Read the 10 stories to remember from the week which ended December 18.
Story #1: U.S stocks reach new highs as small caps and Tech outperformed
The major indexes reached record highs this week with small-caps outperforming. Within the S&P 500, Technology stocks outperformed helped by gains in Apple and Microsoft. Energy stocks lagged despite oil prices touching nine-month highs. Trading volumes were muted through much of the week in advance of the rebalancing of the S&P 500, which electric carmaker Tesla was set to join the following Monday.
Story #2: Hopes of U.S fiscal stimulus package as the main driver for equity gains this week
After weeks of stalled negotiations, signs of progress emerged in congressional attempts to craft a new stimulus bill. By the end of the week, the outlines of a roughly USD 900 billion package appeared to emerge, including roughly USD 600 direct payments to individuals and supplementary federal unemployment assistance of USD 300 per week. Stocks pulled back on Friday, however, on reports that Republicans were demanding a provision barring the incoming Treasury secretary from providing the Federal Reserve with more emergency lending funds in 2021.
Story #3: U.S Macro data disappoint
The impact of the virus on economic activity became clearer during the week. On Wednesday, the Commerce Department reported that retail sales contracted 1.1% in November, roughly triple the expected decline and the worst showing since April. Weekly jobless claims, reported Thursday, reached 885,000, well above expectations and the highest level since early September. Continuing claims fell back to a new pandemic low, however. A pickup in auto and parts manufacturing helped industrial production grow 0.4% in November, a bit more than expected, but October’s strong gain was revised lower from 1.1% to 0.9%.
Story #4: Long-term U.S bond yields on the rise
Long-term Treasury yields increased modestly through most of the week, as fiscal relief hopes and optimism about vaccine distribution outweighed the generally disappointing economic data. At its December 15–16 meeting, the Federal Open Market Committee held its policy rate steady, as expected, and elected to maintain the current composition of its bond purchases, disappointing some investors who had hoped for an increase in the Fed’s buying of long-term bonds.
Story #5: Shares in Europe rose while Macron catches COVID-19; lockdowns tightened
The pan-European STOXX Europe 600 Index ended the week 1.5% higher on better-than-expected PMI numbers in key eurozone economies, signs of progress in U.S. congressional negotiations for another round of fiscal stimulus and on optimism surrounding coronavirus vaccinations. French President Emmanuel Macron self-isolated after displaying symptoms of COVID-19. Meanwhile, Germany tightened lockdown restrictions to fight against a strong resurgence in coronavirus infections and offered more support to affected businesses. The UK imposed its toughest tier-3 regime on London and southern England.
Story #6: UK downbeat on trade talks; EU parliament sets Sunday deadline
Negotiations on a post-Brexit trade deal are in a “serious situation,” UK Prime Minister Boris Johnson said after a call with von der Leyen late Thursday. He said again that a no-deal scenario was “very likely” unless the EU’s position changed “substantially.” Von der Leyen said in a statement that both sides welcomed “substantial progress on many issues” but added that it would be “very challenging” to bridge the “big differences, in particular on fisheries.” The EU Parliament set a Sunday deadline for the talks, allowing time to ratify legislation before December 31, when the transition period ends. The UK Parliament is on standby for an emergency sitting before Christmas to consider the approval of a deal.
Story #7: Bans on bank dividends lifted
The European Central Bank lifted a ban on European banks paying dividends but capped payouts and share repurchases at a combined 15% of an institution’s 2019 and 2020 profits or 0.2% of a lender’s key capital ratio, whichever is lower. The BoE lifted a ban on payouts late last week, urging banks to limit their dividends to 25% of their cumulative profits in 2019 and 2020 or 0.2% of the value of their riskiest assets, whichever is highest.
Story #8: Chinese stocks gained despite chipmaker blacklisting by the U.S
The large-cap CSI 300 Index rose 2.3& over the week despite recording mild losses on Friday, when the U.S. announced that it was blacklisting China’s top chipmaker and more than 60 other companies for national security reasons. Semiconductor Manufacturing International Corp. (SMIC) was added to its so-called Entity List, which deprives targeted companies from accessing U.S. technology ranging from software to circuitry.
Story #9: A big week for cryptos overall
Bitcoin soared to record highs with its best week since June 2019 as it broke the critical $20,000 level before soaring quickly to test $21k, then $22k, $23k and even $24k during the weekend. Other cryptocurrencies as Ethereum is now up 250% since the start of the year.
Story #10: Commodities rose as dollar keeps weakening
The dollar extended its weakness last week and is down 4 of the last 5 weeks, testing down to critical support. As the dollar dives, yuan surges up near critical levels and this development is helping some commodities to grind higher. Industrial metals rose while oil prices touched nine-month highs on strong demand from India and China. Within precious metals, Silver soared above its 50- and 100-DMA this week, back above $26, its highest in 3 months. This was Silver's 2nd best week in 4 months. Gold gained but not as much as silver, unable to break $1900.
Source: www.zerohedge.com, T Rowe Price.