Equity markets finished slightly higher last week as investors continue to hope for a fiscal stimulus package. On the vaccine front, some trials have been paused due to health concerns, and Pfizer has filed an emergency-use plan for the end of November. Retail sales continue to be a bright spot for the economy, showing unexpected gains in September, even while jobless claims came in higher than expected and job growth showed signs of slowing.
Stocks oscillated between positive and negative territory last week, reflecting a tug-of-war between rising concerns and encouraging economic data. Weakness last week stemmed from a continued stalemate in stimulus talks, along with the recent rise in COVID-19 cases and the accompanying worries over implications for the continued reopening of the economy. Markets did find a lift from a positive U.S. retail sales report that showed consumer spending rose strongly in September despite the lack of renewed aid from Washington, signaling some resiliency to the recovery. Analysts believe that the broader fundamental outlook remains intact, but as last week demonstrated, policy support and the path of the virus, along with the discovery of an effective vaccine, will be key drivers in the months ahead.
Metals and Mining
Facing headwinds this week, the gold price was on track for its first week of losses since mid-September. Concern that a US stimulus package won’t get approved ahead of the November election has stalled investor appetite for the yellow metal. Volatility was felt across the sector, with the other precious metals also in the red on Friday morning. October has been challenging for the sector after Q3 saw each metal move significantly higher. The Q4 pressure was also felt in the base metals space, with the broader sector experiencing volatility. Starting the period holding above US$1,900 per ounce, gold dipped dramatically on Tuesday, falling to US$1,890.60. The slip prompted speculation about liquidation in the gold space in response the again delayed stimulus package. After holding above US$25 per ounce for four days, silver was on a downward trend this week, falling below US$24 on Thursday. The white metal’s duality did not work in its favor this session, and it was dragged lower by its currency correlation as well as its industrial side. Silver’s nature as a leveraged play on gold has been reflected in record-setting growth in silver exchange-traded products (ETPs). The first three quarters of 2019 saw ETPs add 103 million ounces, while the same period in 2020 saw 297 million ounces of inflows. This week was also challenging for platinum, which had been trending higher since early October. The automotive metal was pushed down to US$833 per ounce on Thursday, its lowest since September 21. Early Friday, prices were edging higher and holding above US$850. Platinum was trading for US$870 on Friday. Three weeks of gains also came to an end for palladium, which shed 6.5 percent by Friday morning. The catalyst metal soared to a six-month high of US$2,372 per ounce on October 9 but fell to US$2,205 on Tuesday. Palladium was selling for US$2,215 on Friday.
Copper slipped late in the week, hitting US$6,683.50 per tonne. Since October 2, the red metal has added a little over 4 percent to its value but remains off its September 21 year-to-date high of US$6,837. Copper was selling for US$6,683.50 on Friday. Zinc also saw a year-to-date high in September, hitting US$2,554 per tonne, but has since shed some of that value, holding in the US$2,400 range. By Friday, zinc was on the decline following a strong early week showing. It was moving for US$2,397 to end the week. Nickel spent the second full week of October in the green. A mid-week slip saw it dip to US$15,105 per tonne; however, a quick rebound on Thursday pushed the metal back above US$15,350. The positive performance is nickel’s second best this year — on September 1, the base metal reached a year-to-date high of US$15,660. On Friday, nickel was valued at US$15,353. Lead fell below US$1,800 per tonne this week, unable to the retain gains it had made since reaching a 10-week low in early October. Lead was holding at US$1,754 to end the week.
Energy and Oil
Oil prices retreated once again on concerns about a second wave in Europe and a third wave in the U.S. France reported more than 30,000 positive cases on Thursday. Many countries in Europe are reporting cases far higher than the peaks they saw during the first wave. Also, on Thursday, the U.S. reported more than 60,000 cases for the first time in more than two months. OPEC+ won’t let oil prices crash again, according to OPEC’s Secretary-General Mohammad Barkindo. “I want to assure you that the OPEC, non-OPEC partnership will continue to do what it knows best, by ensuring that we don’t relapse into this almost historic plunge that we saw,” Barkindo said. OPEC’s top official says the group will guard against another price slide, but tensions within the cartel are mounting. OPEC production cuts compliance is still around 100 percent, but the coming months will see that figure fall. In its latest Oil Market Report, the IEA said that the oil market has stabilized, with stocks drawing 0.9 mb/d in the third quarter, but that the outlook is fragile. The rising cases of covid-19 in many parts of the world “surely raises doubts about the robustness of the anticipated economic recovery and thus the prospects for oil demand growth,” the agency said. The European Union is considering methane limits on natural gas that is consumed or imported into the bloc. As a result, it could negatively impact demand for gas from around the world, including the United States.
Natural gas spot prices rose at most locations this week. The Henry Hub spot price remained flat at $2.03 per million British thermal units (MMBtu). At the New York Mercantile Exchange (Nymex), the price of the November 2020 contract increased 3¢, from $2.606/MMBtu last week to $2.636/MMBtu this week. The price of the 12-month strip averaging November 2020 through October 2021 futures contracts climbed 8¢/MMBtu to $3.000/MMBtu.
Stocks in Europe fell on burgeoning coronavirus infections, Brexit-related uncertainty, and the dissipating prospects of U.S. fiscal stimulus before the November 3 presidential and congressional elections. A rally in German debt pushed yields on these haven securities to the lowest level since the market swoon in March. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.78% lower. Major indexes lost ground: Germany’s Xetra DAX Index slid 1.09%, Italy’s FTSE MIB dropped 1.05%, and France’s CAC 40 gave up 0.22%. The UK’s FTSE 100 Index declined 1.61%.
In the face of regional protests, European central governments imposed stricter targeted measures to contain the accelerating spread of the coronavirus and prevent a second round of economically damaging national lockdowns. France, for example, imposed a nighttime curfew in Paris and eight other cities, while Germany began to impose restrictions on socializing in areas worst hit by the virus, such as Berlin. The UK implemented a three-tiered system of localized lockdowns across England and offered business subsidies to the worst-affected areas.
Chinese stocks rallied after investors returned from the national Golden Week holiday. The benchmark Shanghai Composite Index rose 2.0% and the blue-chip CSI 300 Index advanced 2.4% in its third weekly gain. In fixed income markets, the yield on China’s 10-year sovereign bond rose four basis points to 3.25%, as strong September trade data reinforced hopes for a sustained recovery. Last month marked another strong month for foreign purchases of Chinese bonds, with foreign investors buying USD 20.2 billion in September. At a monthly press conference, People’s Bank of China (PBOC) officials appeared to show little appetite for cutting interest rates. The central bank injected RMB 500 billion into the financial system via its one-year medium-term lending facility, although the added liquidity was seen by market participants as not particularly generous, given upcoming tax payments.
The Week Ahead
Important economic news coming out this week include housing data and the preliminary October Purchasing Managers’ Index.
Key Topics to Watch
- NAHB home builders’ index
- Housing starts (SAAR)
- Building permits (SAAR)
- Beige Book
- Initial jobless claims (regular state program, SA)
- Initial jobless claims (total, NSA)
- Continuing jobless claims (regular state program)
- Continuing jobless claims (total, NSA)
- Existing home sales (SAAR)
- Index of leading economic indicators
- Markit manufacturing PMI (flash)
- Markit services PMI (flash)