U.S. Markets:  Most of the major U.S. benchmarks recorded gains this week, with the large cap S&P 500 recovering a portion of last week’s losses.  Energy stocks led the gains as natural gas prices reached record highs in Europe and major oil exporters decided not to increase production.  The Dow Jones Industrial Average rose 420 points to finish the week at 34,746—a gain of 1.2%.  The technology-heavy NASDAQ Composite ticked up 0.1% to 14,580.  By market cap, the large cap S&P 500 finished the week up 0.8%, while the mid cap S&P 400 added 0.2% and the small cap Russell 2000 finished the week down -0.4%.

International Markets:  The majority of international markets finished the week in the green.  Canada’s TSX rose 1.3% along with the United Kingdom’s FTSE 100 which gained 1%.  France’s CAC 40 and Germany’s DAX rose 0.6% and 0.3%, respectively, while China’s Shanghai Composite gained 0.7%.  Japan’s Nikkei finished the week down -2.5%, its third week of declines.  As grouped by Morgan Stanley Capital International, developed markets ended down -0.3% and Emerging markets rose 1%.

Commodities:  Precious metals finished the week mixed with Gold down -0.06% to $1757.40 an ounce and Silver up 0.75% to $22.70.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, gained 2.1% on the week.  Oil rose for a seventh consecutive week.  West Texas Intermediate crude oil gained 4.6% finishing the week at $79.35 per barrel.

U.S. Economic News:  The number of Americans filing first-time unemployment benefits fell last week, its first decline in a month and a sign the labor market may be improving.  The Labor Department reported 326,000 people applied for unemployment—down 38,000 from the prior week.  Economists had expected a reading of 345,000.  Before the decline, new applications for jobless benefits had risen three weeks in a row.  Meanwhile, continuing claims, which counts the number of people already receiving benefits dropped by 98,000 to 2.71 million.  That number remains near a pandemic low.

The U.S. economy added just 194,000 jobs in September, as more people chose to drop out of the labor force.  The increase in hiring fell well short of expectations of 500,000 new jobs.  The private sector added 317,000 workers last month, while state and local governments shed 123,000.  Also in the report, the unemployment rate slipped to 4.8% from 5.2% touching a new pandemic low—however, that’s not necessarily a good reading.  The majority of the large drop in unemployment was due to 183,000 people leaving the labor force.  The percentage of people in the labor force ticked down to 61.6%--almost 2 points below its pre-crisis peak. The lackluster report adds to growing evidence the recovery has slowed.  Employment grew the most in the ‘leisure and hospitality’ sector, followed by ‘white-collar professional businesses’ and ‘retailers’.  The only sector to report notably lower employment was ‘government’—mostly in public education.

The vast services side of the U.S. economy that dominates the U.S. economy grew slightly in September, suggesting that concerns over the ‘delta-strain’ of the coronavirus were probably excessive.  The Institute for Supply Management (ISM) reported its Services index rose 0.2 point to 61.9 in August.  Economists had expected the index to decline to 60.0.  Readings above 50 signal expansion, while analysts view readings above 60 as exceptional.  Survey respondents stated the biggest problem companies face remains obtaining enough supplies and finding qualified labor to keep up with demand.  New orders and production both increased in September and 17 of the 18 industries tracked by ISM were expanding, a historically high number.

Orders for manufactured goods rose in August, exceeding analysts’ forecasts.  The Commerce Department reported factory orders rose 1.2% in its latest reading, up 0.5% from July.  Economists were expecting a 1.1% rise.  In the report, orders for durable-goods (items expected to last at least three years) rose 1.8%, while orders for non-durable goods were up 0.6% in the month.  Of note, shipments of factory goods ticked up just 0.1% in August, down sharply from a previous 1.5% gain.  Orders for nondefense capital goods excluding aircraft, viewed as a good metric of business orders, rose a revised 0.6% in August, up slightly from the prior estimate of a 0.5% gain.

In August 2020, the Federal Reserve adopted a new framework that made clear the central bank wouldn’t raise interest rates until inflation rose so that it averaged 2% over time.  At that time, economists considered that a high hurdle, however the recent surge in prices of goods and services over the past year has now easily cleared that hurdle.  Prices have jumped 5.3% over the past year using the better known consumer price index.  And they are up 4.3% in the last 12 months using the Fed’s preferred Personal Consumption Expenditure inflation gauge.  However, in a speech given this week Cleveland Fed President Loretta Mester addressed the other side of the Fed’s self-imposed “dual mandate”—maximum employment.  This part of the Fed’s mandate has not been met, according to Mester.  “My forecast is that we’ll meet that [employment] mandate by the end of next year, if things play out as I expect,” Mester said.  

International Economic News:  Canada’s economy added enough jobs last month to put its employment numbers back above where they were before the pandemic started.  Statistics Canada reported over 157,000 new jobs were created in August—more than twice the estimate of 60,000 economists were expecting.  The number was strong enough to push the jobless rate down to 6.9%--the lowest unemployment rate since the onset of the pandemic.  There is one caveat to the strong jobs number, however: Canadians are working less hours per week.  The total number of hours worked by all employees is still 1.5% below pre-pandemic levels.

Across the Atlantic, former Bank of England chief economist Andy Haldane stated Britain is in a “VILE” era—volatile inflation with low expansion.  Haldane noted supply chain problems, a jump in inflation, and rising risks of high unemployment all contributed to the current situation.  Financial markets are now anticipating the BoE is all but certain to raise rates early next year, but some economists noting signs of a waning recovery aren’t so sure.  While Britain's economy grew rapidly earlier this year as it reopened from a third COVID-19 lockdown, the latest readings show this momentum has largely dissipated.  Economic growth slowed to a crawl in July, according to official data, and surveys of businesses and consumers suggest sluggish growth persisted into the second half of the year--even before the most severe supply chain problems seen in recent weeks.

On Europe’s mainland, Germany’s inflation rate has risen above 4.1%--its highest level in 29 years.  The spike in inflation is believed to have been driven by an acceleration in the price of oil.  Economists have noted they wouldn’t be surprised to see the European Central Bank reduce its asset purchases in 2022 to combat inflation.  However, Max Borowski, German Economics editor, has insisted inflation isn’t the ECB’s problem.  He said, “The right means to fight inflation lie with the federal government, not the ECB.”  “In Europe, the current price increases are not being driven by an expansion of the money supply or an overheated domestic economy, as some ECB critics claim, but rather by energy shortages and import bottlenecks,” he added.  

In Asia, China said it pressed the United States to eliminate tariffs in talks between the countries’ top trade officials.  In a briefing ahead of the call, a senior U.S. trade official said U.S. Trade Representative Katherine Tai would give China’s Vice Premier Liu He an assessment of China’s performance in implementing the Phase 1 deal, including promised purchases of U.S. goods that are falling short of targets.  China’s Xinhua state news agency reported, “The Chinese side negotiated over the cancellation of tariffs and sanctions and clarified its position on China’s economic development model and industrial policies.” Following the call, Xinhua said the two sides “expressed their core concerns and agreed to resolve each other’s reasonable concerns through consultation.”

Household spending in Japan fell more sharply than expected in August as a state of emergency over the pandemic weighed on consumption during Japan’s summer holiday season.  The 3.0% year-on-year decrease in spending was twice the size of the median market forecast of a 1.5% drop.  The month-on-month figures showed a 3.9% contraction in August, the fourth straight month of decline.  While analysts expect spending (especially in services) to have bounced back in September as infections waned, a large dip in car sales may slow the recovery.  Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute wrote in a research note, “Supply chain issues have started to affect private consumption, as car sales have been declining since August; and were worse in September.”

(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.)