The week was pretty quiet with stocks edging higher and in a bright spot, small-cap companies outperforming. There were a number of high-profile mergers that lifted investors’ confidence this week, but indexes gave back some gains on Friday, likely due to chipmaker Broadcom’s announcement that the U.S./China trade tensions are suppressing demand. On Thursday, following attacks on two tankers near the Persian Gulf, oil attempted a brief rally, but finished out lower pressured by worries about sinking global demand for oil. Retail sales reports showed a rebound in U.S. consumer spending in May that followed a relatively slow first quarter. This is solid evidence that consumers are still well-positioned. In a snapshot, all major indexes have rebounded to near all-time highs – a very positive outlook with some expectations of higher volatility by analysts.
The real driver in the 10-year U.S. economic expansion is consumer spending. In fact, it accounts for a full two-thirds of overall GDP. Consumption spending averaged 2.6% growth in 2018 and then fell to half that rate for the first three months of 2019. That’s because seemingly strong GDP was propped up by temporary factors like inventories and imports. The release of the lackluster May jobs report and slowing wage gains last week compounded concern that consumer spending might be weaker than analysts thought.
That is why this week’s retail sales numbers are being closely monitored as an indicator of consumer health and market strength. In the end, it was very good news, with May retail sales stronger than expected. That was followed by news that the previous months’ retail figures were revised higher. So, all told, retail sales suggest that consumer spending rebounded in the second quarter to a healthy 3.5%. That’s even higher than in 2018.
Tariff Concerns Linger
The ongoing elevated trade tensions between the U.S. and China have added to market concerns that economic growth could be slowed due to increasing tariffs. A clear indication of the sentiment followed news of progress towards a trade deal earlier this year, which triggered a rally in share prices. With negotiations between the U.S. and China at a kind of impasse, it seems that trade tensions are taking a toll on both countries. China’s industrial production sank to 17-year lows in May, and U.S. industrial production has also suffered in recent months, while it did manage to rebound marginally in May.
Metals and Mining
Precious metals were fueled by ongoing trade war concerns this week between the US and China, alongside some wavering global equities.
Gold was flat on Friday after making gains in the previous session. That was pushed by the US dollar dropping from the two-year peak it hit on Wednesday and global equities declining due to increased China-US trade tensions.
Sentiment is turning bullish for gold as prices broke through critical resistance, pushing to their highest level since early-April 2018. Analysts are warning that gold could face a short-term setback this week after the Federal Reserve’s monetary policy meeting.
Gold’s continued four-week rally is seen as a result of aggressive market signals that the Federal Reserve will loosen monetary policy with a first cut coming in July. According to the contrarians, the market’s fortunes could shift if the Fed doesn’t meet the market’s expectations.
Silver followed gold’s lead on Friday and dipped slightly after climbing over 1 percent in the previous session. Industry experts still believe in the silver’s potential, however. Firms polled in a key report from FocusEconomics echoed that silver could reach as high as US$17.80 per ounce by end of year. Platinum made small gains on Friday after reaching its lowest level since February and stayed on track for its fifth straight weekly loss. Palladium made the most gains on Friday, ticking up over 1 percent and once again entering into US$1,300 per ounce territory.
Energy and Oil
The big energy news was oil prices surging early Thursday after two oil tankers were reported to have been hit by explosions in the Gulf of Oman between Iran and the United Arab Emirates (UAE). That’s just one month after a previous incident in Middle Eastern waters. The U.S. has video proof, CENTCOM says, that Iran was behind the explosions that rocked the two tankers in the Gulf of Oman.
Immediately following the event, WTI Crude was surging 3.17% at $52.76, while Brent Crude was soaring 3.42% at $62.02. However, at week’s end, oil finished its stand lower forced back down by worries of lower global demand for oil.
On the natural gas front, mild weather and record U.S. natural gas production kept prices low despite low storage levels and high exports. On June 6, the price of the Henry Hub natural gas near-month futures contract at the New York Mercantile Exchange (NYMEX) closed at a three-year low of $2.324 per million MMBtu. That is its lowest price since May 31, 2016. Following on June 11, the spot price of natural gas at the Henry Hub closed at $2.34/MMBtu, the lowest price since November 17 according to Natural Gas Intelligence.
As was widely expected, Mexican assets rallied early in the week in response to Mexico’s immigration-related agreement with the U.S., reached late last week in order to avoid new tariffs.
European stock markets ended the week slightly higher, pushed by the rise in oil prices that stemmed from the tanker incident in the Gulf of Oman. They are under pressure from U.S.-China trade tensions and weak industrial data coming out of China. The pan-European STOXX Europe 600, the UK’s FTSE 100 Index, the exporter-heavy German DAX index, and Italy’s FTSE MIB Index were all gainers.
Japan’s GDP figures were revised upward: for the quarter ended in March, Japan’s gross domestic product annualized growth rate was increased to 2.2%. That’s up from the 2.1% estimate a month ago. Sources in the Cabinet Office say this was due to upwardly revised capital spending data.
Chinese stocks rebounded as traders’ confidence increased that Beijing will make efforts to step up stimulus measures that could help cushion the economy from any impact from U.S. tariffs. The benchmark Shanghai Composite Index ended up 1.9%, an eight-week high. The large-cap CSI 300 Index, which tracks blue chips listed on the Shanghai and Shenzhen exchanges, added 2.5%. These gains come just one week after both indexes closed at their lowest levels in nearly four months.
The Week Ahead
There are a couple of key drivers that will light up the headlines this week in the markets: first and foremost is a rate decision from the Federal Reserve that comes out on Wednesday. Another important focus will be the U.S. housing data, which details housing starts and building permits in a report issued on Tuesday, with existing home sales released this coming Friday. Tensions are increasing in China and could see more unrest in Hong Kong, where protesters are planning more demonstrations.
Key Topics to Watch
– Fed Rate released Friday
– Gold moves based on fed rate indicators
– Increased tension in China’s internal policies
– U.S. housing starts report
– U.S. home sales numbers issued Friday
Markets Index Wrap Up