U.S. Markets: The major U.S. indexes ended the week mixed, as good news on the coronavirus vaccine front continued to be offset by the resurgence in coronavirus cases and their severity in many parts of the country.  The Dow Jones Industrial Average, the S&P MidCap 400 Index, and the small-cap Russell 2000 Index all reached new intraday highs in the first part of the week before surrendering some of their gains.  The Dow Jones Industrial Average shed 216 points finishing the week at 29,263, a decline of -0.7%.  The technology-heavy NASDAQ Composite retraced some of last week’s decline by rising 0.2%.  By market cap, the large cap S&P 500 gave up -0.8%, while the mid cap S&P 400 and small cap Russell 2000 added 1.6% and 2.4%, respectively.

International Markets: International markets were a sea of green last week.  Canada’s TSX rose 2.1%, while the United Kingdom’s FTSE added 0.6%.  On Europe’s mainland, France’s CAC 40 and Germany’s DAX rose 2.2% and 0.5%, respectively.  In Asia, China’s Shanghai Composite added 2%, while Japan’s Nikkei gained 0.6%.  As grouped by Morgan Stanley Capital International, develop markets finished up 1.4% and emerging markets added 1.5%.

Commodities: Precious metals retreated as equities advanced.  Gold declined -0.7% to $1872.40 per ounce, while Silver gave up -1.7% finishing the week at $24.36.  Oil rose for a third consecutive week.  West Texas Intermediate crude surged 5.7% to $42.42 per barrel.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, finished the week up 3.6%.

U.S. Economic News: The number of Americans filing first-time unemployment benefits rose last week amid a surge in coronavirus cases.  The Labor Department reported initial jobless claims increased by a seasonally adjusted 31,000 to 742,000.  Economists had forecast initial claims to total 710,000.  Continuing claims, which counts the number of people already receiving benefits, fell by 429,000 to 6.37 million.  The economy has been regaining jobs at a steady pace since a big burst of hiring when the U.S. reopened in May, but the record rise in coronavirus cases threatens to freeze or even partly undue the progress if more cities and states impose restrictions on business.  Overall, the U.S. is still missing some 10 million jobs that were lost during the early stages of the pandemic and unemployment remains very high.

New home construction surged to its highest level since the Great Recession in October, driven primarily by a rise in single-family housing starts.  Builders started construction on new homes at a seasonally-adjusted annual rate of 1.53 million in October, up 4.9% from last month.  Economists had expected housing starts to run at a 1.49 million annual pace.  The upsurge in housing starts was driven by a 6.4% rise in single-family starts, as multifamily construction activity dipped once again, this time by 3.2%.  Almost all regions experienced an increase in housing starts despite rising coronavirus cases across many parts of the country.  Virtually every home builder is seeing rising sales as Americans look to leave urban areas for larger homes in the suburbs only to find very few existing homes up for sale.  By region, the South led the way with a 12.9% increase, followed by the West and the Midwest.  Housing starts in the Northeast fell.  Permits, which economists use to get a read on future builder activity, rose slightly in the South, West, and Midwest, but fell markedly in the Northeast.  

Sales of existing homes rose for a fifth consecutive month in October, hitting its highest level in 15 years.  Total existing-home sales increased 4.3% from September to a seasonally-adjusted annual rate of 6.85 million, the National Association of Realtors (NAR) reported.  Compared with a year ago, home sales were up roughly 27%.  “Considering that we remain in a period of stubbornly high unemployment relative to pre-pandemic levels, the housing sector has performed remarkably well this year,” Lawrence Yun, NAR’s chief economist, said in the report. “The surge in sales in recent months has now offset the spring market losses.”  Economists had projected existing-home sales to rise to a median rate of 6.5 million.  Home sales grew in every region across the country, led by an 8.6% increase in the Midwest.  However, the supply of homes on the market is a growing concern.  By month’s end the total inventory of homes for sale dropped to a 2.5 months’ supply, the lowest on record.  A six-month supply of homes is generally considered to be indicative of a balanced market.

Confidence among the nation’s home builders surged to a new record high as sales volumes continue to grow.  The National Association of Home Builders (NAHB) reported its monthly confidence index rose five points to a reading of 90 this month.  It is the fourth consecutive month that the index has hit a new record high.  In the details, the index that measures current sales conditions increased six points to 96, while the index of expectations for future sales over the next six months rose one point to 89.  The gauge of prospective buyer traffic increased three points to 77.  By region, the indexes for the Midwest, South and West all increased.  However the index for the Northeast dropped five points to 82.  Robert Dietz, NAHB’s chief economist wrote “In the short run, the shift of housing demand to lower density markets such as suburbs and exurbs with ongoing low resale inventory levels is supporting demand for home building.”

Sales at the nation’s retailers rose modestly in October, boosted by Amazon’s Prime Day, but the already-fading momentum is in danger of falling into contraction amid the record coronavirus outbreak.  The Census Bureau reported retail sales rose 0.3% last month, matching the consensus forecast.  Although it was the sixth advance in a row, it was the smallest gain since the economy reopened in May.  Sales rose the fastest among online retailers—jumping 3.1%.  Internet sales have soared during the pandemic as the virus accelerated consumers pivot away from brick-and-mortar locations.    

Factory activity in the New York-region continued to slow this month according to data from the New York Federal Reserve.  The New York Fed reported its Empire State business conditions index fell 4.2 points to 6.3 in November.  Economists had expected a reading of 13.5.  In the details, the new orders index fell 8.6 points to 3.7, while shipments fell 11.5 points to 6.3.  Inventories remained in negative territory.  On a positive note, employment rose at its strongest pace in nearly a year and manufacturers remained optimistic about the next six months.  However, many analysts are still concerned about the future.  Following the release, Oren Klachkin, economist at Oxford Economics wrote “Manufacturing’s resilience will be tested in the coming months as the health situation rapidly deteriorates. We expect that stronger headwinds from escalating virus fear, softening demand, and persistent supply chain disruptions will constrain manufacturing activity in the months ahead.”

In the “city of Brotherly Love” business activity retreated only slightly this month from its highest point since before the coronavirus pandemic, the Philadelphia Fed reported.  The Philly Fed stated its index slipped 6 points to 26.3 from 32.3 in October.  Economists had expected a reading of 24.5.  The headline index is based on a single question about business conditions.  Manufacturing in the Mid-Atlantic area has been a bright spot as the economy recovers from the pandemic shutdown but economists are worried the pace of activity will slow as the virus has spread at a fast pace in recent weeks.  Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a note to clients, “Overall, manufacturing is continuing to recover lost ground.  However, the level of output remains below pre-pandemic levels. The risk going forward comes from surging infection outbreaks that could disrupt activity as well as weakening demand.”

International Economic News: Canada and the United Kingdom struck a transitional post-Brexit trade deal with negotiations for a more permanent agreement planned for next year.  Following the agreement, Canadian Prime Minister Justin Trudeau stated “Now we get to continue to work on a bespoke agreement, a comprehensive agreement, over the coming years that will really maximize our trade opportunities and boost things for everyone.”  UK Prime Minister Boris Johnson stated, “Free trade is an important part of the way that we're going to bounce back from COVID, but I also think that Canada and the U.K. share a perspective about building back greener.”  The Canada-United Kingdom Trade Continuity Agreement extends the elimination of tariffs on 98 per cent of goods exported between the two countries and sets the stage for negotiations toward a permanent and more ambitious deal in the new year.

Across the Atlantic, the United Kingdom’s economy is on course for a “double-dip” recession as renewed lockdown measures are expected to deliver a blow to economic activity, according to a Reuter’s poll of economists.  Having already suffered the highest COVID-19 related death toll in Europe, Britain - like much of Europe - is suffering a resurgence in the spread of the coronavirus and has reimposed strict restrictions on economic activity.  None of the economists surveyed expected growth this quarter whereas 94% of the same forecasters expected growth just a month ago.  “Restrictions have dampened our near term economic assessment materially; we now look for a contraction in Q4 GDP,” said Philip Shaw at Investec.

On Europe’s mainland, France’s national statistics agency INSEE reported economic output will contract 2.5-6% in the final quarter of 2020 depending on the length of the current partial lockdown.  For the full year, INSEE is forecasting the French economy contracted by 9-10%.  The government reimposed a lockdown at the end of October as the number of coronavirus infections and hospitalizations surged higher.  The conditions are not as strict as those imposed in March, however, and INSEE expects the impact on the economy to be considerably less.

Germany’s central bank, the Bundesbank, stated the German economy is likely stagnating or contracting as measures taken at home and abroad to contain the second wave of coronavirus are hitting exports and leisure activities.  Germany has taken a less strict approach to the new lockdowns as some of its neighbors but is still bound to suffer from weaker demand abroad.  “Overall economic performance could stagnate or even decline after very vigorous growth in the summer,” the Bundesbank said in its monthly report.  However, the German central bank said an economic slump like the one seen in the spring was unlikely and progress on the development of a vaccine against COVID-19 boosted hopes of finding a balance “soon” between containing the virus and keeping the economy open.

In stark contrast to the rest of the world, China’s economy continues to rebound quickly from the coronavirus, but it is coming at the cost of worsening imbalances that threaten the country’s long-term growth prospects analysts say.  When the coronavirus took hold, instead of following the Western model of paying companies to keep workers on payrolls during the shutdown, cash payments and enhanced unemployment benefits, China steered funds into its residential construction and state-owned enterprises.  The net effect is that industrial production in China has recovered much better than consumer spending.  So far this year, manufacturing output is up 2.4% compared with the first 10 months of 2019 while retail spending is down 5.9%.  

Japan’s economy expanded 5% in the third quarter of 2020 as the country’s rebound from COVID-19 produced its first quarter of growth in a year.  The figure exceeded consensus expectations of a 4.4% increase.  Still, the world’s third-largest economy remains almost 6% smaller than it was at the same time last year.  “The economy has come back steadily but the recovery is a work in progress,” said Yasutoshi Nishimura, Japan’s economy minister.  “People are still in a defensive mindset.”  At an annualized rate, Japan’s economy grew 21.4%, making the scale of its rebound a little weaker than those of other advanced economies.

(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.)