Stocks declined modestly last week, while long-term bond yields retreated near record lows. The S&P 500 turned briefly positive for 2020 before pulling back on concerns over escalating Chinese/American tensions. On the economic front, U.S. initial jobless claims increased last week for the first time since March, raising worries that the economic recovery is beginning to stall. Positively, European Union leaders agreed on a landmark stimulus package to help member states mitigate the economic downturn. Analysts believe the pace of improvement in economic data will likely slow as coronavirus cases continue to rise, but the continuing fiscal and monetary stimulus will play a crucial role in supporting the expansion until a vaccine is discovered.
In response to the coronavirus-tainted reopening of the U.S. economy, legislators also met in D.C. this week to negotiate a new round of stimulus. Federal stimulus has been a strong support for stocks to climb during the rally from the March 23 lows, despite near-term economic challenges. However, key relief measures to households will expire at the end of July, which could slow the overall economic recovery.
In contrast to the struggling labor market, the housing market is showing itself to be a bright spot in the economy. Existing home sales increased 20.7%, and new home sales rose by 13.8% in June versus the previous month. After stalling earlier this year as stay-at-home orders were put in place nationally, record-low mortgage rates have lured homebuyers back into the market. Thirty-year mortgage rates have fallen from low to lower this year, dropping from 3.7% in January to 3% last week. Housing, as one of the most interest-rate-sensitive sectors of the economy, is an important watchpoint for markets, serving as both a current indicator of consumer health and a leading indicator of economic recovery.
Metals and Mining
Gold broke past the US$1,900 per ounce mark this week, driven by a weakening US dollar and mounting safe haven demand. Climbing as high as US$1,905 on Friday morning, the yellow metal has added more than 5 percent to its value since Monday. Its ascent has not yet taken it past its previous high of around US$1,920, set in September 2011. Silver also had a stellar performance, adding 16 percent this week and holding above US$22 an ounce. Much of golds price growth over the last four months has resulted from the economic upset caused by COVID-19. Mass money printing, quantitative easing and stimulus have all made gold more alluring as the US dollar becomes increasingly devalued. As mentioned, silver has made significant gains, climbing from US$19.59 on Monday to US$22.84. The white metal’s price growth this week marks its best performance in almost three decades. Silver is now at seven-year highs, and its safe haven characteristics have made exchange-traded funds increasingly appealing. All-time yearly inflows were surpassed in the first half of 2020. Platinum was also in the positive this week. Monday saw the metal trading in the US$842 per ounce range, steadily edging higher. The metal’s weekly high came mid-week, when it hit US$923. Shedding some of that growth later in the week, platinum is still shy of its year-to-date high of US$1,022, set in mid-January. Breaking past US$2,000 an ounce, palladium added more than 6 percent to its price this week. Weak industrial demand has been offset by rising COVID-19 numbers out of South Africa, a primary producer of both platinum and palladium.
The base metals space also saw broad increases, with the exception of lead, which fell lower. Copper made firm gains, climbing above US$6,500. The red metal hit a year-to-date high last week before retreating; it is now within range of surpassing US$6,545. Zinc made more modest gains, adding 1.6 percent over the week. The metal is still well off its year-to-date high but is in price territory similar to February. Zinc was priced at US$2,207 on Friday morning. Nickel prices continue to gain support from supply chain woes. This week saw the metal add 2 percent to its value as it continues to move away earlier lows. Nickel ended the session trading for US$13,460 per tonne. Lead was the only base metal to slip lower this week. Despite the modest price shedding, the metal is now in its pre-pandemic price range. But is still over US$200 off its January high of US$2,026.
Energy and Oil
Oil fell back to around $40 for WTI and $43 for Brent – familiar territory for the market over the past few weeks. The EIA’s data for this week was more downbeat, dashing hopes of positive momentum. Still, crude remains stable and steady at around $40, trapped between coronavirus fears on the downside, and improving fundamentals on the upside. The Chevron purchase of Noble Energy may spark more M&A activity. Goldman Sachs said more M&A could be positive for the macro outlook for oil because consolidation will translate into slower production growth. “We believe strip prices are too low and are likely to move higher in 2021, a catalyst not only for fundamental upside to E&P stocks but also for potential M&A values,” Goldman Sachs said in a note. New York is seeking bids for 2.5 GW of offshore wind and 1.5 GW of onshore renewables. The state will also invest $400 million in port upgrades to support offshore wind. Meanwhile, Saudi Arabia is accelerating plans to sell off state assets and is considering an income tax in order to shore up its budget. Schlumberger, the largest oilfield services company in the world, said it would eliminate 21,000 jobs. The company posted a loss of $3.4 billion in the second quarter, including a $3.7 billion-dollar impairment. Natural gas spot prices fell at most locations this week.
The Henry Hub spot price fell from $1.71 per million British thermal units (MMBtu) last week to $1.64/MMBtu to this week. At the New York Mercantile Exchange (Nymex), the price of the August 2020 contract decreased nearly 10¢, from $1.778/MMBtu last week to $1.681/MMBtu this week. The price of the 12-month strip averaging August 2020 through July 2021 futures contracts declined 5¢/MMBtu to $2.371/MMBtu.
European shares fell, as a deterioration in U.S.-China relations eroded earlier gains from the European Union (EU) agreeing on a recovery fund and positive news on efforts to develop a coronavirus vaccine. In local-currency terms, the pan-European STOXX Europe 600 Index ended the week 1.17% lower, while Germany’s DAX Index eased 0.23%, France’s CAC 40 slid 1.47%, and Italy’s FTSE MIB declined 1.25%. The UK’s FTSE 100 Index fell 2.38%.
Business activity in the eurozone grew in July for the first time since February and at the fastest rate in more than two years, a survey by IHS Markit showed. The Flash Eurozone PMI Composite Output Index rose to 54.8—well above 50, the level that divides expansion from contraction, and the 48.5 reading registered in June. Both manufacturing and services portions of the economy returned to growth. New order inflows picked up and job losses eased, although job cutting was widespread as many companies continued to reduce capacity.
Mainland Chinese stocks declined for the week. The large-cap CSI 300 Index declined 0.9% and the benchmark Shanghai Composite Index shed 0.5%, weighed by a Friday sell-off on news that the Trump administration withdrew consent for China to operate its consulate in Houston, Texas. This unexpected decision rattled investors who viewed it as an aggressive move that would ratchet up bilateral tensions at a time when China’s economic recovery remains fragile.
In China’s bond markets, the yield on the sovereign 10-year bond ended the week almost unchanged at 2.98%. The People’s Bank of China kept the loan prime rate (LPR), a reference rate for new bank loans, unchanged for a third straight month, as expected. The one-year LPR remains at 3.85%, while the five-year rate stands at 4.65%. In the currency markets, the renminbi declined following the escalation in U.S.-Beijing tensions, losing 0.4% against the greenback and closing at 7.018 for the week.
The Week Ahead
The earnings season will take center stage, with almost 40% of the S&P 500 companies reporting second-quarter results. Important economic data being released include consumer confidence on Tuesday, the Federal Reserve’s interest rate decision on Wednesday, and the preliminary second-quarter GDP on Thursday.
Key Topics to Watch
- Durable goods orders June
- Core capital goods orders
- Case-Shiller national home price index (year-over-year)
- Consumer confidence index
- Homeownership rate Q2
- Advance trade in goods
- Pending home sales index
- GDP Q2
- Initial jobless claims (regular state program)
- Continuing jobless claims (regular state program)
- Continuing jobless claims (total, NSA)
- Personal income
- Consumer spending
- Core inflation June
- Employment cost index
- Chicago PMI
- Consumer sentiment index
Markets Index Wrap Up