Morning Minutes 11/2/2020

Morning Minutes

Positive Manufacturing PMI Reports Spark Stock Market Rally

November 2, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Stock markets around the world have shrugged off a sluggish end to October and have started off the new trading week and month with a sizeable rebound. US premarket action is showing are posting gains between 0.9% for NASDAQ futures and 1.5% for Dow futures. Dow Futures have made back all of Friday’s loss and more, the S&P is about even in clawing back Friday’s 1.25% loss, while the NASDAQ has a way to go to regain Friday’s 2.4% plunge. Positive equity market trends started overseas where the Nikkei and Hang Seng both surged about 1.4%, while in Europe, the Dax is up 1.9% while the FTSE is up 1.2%.

Equities have attracted renewed interest from a series of positive Manufacturing PMI reports from around the world. Australia showed the biggest improvement, moving back above 50 into expansion territory (56.3 vs previous 46.7). Several other countries reported results above 50 and better than street expectations including China, Germany, France, Spain, Italy, the UK, and others. Canadian Manufacturing PMI is due at 9:30 am EDT with the street expecting a slight decline to 55.6. US ISM manufacturing PMI is due at 10:00 am EDT with the street expecting a steady reading of 53.3. Keep an eye on the forward-looking New Orders segment which has been strong (60+) for the last three months but this time the street is expecting a slowdown to 45.9 from 60.2. US construction spending is also due at 10:00 am EDT with the street expecting 1.0% growth down from 1.4% last month.

Commodity prices, however, appear to be seeing more of an impact from the ongoing political and economic risks out there. With the UK and some EU countries reimposing lockdowns over the weekend, WTI and Brent Crude Oil both fell about 3.0% overnight to start the week, although they have since clawed their way back to breakeven on the day so far. Copper is up 0.3% still holding above $3.00/lb. Gold and silver are up 0.5% and 1.9% respectively but are still below $1,900/oz and $25.00/oz respectively.

The week ahead is likely to be dominated by the results of tomorrow’s US Presidential election. While the differing policies of each candidate could impact certain stocks or sectors, for broad market sentiment, the most important thing is that there is a winner. Investors hate uncertainty and a contested result that could drag on for weeks could potentially weigh on investor confidence.

Its also a big week for economic news with the rest of the week headlined by Service PMI reports plus US ADP payrolls on Wednesday, followed by US Nonfarm Payrolls and Canada Employment on Friday. Several central banks are also holding meetings this week which investors may look to for comments about economies around the world and for signs of whether banks are looking to ease off the gas pedal (as the Bank of Canada did last week), or pound down on it. The Reserve Bank of Australia meets tonight, followed by the Bank of England and the Federal Reserve Board on Thursday.

We continue to move through the heart of earnings season this week, particularly in Canada where notable reporters include: Nutrien today, Bausch Health Tuesday, insurers Great West and Sun Life on Wednesday, Barrick Gold, BCE, and Canadian Tire Thursday, wrapping up with Magna, Telus, and Enbridge on Friday. US earnings this week are mainly centered around mid and smaller cap companies, headlined by Paypal later today, Wayfair and Prudential Tuesday, MetLife on Wednesday, and General Motors on Thursday.

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