U.S. Markets: The large-cap benchmarks narrowly managed a third consecutive week of gains, while smaller-cap shares lagged slightly.  The Dow Jones Industrials finished the week up just 19 points to 28,606.  The technology-heavy NASDAQ Composite added 0.8% to close at 11,672.  By market cap, the large cap S&P 500 rose 0.2%, while the mid cap S&P 400 finished flat and the small cap Russell 2000 gave up -0.2%.

International Markets: Almost all international markets finished the week in the red.  Canada’s TSX declined -0.7%, while the United Kingdom’s FTSE 100 gave up -1.6%.  France’s CAC 40 ticked down -0.2%, while Germany’s DAX retreated -1.1%.  In Asia, China’s Shanghai Composite was the only major international market to rise adding 2%.  Japan’s Nikkei declined -0.9%.  As grouped by Morgan Stanley Capital International, developed markets declined -1.4%, while emerging markets ended down -0.6%.

Commodities: Precious metals ended the week down, with Gold declining -1% to $1906.40 per ounce and Silver giving up -2.8% to $24.41 an ounce.  West Texas Intermediate crude oil rose for a second week adding 1.3% to $41.12 per barrel.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, declined -0.5%.

U.S. Economic News: The number of Americans filing for first-time unemployment benefits rose by 53,000 last week to 898,000.  Economists had expected 830,000 new filings.  The increase is a sign that the recent improvement in the labor market appears to be stalling.  The level of initial claims remains about four times higher than it was prior to the outbreak of the coronavirus pandemic.  On the other hand, continuing claims, which counts the number of Americans already receiving benefits, dropped by 1.165 million to 10.018 million (the lowest level since March).  Still, that number remains higher than in any other recession since 1967.  Continuing claims are reported with a one-week delay.

Optimism among the nation’s small business owners continued to rise in September, up in four of the past five months.  The National Federation of Independent Business (NFIB) reported its small business optimism index rose 3.8 points to 104.0.  That reading is just 0.5 points below where it was in February, before the coronavirus pandemic took hold of the world economy.  The rebound in optimism suggests that the fiscal stimulus has worked well to support small business activity, which has been hit particularly hard by the subsequent lockdowns and recession.  In the details, more firms are reporting current job openings, and hiring plans matched their best level since August 2018.  That implies the unemployment rate should continue to decline in the coming months.  Although down from a year ago, small firms continued to rate poor quality of labor applicants as their most important issue, followed by taxes and government regulations.

Sales at the nation’s retailers jumped a broad-based 1.9% in September, the most in three months, and much stronger than the consensus of a 0.7% increase.  In the third quarter, sales increased 13.5%, more than retracing the second quarter’s entire 7.1% drop.  The reopening of the economy and strong fiscal stimulus early in the pandemic helped retail sales recover back to their pre-recession peak.  Analysts note the ongoing shift in consumer spending towards more goods and less services due to the new social-distancing reality, should continue to support retail sales going forward.  In the details, nearly all major retail categories advanced last month led by apparel (+11.0%), sporting goods (+5.7%) and vehicles (+3.6%).  On a year-over-year basis, retail sales increased 3.6%--its fastest pace since February.

Inflation at the consumer level remained relatively muted last month.  The Labor Department reported its Consumer Price Index rose 0.2% in September—matching the consensus.  Food prices remained flat, while energy prices increased 0.8%.  Core CPI, which excludes the often-volatile food and energy categories, also rose 0.2%, in line with expectations.  Core CPI was driven by a 6.7% surge in used car and truck prices, the most in more than 50 years, as demand far outstripped supply.  New vehicle prices were up by a much smaller 0.3%.  There were modest gains in shelter and recreation prices.  But those were partly offset by declines in vehicle insurance, airline fares, apparel, and education.  On an annual basis, CPI increased 1.4%, while core CPI was up 1.7%.  Both have turned up in the past several months, but continue to run below 2.0%, confirming that the Fed will remain accommodative for the foreseeable future.

Prices at the producer level experienced a broad-based increase in September, the fifth consecutive month of increases.  The Producer Price Index (PPI) for final demand rose 0.4% last month, double the consensus expectation of a 0.2% rise.  PPI ex-food and energy also rose 0.4%.  On a year-over-year basis, PPI for final demand and PPI ex-food and energy both turned up, posting 0.5% and 1.2%, respectively.  However, analysts note that both remain below their average annual gain over the past decade, as overall producer price inflation remains subdued. 

Factory activity in the Mid-Atlantic area covered by the Philadelphia Fed continued to rebound to its highest level since February.  The Philadelphia Federal Reserve reported its General Business Activity Index jumped 17.3 points this month to 32.3.  Economists had expected a reading of just 14.0.  Most individual activity indexes rose, led by notable pickups in new orders and shipments.  Furthermore, firms were more optimistic about the near-term growth outlook than last month with many mentioning boosting hiring and capital expenditure plans.  Separately, the New York Federal Reserve reported its Empire State General Business Activity Index ticked down 6.5 points to 10.5, still indicating continued expansion for the fourth consecutive month.  Orders, shipments, and employment all picked up in the New York Fed’s area, but optimism about the near-term growth outlook in the region cooled somewhat.

International Economic News: Canadian real estate brokerage Royal LePage released a report warning that as Canada’s economy recovers, lower earners face insolvency while those able to afford homes should achieve a full recovery.  The report notes that despite the steepest economic downturn since the Great Depression, Canadian house prices have soared an average of 8.6% over the past year.  “Most Canadians have sharply reduced spending on discretionary goods and services involving a great deal of human interaction, and with mortgage rates at record lows, many have refocused on housing investments,” Royal LePage CEO Phil Soper said in its release.  But for Canadians at the lower end of the income ladder, wealth isn’t accumulating ― debt is.  Nearly half of Canadian households ― 47% ― said they were $200 or less away from insolvency in the third quarter of this year.

Across the Atlantic, United Kingdom Prime Minister Boris Johnson warned his nation to prepare for a “no-deal” Brexit.  Economists at Citi and the Institute for Fiscal Studies estimate should the United Kingdom exit the European Union without a deal, it could cost the economy $25 billion next year.  That would put the country even further behind on its efforts to recover from the historic shock triggered by the pandemic.  "The combination of Covid-19 and the exit from the EU single market makes the UK outlook exceptionally uncertain," Laurence Boone, chief economist at the Organization for Economic Cooperation and Development, said in a report this week.  "Actions taken to address the pandemic and decisions made on future trading relationships will have a lasting impact on the United Kingdom's economic trajectory for years to come."

On Europe’s mainland, a third of France’s population is to be put under a nightly curfew as new measures to contain the spread of the coronavirus are introduced.  President Emmanuel Macron ordered curfews to be in place from 9pm to 6am aimed at curbing parties where the virus is thought to be spreading.  The curfews will last an initial four weeks, but Macron said the government would seek a two-week extension from parliament, meaning the measures will be in place until Dec. 1.  “It means that we won’t go to restaurants after 9 p.m., we won’t go round to a friend’s place, we won’t go out partying,” the president said in an interview on national television.

Germany’s economic prospects for 2020 are looking more and more bleak, with the country’s leading research institutes downgrading GDP forecasts for this year and beyond.  In a joint economic forecast, Germany’s prominent economists warned that the coronavirus pandemic is leaving “substantial marks” on the German economy.  They revised their economic outlook downward by roughly one percentage point for both 2020 and 2021.  They now expect GDP to fall by 5.4% in 2020 (lower than a previous -4.2% forecast) and to grow by 4.7% (less than a previously forecast 5.8%) in 2021, and 2.7% in 2022.  The “Joint Economic Forecast” is published twice a year on behalf of the German Economy Ministry and is prepared by the German Institute for Economic Research (DIW Berlin) and the Ifo Institute in Munich, as well as several other organizations.

In Asia, while much of the world is working to prevent new outbreaks of coronavirus from stalling their economic recoveries, China’s economy is growing again and will end the year more powerful than ever.  The world’s second largest economy was the only major world power to avoid a recession this year as COVID-19 forced economic lockdowns around the world.  China’s GDP is expected to grow 1.6% this year, while the global economy as a whole will contract -5.2% according to projections from the World Bank.  China built its relatively quick recovery through several measures, including stringent lockdown and population tracking policies intended to contain the virus.  The government also set aside hundreds of billions of dollars for major infrastructure projects, and offered cash incentives to stimulate spending among its populace.

Japan’s new leader, Prime Minister Yoshihide Suga aims to reinforce security ties with its neighbors when he visits Vietnam and Indonesia next week.  The region has been on edge as China has grown more assertive with its claims in the South and East China Seas.  Former diplomat Kunihiko Miyake, a special advisor to Suga stated, “I think it is important to show...we put more emphasis and importance on that region and we are interested in the security situation, especially in the South China Sea.”  Suga’s trip follows last week’s Tokyo meeting of the “Quad”, an informal grouping of India, Australia, Japan and the United States.  Beijing has denounced the Quad as a “mini-NATO” meant to contain China.

(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, CNBC, FactSet.)