and Chinese officials “had a very, very good negotiation.”

In a strategic move, the head of the International Monetary Fund warned during the week that the U.S.’s trade war could cost the global economy about $700 billion by 2020.

The Week Ahead

For market data this is the week that third-quarter earnings start to report. We should see the first round of about 6% of S&P 500 companies reporting their earnings as the week falls. Several key economic data being released during the week include retail sales, housing starts, and on Friday, the important leading index data will come out.

Key Topics to Watch

  • Empire state index
  • Retail sales
  • Retail sales ex-autos
  • Business inventories
  • Home builders’ index
  • Weekly jobless claims
  • Housing starts Sept.
  • Building permits
  • Philly Fed index
  • Industrial production
  • Capacity utilization
  • Leading economic indicators

Markets Index Wrap Up

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