Gold rises on flight to safety driven by pandemic fears
April 1, 2020
“Gold rose on Wednesday as fears over a worsening coronavirus pandemic triggered a flight to safety, with expectations of further monetary easing by central banks adding support. Spot gold rose 0.8% to $1,582.78 per ounce by 0326 GMT, having slumped 3.1% in the previous session on a strong dollar. U.S. gold futures were unchanged at $1,596.50. ‘Investors may be shifting to gold for safety,’ said CMC Markets analyst Margaret Yang Yan, who saw the rebound spurred by President Trump’s remarks that the next two weeks of the pandemic could be painful for the United States.
‘The ramification of easing monetary policy cycle and trillion dollars of stimulus means the market will be full of liquidity and ample supply of paper money in months, quarters or years to come, and that’s definitely supporting gold’s rally amid very limited supply (of physical bullion).’ Gold is considered an attractive investment during times of political or economic uncertainty. It is highly sensitive to
interest rates, as lower rates reduce the opportunity cost of holding the non-yielding bullion. The Fed broadened the ability of dozens of foreign central banks to access U.S. dollars during the crisis.”
MARKET WATCH/Mark DeCambre
Gold attempts to bounce higher to start April, second quarter amid virus spread
April 1, 2020
“Gold futures were attempting to regain some traction higher on Wednesday to start the new month and quarter, amid expectations of increasingly poor economic data due to the pandemic which has helped to partly support gold buying or at least limited downside for the precious metal. ‘Gold prices are rising as investors brace for a steady flow of ugly data that will get much worse and probably for a lot longer than what was initially expected,’ wrote Edward Moya, senior market analyst at Oanda.
Moves for gold came as global stocks were under renewed pressure amid growing concerns about the economic implications for the epidemic … The White House released new projections for 100K to 240K deaths in the U.S. from the coronavirus pandemic even if current social-distancing guidelines are maintained. Meanwhile, the number of COVID-19 cases world-wide have risen to 862,234, while the number of deaths have climbed to 42,404. ‘Gold prices should rise as the virus spread is intensifying alongside lockdown efforts to mitigate it,’ Moya wrote. Gains for bullion are supported by fears the measures being implemented will result in a global recession, a boon for gold buyers.”
CNBC/Fred Imbert and Maggie Fitzgerald
Dow tumbles as Trump warns of ‘very painful two weeks’
April 1, 2020
“Stocks fell sharply on Wednesday as Wall Street begins the second quarter on a sour note amid mounting concerns over the coronavirus outbreak. The Dow Jones Industrial Average traded about 620 points lower, or 2.8%. The S&P 500 slid 3.0% while the Nasdaq Composite lost 2.6%. President Donald Trump said Tuesday evening the U.S. should prepare for a ‘very, very painful two weeks’ from the rampant coronavirus. White House officials are projecting between 100,000 and 240,000 deaths in the U.S.
‘This is going to be a rough two-week period,’ Trump said. ‘When you look at night the kind of death that has been caused by this invisible enemy, it’s incredible.’ Data from ADP and Moody’s Analytics showed U.S. companies cut 27,000 jobs through March 12. Actual losses for the month were far worse, as shown by the record number of jobless claims. Meanwhile, ISM manufacturing index fell to 49.1 in March from 50.1 in February, signaling a contraction in U.S. manufacturing activity amid the pandemic. ‘There’s still tremendous uncertainty,’ said a portfolio manager at Brandywine Global.”
Supercharged Debt Bets Unravel and Expose Wall Street’s Big Risk
April 1, 2020
“For years, regulators have tried to make the financial system safer by blocking banks from taking on the extreme leverage that almost toppled the industry in 2008. Turns out, the risks just moved. In a matter of days, a slew of trades unraveled to expose various forms of soured levered bets at their heart. Citigroup Inc. was among banks that tried to sell off $1.3 billion of risky loans to unwind leveraged wagers by clients. Funds that borrow to load up on mortgage bonds fed a flood of liquidations. Large municipal-bond funds are selling billions of dollars in positions, too. In 2008, the culprits were real estate speculators, investments banks that fueled the bubble while leveraging books about 40 to 1, and investors who failed to conduct their own due diligence. A wave of defaults caused that system to come crashing down.
This time, another long period of rock-bottom interest rates, cheered on by President Trump, has let companies go into record debt while showering cash on shareholders. The enablers are banks eager to facilitate deals and investors desperate for higher returns. They borrowed to multiply profits on mortgages, junk debt and municipal and government bonds. The leverage means losses are getting amplified. ‘Everyone knows you are playing with fire with leverage,” said Michael Terwilliger, portfolio manager at Resource Credit Income Fund. ‘Response to the last panic has built the new panic.’ After years of relatively sedate markets, trades are suddenly getting tested by the Covid-19 pandemic.”
MARKET WATCH/William Watts
Stocks could face crucial April test of market bottom as grim news mounts
April 1, 2020
“April will pose a crucial test for stock-market investors looking for signs that the worst of the market carnage triggered by the global COVID-19 pandemic is past, as the outbreak continues to claim lives and promises historic, near-term economic pain. Bears contend the sheer uncertainty surrounding the impact of the pandemic is likely to pave the way to further waves of selling. ‘The coming weeks will be a blizzard of bad news — both on the economy and public health,’ said Zach Pandl, macro strategist at Goldman Sachs. ‘We doubt that markets will be able to price out adverse tail risks against that backdrop, and new challenges might emerge, including sovereign downgrades, FX peg breaks, or a wave of business failures.’
Stocks fell in early trade Wednesday as President Trump warned that a ‘rough’ two weeks lies ahead, with the White House projecting that the pandemic could result in a U.S. death toll of 100,000 to 240,000 …Even hopeful investors often caution that bear markets are typically volatile and often see sharp rebounds before retesting lows or going on to decline even further before finding a bottom. But the fast and sizable policy response by central banks and governments have some market watchers arguing that the probability that the recent lows will hold may be better than in past major selloff. Keith Lerner, market strategist at SunTrust Advisory, said the lessons of past bear markets would normally lead him to place the probability of a retest of the market low somewhere between 70% and 80%.”
THE NEW YORK TIMES/Peter S. Goodman
Why the Global Recession Could Last a Long Time
April 1, 2020
“The world is almost certainly ensnared in a devastating recession delivered by the coronavirus pandemic. Now, fears are growing that the downturn could be far more punishing and long lasting than initially feared — potentially enduring into next year, and even beyond — as governments intensify restrictions on business to halt the spread of the pandemic, and as fear of the virus reconfigures the very concept of public space, impeding consumer-led economic growth. The pandemic is above all a public health emergency. So long as human interaction remains dangerous, business cannot responsibly return to normal. And what was normal before may not be anymore. People may be less inclined to jam into crowded restaurants and concert halls even after the virus is contained.
The abrupt halt of commercial activity threatens to impose economic pain so profound and enduring in every region of the world at once that recovery could take years. The losses to companies, many already saturated with debt, risk triggering a financial crisis of cataclysmic proportions. ‘I feel like the 2008 financial crisis was just a dry run for this,’ said Kenneth S. Rogoff, a Harvard economist and co-author of a history of financial crises, ‘This Time Is Different: Eight Centuries of Financial Folly.’ ‘This is already shaping up as the deepest dive on record for the global economy for over 100 years,’ he said. ‘Everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises.’”