Stock Markets
Despite the turmoil and a shortened week, U.S. stocks finished higher for a second week in row. To follow suit the S&P 500 entered a range that appears to be about to reach a record high. The rally was driven again by positive news around the U.S. and China trade talk advancement which is being tabled for a meeting in Washington in October. The reading on economic data was a two-pronged sword where manufacturing activity contracted and fell to a three-year low, but on the other side, non-manufacturing activity that carries most economic activity, expanded and accelerated compared to July’s numbers. The August jobs report indicated hiring slowed partially but held to a level strong enough to keep unemployment at its near 50-year low. Stocks continue to enjoy healthy consumer action, positive economic growth, and low interest rates, although analysts expect to see volatility based on trade issues.
U.S. Economy
Labor Day is over and signals the unofficial end of summer to most. That did not hold true for the bull market which was sound last week. The ongoing volatility felt all summer and especially in August reflected the ever-present risks of the U.S.-China trade battles and were compounded by the growing fears of an impending recession. Neither of these situations were resolved over the summer, however September kicked off with positive economic data and stock-market performance that leave analysts with the conclusion that the recent pullback is most definitely not the beginning of the end.
Metals and Mining
Gold is getting all the attention in the metal markets. After a very volatile session, gold closed a second straight week of losses. Analysts remain bullish but slightly more cautious for the coming week. Seeing gold hit new fresh six-year highs, then drop more than $50 on a weekly basis has been a little unsettling for traders. The US Federal Reserve and the European Central bank are expected to cut rates this month in order to stimulate the economy. If another cut takes place in September, it is likely that interest rates will be decreased by as much as 25 basis points, or 0.25 percent playing into gold’s favor. Silver was also affected by the rising dollar and investors moving away slightly from the safety it offered them over the past month. Silver slumped almost 5 percent in Thursday’s session. Despite the recent downturn for silver, market watchers still believe that it will continue to grow in price because of how closely it follows gold which is expected to gain momentum. As for the other precious metals, platinum rebounded slightly. Analysts at FocusEconomics see the price of the metal rising slightly from its current level. They believe it will continue to be downplayed and follow behind its sister metal palladium. It seems the market is currently regarding platinum as the cheaper precious metal when compared to gold. If predictions that gold will continue its price increase are realized, platinum is more than likely continue to be supported as investors look for a cheaper alternative to gold. Palladium was also subject to declines the other precious metals made on Thursday. However, palladium has claimed another week as the highest trading precious metal.
Energy and Oil
Oil has shown more life this week after the U.S. and China agreed to hold trade talks in October. Jobs data from the U.S. Labor Department was slightly worrying, particularly employment gains showing signs of slowing. However, markets appear increasingly confident that the Federal Reserve will cut interest rates again this month as indicated. Another bullish report from the EIA also served to ease fears of an imminent recession. The agency reported strong drawdowns in crude oil, gasoline inventories, and a dip in production. Oil prices were up on the positive news. Natural gas spot prices rose at most locations this week. Henry Hub spot prices rose by 8% from $2.24 per million British thermal units (MMBtu) last week to $2.42/MMBtu this week. At the New York Mercantile Exchange, the September 2019 Henry Hub natural gas contract expired last week at $2.251/MMBtu. The October 2019 contract increased to $2.445/MMBtu, up 22¢/MMBtu from last week to this. The price of the 12-month strip averaging October 2019 through September 2020 futures settlement prices climbed 10¢/MMBtu to $2.474/MMBtu.
World Markets
On a positive note prior to the ECB meeting, European markets experienced one of the best weeks since June, likely due to the easing U.S.-China trade tension along with increased hopes for an end to unrest in Hong Kong. All that while the possibility of the disorderly Brexit fell off. The pan-European STOXX Europe 600 Index rose almost 2%. Traders noted that moves out of defensive stocks and into cyclicals helped propel the market higher. The British pound gained more than 1% against the U.S. dollar while the FTSE 100 rose 1.25% as the prospect of a disorderly exit from the European Union (EU) on October 31 decreased. In a separate move, Italian government bonds rallied, pushing yields to record lows after Italy’s president approved the new coalition government. The new combination is expected to be more EU friendly. The German manufacturing orders numbers fell more than expected in July as new orders from foreign buyers dropped 6.7%, more than was expected. Industrial production fell a disappointing 4.2% on a year-over-year basis. All of the German data offered more evidence that trade disputes and geopolitical factors are pushing the German economy toward recession.
China’s benchmark stock index posted its best weekly performance since June. That came after China’s cabinet signaled it would enact fresh stimulus measures to bolster an economy increasingly battered by tariffs battles. For the week, the benchmark Shanghai Composite Index and the large-cap CSI 300 Index, each surged 3.9%. China’s central bank last cut the required reserve ratio in January after statements from the State Council in December.
The Week Ahead
Most people are back to a regular schedule and so is the economic data reporting to be released this week. On Tuesday look for the important retail sales along with the very telling consumer sentiment which is out on Friday. Also, on the global front, the European Central Bank (ECB) has set expectation that it will cut rates on Thursday. That’s when the ECB meets with a policy decision announcement to follow.
Key Topics to Watch
- Consumer credit
- NFIB small business index
- Job openings
- Real median household income
- Producer price index
- Wholesale inventories
- Weekly jobless claims
- Consumer price index
- Core CPI
- Federal budget
- Retail sales
- Consumer sentiment index
- Business inventories
Markets Index Wrap Up
