Last week saw the equity markets performing a balancing act between incoming positive vaccine news and ever-growing economic restrictions aimed at curbing the recent spike in virus cases and hospitalizations. The rotation out of the technology sector and into more cyclicals stocks continued, as the vaccine developments improved investor sentiment and confidence about next year’s outlook. The jobs-data release showed worse-than-expected initial jobless claims, which, in our view, confirms that this economic recovery is likely to be choppy before ultimately returning to pre-pandemic levels. Reports that the Treasury department is not extending certain funding for the Fed’s lending facilities established earlier in the pandemic is catching attention, though analysts don’t interpret this as a signal that monetary-policy support will be significantly or permanently scaled back.
A central theme in equity markets over the last two weeks has been the so-called rotation, or change in leadership across asset classes, sectors and investment styles. We received a series of positive vaccine announcements, first from Pfizer on 11/9, then from Moderna last Monday, and then from Pfizer again last Wednesday on the final results of its late-stage trial. This news propelled the S&P 500 to a new all-time high, before the rally fizzled later in the week on deteriorating coronavirus trends. The near-term outlook is also worsening because of the renewed restrictions on activity. As the market attempts to balance this weakened near-term outlook against an improving medium- to long-term outlook due to the vaccine developments, analysts see this tug-of-war likely continuing between the year-to-date leaders and the economically sensitive investments that have lagged.
Metals and Mining
Gold continued to trade below US$1,900 per ounce this week, held down by positive news on the COVID-19 vaccine front. The yellow metal also faced pressure after the US Department of the Treasury made an announcement about ending emergency loan programs. Facing three months of price pressure, gold was on track for its second week of declines below the key US$1,900 threshold. The rest of the precious metals had better performances during the period, with platinum adding as much as 8 percent to its value this week. As stocks rallied over reports that Moderna is advancing its COVID-19 vaccine, the gold price slumped, dipping to a low of US$1,856.30. Some risk-on sentiment waned when key lending programs in the US were given an expiration date of December 31, 2020, by US Treasury Secretary Steven Mnuchin. Following the announcement, doubts rose around the future of stimulus and fiscal support. Despite the recent trends and vaccine pressure, Independent Speculator Lobo Tiggre sees gold’s fundamentals as more nuanced. At 10:05 a.m. EST on Friday, gold was priced at US$1,877.03. The silver price rose sharply on Friday morning, recovering some early week losses. Starting the session at US$24.53 per ounce, the value of the white metal had slipped 3 percent by Thursday. The metal’s ability to retain its value amid the headwinds gold is experiencing underline positive fundamentals moving forward. The white metal was valued at US$24.41 on Friday. The price of platinum has been edging higher since the morning bell rang on Monday. Adding as much as 8.2 percent, platinum has pulled back slightly but remains above US$950 per ounce. The recent price activity has been propelled by a decrease in platinum output, likely to be compounded by Anglo American Platinum’s closure of the Phase B unit at its convertor plant in South Africa. Platinum was selling for US$951 on Friday. After making steady gains since the beginning of the month, palladium faced volatility this session. The headwinds prevented any gains from locking in and aided in a dip below US$2,200 per ounce. By Friday, the metal was fluctuating just above US$2,200. Palladium is poised to perform well on the back of similar drivers in the platinum market. On Friday, it was moving for US$2,194.
The base metals sector also faced difficulties this week but managed to mitigate losses. Copper started the week trading at US$7,113 a tonne and fell lower over the period. Prices declined 1 percent by Thursday, and copper was selling for US$7,028 on Friday morning. Nickel also faced challenges, dropping 2 percent on Tuesday. Following a small rally on Wednesday, prices slipped to US$15,690 per tonne a day later. Nickel remained at that level on Friday. Two base metals were able to squeak out gains this week: zinc and lead. Starting the period at US$2,653 per tonne, zinc had climbed as high as US$2,732.50 by mid-week. By week’s end, the metal was holding at US$2,721. Lead also edged higher, adding 3.6 percent to its Monday value of US$1,882.50 per tonne. Lead has consistently moved higher since November 11, adding 7.3 percent to its worth. On Friday morning, lead was priced at US$1,951.
Energy and Oil
Oil prices pared recent gains as investors nervously watch the spread of Covid-19, which has tempered bullishness following positive vaccine news. “It’s not good news,” Bill O’Grady, executive vice president at Confluence Investment Management in St. Louis, told Bloomberg. “This is probably going to be a disappointing travel holiday coming up, and that’s going to weigh on demand.” Still, there are signs of life in global oil demand visible beyond the near-term coronavirus wave. Asia’s oil demand continues to look strong. While oil demand in Europe and the United States continues to disappoint, refiners in Asia are racing to procure crude from around the world, giving the oil market some hope that at least in one region, demand is strengthening in the fourth quarter. China’s oil binge to extend into 2021. China stockpiled oil this year when prices were cheap, offering an extra bit of demand to the market. Reuters reports that China’s private refiners will stockpile an additional 100 million barrels in 2021. Oil demand appears primed for recovery as crude oil demand is likely to rebound next year following the promising news about a vaccine against the novel coronavirus, according to Fitch Ratings.
Natural gas spot prices fell at most locations this report week (Wednesday, November 11 to Wednesday, November 18). The Henry Hub spot price fell from $2.77 per million British thermal units (MMBtu) last week to $2.36/MMBtu this week. At the New York Mercantile Exchange (NYMEX), the price of the December 2020 contract decreased 32¢, from $3.031/MMBtu last week to $2.712/MMBtu this week. The price of the 12-month strip averaging December 2020 through November 2021 futures contracts declined 21¢/MMBtu to $2.779/MMBtu.
Hungary and Poland blocked the European Union’s (EU) planned EUR 1.8 trillion fiscal package, which includes a large fund to help economies weather the damage caused by the coronavirus. They oppose a mechanism that would allow the EU to block disbursements to countries violating its rule of law principles. The Politico news website reported that EU leaders at their Thursday videoconference summit did not indicate how the standoff might be resolved. German Chancellor Angela Merkel said she would hold talks with the leaders of the two countries while defending the existing proposal.
Reports suggest that three main areas of contention—a level playing field for companies, fishing rights, and settling trade disputes—persist as the UK and EU negotiate a post-Brexit agreement on trade. Face-to-face talks have been suspended because a senior negotiator tested positive for COVID-19, although officials will keep working remotely, according to Reuters. France, the Netherlands, and Belgium urged the European Commission to start implementing contingency measures in case there is no deal before the Brexit transition ends on December 31.
Chinese stocks rose strongly after solid economic data lifted investors’ risk appetite. For the week, the large-cap CSI 300 Index gained 1.78% while the benchmark Shanghai Stock Exchange Composite Index added 2.04%, according to Reuters data. In fixed income markets, the yield on the sovereign 10-year bond increased six basis points to 3.34%. In currency trading, the renminbi strengthened by 0.6% against the U.S. dollar to close at 6.570. The People’s Bank of China (PBOC) injected RMB 800 billion (about USD 121 billion) in medium-term loans into the banking system and left interest rates on hold for the seventh straight month. The central bank also kept its one-year medium-term lending facility rate to financial institutions unchanged at 2.95%.
The Week Ahead
Important data being released this week include personal income and spending breakdowns, FOMC minutes, and building permits.
Key Topics to Watch
- Chicago Fed national activity index
- Markit manufacturing PMI (preliminary)
- Markit services PMI (preliminary)
- Case-Shiller national home price index
- Consumer confidence index
- Initial jobless claims (regular state program, SA)
- Initial jobless claims (federal & state, NSA)
- Continuing jobless claims (regular state program, SA)
- Continuing jobless claim (federal & state, NSA)
- Gross domestic product revision (SAAR)
- Durable goods orders
- Core capital goods orders
- Advance report on trade in goods
- New home sales
- Consumer sentiment index (final)
- Personal income
- Consumer spending
- Core inflation