Stock Markets
U.S. stocks were in decline for a third straight week but offset by a rise in bonds, which helped to settle the volatility for most investors with balanced portfolios. A series of disappointing U.S. economic data points supported worries about the potential slowdown in manufacturing that analysts suggest could spread to other parts of the U.S. economy. The Purchasing Managers’ Index (PMI) indicated that manufacturing activity went down a second month in a row in September. The services index also showed decline but is still well positioned to expand. The final data item on the week was September’s jobs report. It showed that despite a slowdown in hiring, the labor market remains tight. That bodes well for both consumers and the economy. Analysts say that fundamentals appear strong enough to remain constructive but warn that the slowing economic data and geopolitical risks will likely contribute to higher volatility, overall.
U.S. Economy
The latter stages of a bull market show signs of change but actually predicting the end of the cycle is not as simple predicting the end of a season or event. The current investment cycle is overlain by the single longest economic expansion in U.S. history. That data is coupled with the second longest and strongest bull market on record. Obviously, as things wear on, investors begin watching for signs that the end is near or perhaps of a looming recession. Data emerging this week clearly says that economic growth is slowing from its exceptional pace of one year ago. Analysts contend that rather than indicating an assured future date for the end this expansion cycle, that the data indicated instead that we may hang in this cycle of a modestly growing economy and that out current bull market may be with us for some time yet.
Metals and Mining
Gold rose Friday based on the increased concerns of a possible downturn in global economic growth. It seems that gold is also being supported by expectations of additional US interest rate cuts, which increased in the past week. Gold had a brief rally as investors reacted to data from the US showing that the services sector activity slowed to a three-year low last month. That followed the manufacturing sector, which is at the weakest levels in a decade. Adding to gold’s appeal is the increased chances that there will be another interest rate cut before the year is over. Silver did not respond to the global economic concerns the way gold did but was pretty well steady on Friday. Silver still remains outside of the US$18 per ounce level that it reached in September. A potential interest rate cut could give silver a boost, according to many industry insiders who say it is prime to make substantial gains. As for the other precious group, platinum lost over 1 percent on Friday, to fall below the US$900 per ounce level in what was its largest weekly decline since May. The WPIC says it expects demand to outpace supply, reducing the surplus of platinum from 375,000 ounces to 345,000 ounces. The most active precious metal for the week was Palladium which rose over 1 percent on Friday. Panelists polled by FocusEconomics believe that, Palladium will be the big winner with prices supported throughout the year.
Energy and Oil
Oil prices rose early on Friday on U.S. unemployment data, which seemed to ease some of the concerns about a looming recession. As of 10:31 a.m. EDT on Friday, WTI Crude was up 1.22 percent at US$53.09, and Brent Crude was trading up 1.73 percent at US$58.71, but were set for a second consecutive week of losses. Last week, oil prices posted a weekly loss and just had their worst quarter this year, and the worst three-month performance since Q4 2018 when prices crashed by 40 percent. That came only as the U.S. granted six-month waivers to the eight largest Iranian oil buyers. Concerns about global oil demand growth trumped geopolitics in Q3 and the fact that U.S. sanctions on Iran and Venezuela further tightened and cut off some more oil supply to the market, in addition to the cuts by the OPEC+ group. Natural gas spot prices fell at most locations this week. Henry Hub spot prices fell from $2.51 per million British thermal units (MMBtu) last week to $2.30/MMBtu this week. At the New York Mercantile Exchange (Nymex), the October 2019 contract expired Thursday at $2.428/MMBtu, down 7¢/MMBtu from last week. The November 2019 contract decreased to $2.247/MMBtu, down 27¢/MMBtu from last week to this. The price of the 12-month strip averaging November 2019 through October 2020 futures contracts declined 11¢/MMBtu to $2.386/MMBtu.
World Markets
European stocks fell this week on data and tariff sentiments. The pan-European STOXX Europe 600 Index and the German DAX index both fell almost 3%, while the UK’s FTSE 100 Index fell more than 3.5%. That comes as weak economic data was released and announced U.S. tariffs on European Union (EU) exports piled on concerns about the region’s economic health. Fears of recession rose as U.S., UK, and eurozone data showed that weakness in the manufacturing sector may be moving into the services sector. The UK services purchasing managers’ index (PMI) fell below 50, the level that separates expansion from contraction.
Mainland stock markets reopen on Tuesday, October 8, after being closed from October 1–7 to mark the 70th anniversary of the founding of the People’s Republic of China. It’s obvious that trade developments will dominate headlines when Chinese stock markets reopen, based on the resumption of U.S. trade talks on Thursday and Friday. The upcoming round of trade talks occurs as the U.S. prepares to hike tariffs on $250 billion in Chinese goods to 30%, currently slated for October 15th. That could move once again, since the original tariff escalation was scheduled to kick in October 1st, but the Trump administration agreed to delay the increase to avoid a conflict with the Chinese National Day holiday.
The Week Ahead
Several significant economic data points will be released this week including the consumer credit figures, Producer Price Index (PPI), job openings, inflation figures, and possibly most important, consumer sentiment comes out on Friday. The focus will see some important shift as the trade negotiations as U.S. and China trade representatives begin Thursday and Friday as previously scheduled.
Key Topics to Watch
- Consumer credit
- NFIB small-business index
- Producer price index
- Job openings
- Wholesale inventories
- FOMC minutes
- Weekly jobless claims
- Consumer price index
- Core CPI
- Import price index ex-fuels
- Consumer sentiment index
Markets Index Wrap Up
