Stocks climbed last week, with the S&P 500 recording the best weekly gain since early July, while long-term government yields rose to a four-month high. The driver behind the equity-market strength was the anticipation that another stimulus package will eventually be passed despite the shaky negotiations so far. The White House increased its fiscal stimulus offer to $1.8 trillion from $1.6 trillion, which partly bridges the gap but is still short of the $2.2 trillion package the House has already approved. Analysts believe a deal for further relief is likely, even if it ends up arriving after the election, as both sides agree on the need for more spending to offset the pandemic’s hit to incomes and certain industries.
Two forces were in the driver’s seat last week: policy and politics. While it may be hard to tell the two apart, analysts think there are elements of each that pose particular implications for the market ahead. Analysts expect politics (election) to keep a hand on the wheel in coming weeks, while policy developments (specifically, fiscal and monetary stimulus) will be a more persistent driving force behind the economic recovery ahead.
Markets fluctuated widely last week as expectations for another round of financial aid for households and businesses bounced between doubtful and hopeful. Stock markets sold off as Washington negotiations over another round of fiscal relief broke down. Then the markets regained strength amid the prospects that smaller and more targeted aid packages could potentially find some agreement among policymakers, or that a more comprehensive bill may still be reachable.
Metals and Mining
Safe haven support sent the gold price higher this week as more cases of COVID-19 were reported in the White House, causing disruption in the market. A weaker US dollar also worked in the yellow metal’s favor, with investors looking to hedge against currency debasement and inflation. The other precious metals also benefited from the rally and were sitting in the green on Friday morning. The broader base metals sector performed positively too and edged higher throughout the week. After a brief dip to US$1,876.50 per ounce, gold was on track for a second consecutive week of gains. Renewed optimism that a US stimulus deal could be reached in the coming weeks pushed it higher.
Gold exchange-traded funds also continue to grow at a record-setting pace. They added US$60 billion (1,000 tonnes) worth of gold to their holdings from January to September, as per the World Gold Council. Silver also climbed higher this session, starting the period at US$23.95 per ounce and moving as high as US$24.70 on Friday morning. Having added as much as 37 percent to its January start price of US$18.02, silver is keeping pace with its sister metal, and according to many analysts it is bound to outperform the yellow metal. Platinum made a modest uptick mid-week but was subsequently pushed lower later on. Despite starting the period at US$881 per ounce, the metal edged as high as US$893 before shedding those gains. By the end of the week, platinum was back in territory seen on Monday). On Friday, platinum was trading for US$880. Palladium registered the largest gain this week, climbing from US$2,250 per ounce on Monday to a six-month high of US$2,384. The 5.9 percent uptick marks one of the metal’s best weekly performances since January. Since the start of the year, palladium has risen more than 18 percent, but is still well off its year-to-date high of US$2,614, seen in February. On Friday, palladium was selling for US$2,368.
As mentioned, the base metals were able to edge higher this week, with nickel making the most significant gains. Starting the session at US$14,360 per tonne, the metal added 2.2 percent to its value to sit at US$14,687. The value increase was attributed to the return of Chinese business and deals following a week-long national holiday. Nickel was holding in the US$14,687 range on Friday. Copper ended the five-day session in the green. The red metal surged higher mid-week, going from US$6,509 per tonne on Tuesday (October 6) to US$6,611.50 by Thursday. Since hitting a year-to-date high in September, copper has shed some of it gains. Despite the losses, it still remains well above its year-to-date low of US$4,617.50, seen on March 23. Copper was selling for US$6,611.50 on Friday. Zinc was able to pull out a modest gain for the week, edging from US$2,298 per tonne to US$2,356. Despite the broad gains benefiting the sector, analysts are awaiting some clarity when a report from the Chinese congress is released later this month. Lead ended the week slightly higher, reversing three weeks of losses. While the metal squeaked out a small gain, it is still well short of the US$2,000 per tonne value it attained earlier in the year. Lead ended the week at US$1,779.
Energy and Oil
Oil prices have posted strong gains this week, although opened trading on Friday slightly down. WTI was trading at $41 and Brent was close to $43, putting crude close to a 10 percent gain from last week. Saudi Aramco said it intends to increase oil production in the years ahead in an attempt to monetize its oil reserves with an eye on peak demand. Even in a world of lower oil prices, Saudi Arabia has some of the lowest production costs in the world, allowing it to undercut the competition. Aramco is aiming to increase its production capacity to 13 mb/d from 12 mb/d currently. The oil market has already priced in the slowing global demand recovery and the growing uncertainties about the economy amid resurging coronavirus cases in many parts of the world. Analysts largely concur that oil prices are not expected to move much higher than current levels of around $40 a barrel until the rest of the year, but neither are they likely to fall much as bearish factors have been priced in.
Natural gas spot prices rose at most locations this week. The Henry Hub spot price rose from $1.63 per million British thermal units (MMBtu) last week to $2.03/MMBtu this week.
At the New York Mercantile Exchange (Nymex), the price of the November 2020 contract increased 8¢, from $2.527/MMBtu last week to $2.606/MMBtu this week. The price of the 12-month strip averaging November 2020 through October 2021 futures contracts climbed 2¢/MMBtu to $2.919/MMBtu.
European shares rose on hopes that the U.S. government would pass additional measures to stimulate the economy. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 2.11% higher, while Germany’s DAX Index rose 2.85%, France’s CAC 40 advanced 2.53%, and Italy’s FTSE MIB added 2.79%. The UK’s FTSE 100 Index climbed 1.94%.
Brussels shuttered cafes, beer halls, drinking establishments, and tea rooms for a month as part of a lockdown to counter soaring coronavirus infections and hospital admissions. COVID-19 cases continued to rise sharply in Spain, Italy, France, and the UK despite targeted measures to control the disease’s spread. Fatalities and hospital admissions rose in the UK, where the government was poised to close pubs and restaurants in northern England as the increase in cases threatened to overwhelm the health care system. France is ready to place more cities on maximum alert after the daily case count rose above 18,000 for a second consecutive day. Spanish Prime Minister Pedro Sanchez is considering whether to declare a state of emergency in the Madrid region, after the regional High Court ruled against the central government’s latest measures to restrict people’s movement, Spanish newspaper El Pais reported.
China’s stock markets rose Friday after being closed from October 1 to 8 for the national Golden Week holiday. The Shanghai Composite A-share Index rose 1.7% and the large-cap CSI 300 Index gained 2.0%. Bonds sold off after the People’s Bank of China (PBOC) set out to drain a net RMB 560 billion of liquidity from money markets via open market operations. The yield on China’s 10-year sovereign bond increased 4 basis points to 3.21%.
The PBOC’s more hawkish stance, along with the relatively higher yields on Chinese bonds, added to the carry appeal of the renminbi over other currencies. The U.S. dollar/renminbi exchange rate rose 1.3% on Friday to close at 6.702. The dollar’s relative weakness against other Asian currencies has reduced concerns that the renminbi has become stretched. However, many analysts believe that the PBOC wants to support the currency ahead of U.S. elections in early November, which is expected to spur heightened volatility in foreign exchange markets.
The Week Ahead
Economic data being released include inflation on Tuesday and retail sales and consumer sentiment on Friday.
Key Topics to Watch
- NFIB small-business index
- Consumer price index
- Core CPI
- Producer price index
- Initial jobless claims (regular state program, SA)
- Initial jobless claims (federal & state, NSA)
- Continuing jobless claims (regular state program, SA)
- Continuing jobless claims (federal & state, NSA)
- Philly Fed index
- Empire State index
- Import price index
- Retail sales
- Retail sales ex-autos
- Industrial production index
- Capacity utilization
- Consumer sentiment index
- Business inventories