U.S. Markets: U.S. stocks recorded solid gains for the week, pushing the technology-heavy NASDAQ Composite index to new highs and lifting the S&P 500 to within roughly 1.2% of its February record peak.  The small cap Russell 2000 outperformed by a wide margin, helping it to recover some of its lost ground for the year to date.  The Dow Jones Industrial Average added over 1,000 points ending the week at 27,433, a gain of 3.8%.  The NASDAQ Composite rose an additional 2.5% following last week’s strong gain.  By market cap, the large cap S&P 500 added 2.5%, while the mid cap S&P 400 jumped 4% and the small cap Russell 2000 surged 6%.  

International Markets: Major international markets were green across the board.  Canada’s TSX added 2.3%, as did the United Kingdom’s FTSE.  France’s CAC 40 gained 2.2%, Germany’s DAX added 2.9% and Italy’s Milan FTSE rose 2.2%.  In Asia, China’s Shanghai Composite rose 1.3% and Japan’s Nikkei gained 2.9%.  As grouped by Morgan Stanley Capital International, emerging markets rose 1.3% while developed markets finished the week up 2.5%.

Commodities: Precious metals continued their rallies.  Gold rose for a ninth consecutive week, closing at $2028.00 per ounce, a gain of 2.1%.  Silver surged a huge 13.7% to $27.54 an ounce.  Oil recovered most of last week’s decline finishing the week up 2.4% to $41.22 per barrel of West Texas Intermediate crude.  Copper went the other way, and had its third consecutive week of declines giving up -2.6%.  Copper is viewed by some analysts as a barometer of world economic health due to its wide variety of industrial uses.

U.S. Economic News: The Labor Department reported the number of Americans seeking first-time unemployment benefits fell by 249,000 last week to 1.186 million.  That is its lowest reading since March and below the consensus of 1.4 million.  The improvement reversed the upticks in the prior two weeks putting the series back on track toward normalization.  Still, the level is far higher than normal and nearly twice as high as levels seen at the height of the Great Recession. 

Continuing jobless claims, which counts the number of people already receiving benefits, fell by 844,000 to 16.107 million—its lowest level since April.  There are currently about 14.0 million people receiving pandemic unemployment assistance or emergency unemployment compensation, funded through the CARES Act.  However, since these programs expired last week, analysts expect a significant downside to personal income and spending growth in the near future as Congress has yet to agree on a compromise to continue the program.

The employment recovery continued in July but it still has a long way to go Friday’s jobs report showed.  Nonfarm payrolls increased 1.763 million, above the consensus of 1.482 million, while the unemployment rate fell -0.9% to 10.2%.  Private nonfarm payrolls increased 1.462 million for its third gain in a row.  Private payrolls have so far recovered about 45% of the losses in March and April.  The majority of job gains last month were in leisure and hospitality and retail trade, two of the hardest hit industries during the lockdown.  Government payrolls jumped by a record 301,000 with nearly all of it in state and local education.  Despite the improvement, analysts note a quick return to pre-recession labor market conditions is unlikely as both consumer behavior and business practices are seemingly changing in response to COVID-19.  

Private payroll processor ADP reported payrolls increased by 167,000 in July, its third gain in a row.  However, the reading widely missed the consensus of 1,000,000 net new jobs.  Slower hiring reflects the resurgence of COVID cases across the country.  Private payrolls have so far recovered only about 40% of the losses in March and April as labor market conditions remain far from normal.  The slowdown in hiring was evident across all firm sizes and sectors.  Medium-sized firms (50-499 employees) actually shed jobs, particularly in financial activities, information, construction, and mining.  Analysts note that this raises the risk that as the health crisis continues, its negative economic impact will go beyond the industries initially hit hardest like leisure, hospitality, and retail trade.

Manufacturing activity expanded in July for the third month in a row, but senior executives say production remains well below its pre-pandemic levels.  The Institute for Supply Management (ISM) reported its manufacturing index rose to 1.6 points to 54.2 marking its highest level in 15 months.  Economists had forecast the index would reach 53.6.  However, the high level of the index is somewhat misleading economists say.  Chief economist Ian Shepherdson of Pantheon Macroeconomics stated, “Diffusion indexes like the ISM capture rates of change of activity, not levels, and output remains depressed.”  Other economic signposts such as durable-goods orders, industrial production and the monthly U.S. jobs report show that companies are producing significantly fewer goods and employing fewer workers than they were before the pandemic.  The index had fallen to an 11-year low of 41.5 in April during the height of the crisis.

For the vast services side of the U.S. economy, ISM reported its Non-Manufacturing Index (NMI) increased 1.0 point to 58.1—its highest level since February 2019.  Analysts had forecast a decline of 2.1 points to 55.0.  Still, it was the second straight month above the 50-level that signifies growth versus contraction.  The increase in the NMI was led by a 6.1 jump in new orders to 67.7, a record high.  Business activity moved up 1.2 points to 67.2, its best level since January of 2004.  And order backlogs grew at their quickest rate in over a year indicating some operating capacity pressures.  Even so, employment shrank for the fifth month in a row.  The same caution as noted above for the manufacturing index applies here, economists point out.

The Commerce Department reported factory orders rose 6.2% in June, up for the second consecutive month.  Economists had expected just a 4.9% increase.  The combined gain for May and June was a record, confirming a recovery from the pandemic slump in the prior two months.  Even so, factory orders are still down 11.9% from their level in February—underscoring just how deep the contraction was.  Non-durable goods orders surged 5.0%, the most since March 1996, led by petroleum.  Durable goods were revised up to 7.6% from 7.3% led by vehicles.  Nonetheless, year-over-year factory orders are down 16.5% near their steepest decline since October of 2009.

International Economic News: Strategists are raising their forecasts for the Canadian dollar as commodity prices rise and the domestic economy shows signs of recovery, according to a Reuter’s poll.  After rallying more than 10% since March to 1.3264 per U.S. Dollar, Canada’s Loonie is expected to weaken to $1.35 the poll of more than forty currency strategists revealed.  Shaun Osborne, chief currency strategist at Scotiabank stated, “We think strengthening commodity prices amid signs global manufacturing is recovering and firm domestic data, which suggest the Canadian economy is recovering quite quickly through mid-year, should boost the CAD.”  As Canada’s economy reopened in recent months and coronavirus infections declined, domestic data showed manufacturing activity expanding and the housing market recovering.

Across the Atlantic, the Bank of England (BOE) stated the economic shock of COVID-19 will be less severe than initially feared.  The BOE left interest rates on hold at a record low of 0.1% this week.  The Bank also said Britain’s economy would shrink by 20% in the first half of this year as a result of lockdown measures imposed in March.  It also expected unemployment will double to 2.5 million by the end of the year.  However, it said the early signs for the economy were more promising as lockdown measures have been gradually relaxed.  After taking emergency action in March to sink interest rates to the lowest level in its 326-year history, the Bank’s nine-member monetary policy committee (MPC) voted unanimously to keep rates on hold.  It also voted to keep the central bank’s quantitative easing bond-buying stimulus program at the same level of £745bn.  

On Europe’s mainland, France posted a nearly 14% decline in output in the second quarter of 2020 data released by the country’s national statistics bureau showed.  The reading was the third consecutive decline for France with output falling 19% compared to the same period last year.  France's economic downturn, somewhat surprisingly, isn't as bad as economists' prediction of a 15.2% decline, but it is still the sharpest drop since records began over 70 years ago.  French statistics agency INSEE stated the worsening of affairs is “linked to the shut-down of 'non-essential' activities in the context of the implementation of the lockdown between mid-March and the beginning of May.”  

Orders for German-made goods rose sharply in June, the latest sign that Europe’s largest economy may be starting to shrug off the effects of months of lockdowns, but the volumes were still below pre-pandemic levels.  Germany’s statistics office, Destatis, reported orders rose an adjusted 27.9% compared to the previous month, more than double May’s 10.4% expansion.  The reading was far above economists’ forecasts of a 10.1% increase.  Still, orders remained 11.3% below their level in February, the last month prior to the onset of the coronavirus pandemic.  Germany’s response to the pandemic has been effective by European standards, managing to keep infection and death rates relatively low despite imposing restrictions that were both milder and shorter than in many other countries.

In Asia, activity at China’s factories grew at the fastest pace in nearly a decade, signaling the country’s economic recovery is continuing to gain momentum. 

Research firm Caixin/Markit reported its private Purchasing Managers Index (PMI) survey of manufacturing activity rose to 52.8 in July, up 1.6 points from June as factories in the country picked up new orders.  The reading was its highest since January of 2011.  Furthermore, the reading was its third straight close above 50, the level that separates expansion from contraction.  The survey was the latest sign of improvement in China.  The economy returned to growth last quarter after recording its worst three-month period in decades.  And the country's official PMI survey released last week — which mainly covers larger business and state-owned firms — indicated a fifth consecutive month of expansion for the sector.  (The Caixin poll is more focused on small and medium-sized companies.)

Japan, which initially saw success in keeping the coronavirus from ravaging the nation, recorded more than 1,000 new cases each day last week according to local reports.  Contrary to other large nation’s that are seeing a decline in overall numbers, Japan’s case counts have been rising according to Kyodo news and Nipon.  The government of Japan imposed an entry ban on foreign nationals from nearly 130 countries and regions, including the United States, as of July 1, but so far has not declared an emergency following the uptick.  Even with the increase, the country’s Finance Ministry said regional economies are showing signs of recovery from the pandemic, and the government is once again allowing the entry of foreign nationals.

(Sources:  All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)