Read the 10 stories to remember from the week which ended December 4.
Story #1: US economy going south fast as the labor market nears its weakest of the year
This week provided evidence that the U.S economy was slowing. On Friday, October nonfarm payrolls missed consensus expectations by almost half, rising by only 245,000, the slowest pace of monthly jobs growth since the rebound from the shutdown began in May. The unemployment rate fell to a pandemic low of 6.7%, but this was partly due to a drop in the labor force participation rate. The ISM’s gauge of growth in factory activity posted in November its first month-over-month decline since April. Even the standout housing sector showed signs of cooling, with pending home sales falling in October for the second consecutive month.
Story #2: Stocks build on gains and close out solid November
As it is often the case, bad macro news are seen as good news by financial markets. The weak macro numbers may have supported stock prices by bolstering stimulus hopes. In congressional testimony, Federal Reserve Chair Jerome Powell emphasized the importance of emergency lending programs and advocated for more fiscal stimulus, while Treasury Secretary Steven Mnuchin urged legislators to tap USD 455 billion of CARES Act funds to provide targeted relief. As such, stocks reached further into record territory, with the major indexes touching new intraday highs by Friday. On Monday, the Dow Jones closed out November with its best monthly performance since 1987, while the small-cap Russell 2000 Index registered its best monthly gain since its inception in 1978. The most shorted stocks soared for the 5th week in a row as the short squeeze is accelerating. The Put-call ratio plunged to a decade low.
Story #3: The imminent vaccine arrival boost “virus” stocks
After starting the week on a down note, stocks regained momentum on Tuesday, seemingly helped by news that Pfizer and its European partner BioNTech had applied to European Union regulators for emergency use authorization of their prospective coronavirus vaccine. On Wednesday, the UK granted such approval, making it the first Western nation to authorize the widespread distribution of a vaccine. This set of positive news explains why stocks which suffered the most during the Pandemic have been outperforming over the last few weeks. Energy shares have been among the best performers. They bounced back this week after OPEC and other major oil producers reached an agreement to ease output cuts more gradually next year than previously planned.
Story #4: Shares in Europe paused. UK stocks surged despite status-quo on Brexit.
The pan-European STOXX Europe 600 Index ended the week with a modest 0.2% gain. The UK’s FTSE 100 Index, however, gained 2.9%, reaching nine-month highs on news that the UK had approved the coronavirus vaccine developed by Pfizer and BioNTech. However, hopes that the UK and the EU would strike a post-Brexit trade deal by the weekend faded as disagreements persisted on fishing rights, state aid, and other contentious issues. Negotiators will now try to finalize a deal before the EU leaders’ summit next week, according to press reports. On Thursday, French minister for Europe, Clément Beaune, warned in a radio interview that France would veto a deal that did not align with French interests.
Story #5: EU recovery fund may move forward
The European Commission is ready to exclude Poland and Hungary from the EUR 750 billion pandemic recovery fund and proceed without the two countries if they continue to block Europe’s proposed seven-year budget, EU budget commissioner Johannes Hahn said in an interview with the Financial Times newspaper. The EC’s lawyers have identified possible ways of circumventing Poland’s and Hungary’s objections to the EU linking spending to new rule-of-law requirements, he said. The disagreement is likely to dominate the leaders’ summit that will start on December 10.
Story #6: Chinese stocks posted their third straight weekly gain, aided by solid economic data.
The large-cap CSI 300 Index rose 1.7clast week. Investors appeared to largely shrug off new restrictions on Chinese companies by the Trump administration, which designated four more state-owned enterprises as having links to China’s military and, therefore, off limits to U.S. investors. The latest additions to the list of Chinese military-linked entities included China National Offshore Oil Corporation, whose locally listed shares sank 14.0%. On Wednesday, the U.S. House of Representatives approved legislation that could force U.S.-listed Chinese companies to delist if an accounting regulator is not allowed to review their audited accounts. Meanwhile, the U.S. Securities and Exchange Commission is forging ahead with a less stringent plan that would require Chinese companies to use U.S.-overseen auditors. On the economic front, the private Caixin/Markit manufacturing PMI rose to a stronger-than-expected 54.9 in November from 53.6 the prior month, the seventh straight month of expansion and the highest gauge since 2010.
Story #7: Bond yields on the rise
The U.S bond market was battered this week with the long end up over 16 basis points while the 2 year was unchanged. The U.S 10-year bond yield is pushing to its highest yield (98 basis points) since March. The 30-year also reached up to significant resistance at 1.75% before rolling over on Friday. The U.S yield curve steepened by the most since August this week, to its steepest since May 2017.
Story #8: A strong week for Commodities
Oil had a choppy week, but ended positive with WTI trading above $46, its highest since early March. Gold futures bounce bank notably off intraweek lows, back above $1,800 and its 200-day moving average. This was the first weekly gain for Gold after being down 3 weeks in a row). Silver was the week’s big winner (after 3 straight losing weeks), rebounding strongly off a brief dip.
Story #9: Dollar has been down 4 of the last 5 weeks
The dollar continued its collapse last week and has been down 4 of the last 5 weeks. The euro soared while the Loonie surged to its strongest since May 2018. The Chinese renminbi appreciated by 0.5% against the U.S. dollar to CNY 6.5342, reaching its strongest level since June 2018. .
Story #10: Bitcoin managed to hold $19k
Cryptocurrencies were all higher in the week. Bitcoin managed to hold $19,000 after reaching record highs earlier in the week.
Source: www.zerohedge.com, T Rowe Price.