Stock Markets
This is the third straight week that stocks declined, pressured by ongoing signs of a global economic slowdown and concerns about the yield-curve. The White House helped trigger a short-term rally when it announced that some tariffs scheduled to take place in September would be delayed possibly until December instead. The rally was, however, short lived. For the first time since 2007, 10-year rates dipped below two-year rates and 30-year yields fell to a new low around 2%. The news was not all bad though. Figures showed that U.S. productivity grew at a healthy pace, while retail sales for the month of July were positive; up the most they have been in the past four months. Most economist feel that recession fears are being overhyped, but they acknowledge the fact that global uncertainties may extend the current volatility.
U.S. Economy
The U.S. economy saw some good data this week. Retail sales signaled that consumers continue to spend at a solid pace. July retail sales were up 0.7% from the June and increased for the fifth straight month in a row. Data out last week also showed that consumer prices have risen. The Federal Reserve sees this as a positive economic signal. Without a doubt, consumer spending has been fueling growth for the current expansion, making up 70% of the economy and helping to create a positive environment for stocks to make gains. Although consumer sentiment edged down last week, analysts contend that a strong labor market, steady wage growth, and growing household net worth are helping consumer spending avert sentiments from any trade uncertainties.
Metals and Mining
Gold pricing consolidated this week as traders took gold to its highest daily closing price this year. Gold futures basis – the most active December contract – is currently trading down $6.30 and fixed at $1524.50. The result of this week’s trading, even with Friday’s moderate selloff is that gold has now closed at a new record high for the week. Gold opened on Monday at $1509 per ounce and effectively closed at $1524.50 for a net weekly gain of $15.50. Although gold is still making weekly gains and staying above the US$1,500 per ounce level, the metal is weighed down by a stronger US dollar that has strength on data that showed US retail sales surged last month, helping curb some recession fears. Silver is continuing its recent rally and maintaining levels around the US$17 per ounce range. Like gold, silver has been gaining more interest from investors thanks to concerns surrounding the state of the US economy and ongoing geopolitical issues. In other precious metals, platinum remained pretty flat, unable to break through the US$900 per ounce level. Analysts believe the price of silver rising slightly from its current level thanks to strong investment demand. Palladium, which has been strong this period, was up slightly on the week, but remains out of the US$1,500 per ounce range. There are still many market participants in palladium’s corner, with Metals Focus stating that it believes the metal will continue to rise.
Energy and Oil
Oil prices rebounded Friday on the back of some positive U.S. crude data, but the rebound isn’t likely to last as the world economies continue to struggle. Data showed that retail sales in the U.S. remain strong, but fears of a global slowdown have not retreated. The inverted yield curve also served to create concerns about a potential economic recession. Crude oil was not removed from the global selloff this week, as the data from China and Germany this week raised more red flags. The WTO is quoted as saying that that trade volumes could contract in the third quarter. The Trump administration is working to end regulation on methane emissions. The energy industry has said that it could prevent the federal government from regulating methane from oil wells and infrastructure, so they are against the action. Natural gas spot price movements were mixed this week with Henry Hub spot prices rising from $2.12 per million British thermal units last Wednesday to $2.15/MMBtu this week. At the New York Mercantile Exchange, the price of the September 2019 contract increased 6¢, from $2.083/MMBtu last Wednesday to $2.143/MMBtu a week later. The price of the 12-month strip averaging September 2019 through August 2020 futures contracts rose 2¢/MMBtu to $2.323/MMBtu.
World Markets
European stock markets came under pressure throughout the week from the fresh round of U.S.-China trade tensions coupled with growing signs of recession. The pan-European STOXX Europe 600 Index lost about 0.5%, the UK’s FTSE 100 Index dropped 1.8%, and the German DAX index dropped about 1.3%. Eurostat reported that the eurozone economy barely grew in the second quarter of 2019, expanding just 0.2%, as economies across the bloc lost steam. Germany, which the region’s largest economy, shrank by 0.1% in the second quarter, according to stats just out. The gross domestic product flash estimates numbers, including year-on-year growth of 1.1% from the second quarter of 2019, were in line with economists’ forecasts. The report showed that Spain’s economy grew 0.5%, France’s expanded 0.2%, and Italy’s economic growth was flat for the same period. Other signs of slowing were seen in the 1.6% June downturn in eurozone industrial production.
Chinese stocks ended up on the week after Beijing pledged to roll out measures that will boost disposable incomes for the next two years. The idea is to offset the slowing economy. The statement from the National Development and Reform Commission, China’s state planning agency, included few details, but raised hopes that China’s government would step up efforts to stimulate domestic demand. For the week, the benchmark Shanghai Composite Index added 1.77%, and the large-cap CSI 300 Index, rose 2.11%. A number of solid earnings reports from some of China’s biggest companies also help to lift investor mood.
The Week Ahead
This will be a light week for economic data and reporting following the heavy S&P reporting that just ended. Key economic data being issued this week include existing home sales and the Federal Reserve’s July meeting minutes, flash PMIs on Thursday, the leading economic indicators for July and on Friday, new home sales figures.
Key Topics to Watch
– Existing home sales
– Weekly jobless claims
– Markit manufacturing PMI (flash)
– Leading economic indicators (July)
– New home sales
Markets Index Wrap Up
