December 16, 2019

“Gold steadied on Monday as a weaker dollar and a lack of details on the ‘phase one’ U.S.-China trade deal offset pressure from gains in the markets. Spot gold inched 0.1% higher to $1,477.16 per ounce by 1106 GMT. U.S. gold futures were steady at $1,481.60. ‘Based on gold’s reaction, it appears the market is not very convinced about the deal… in the sense that this is not really a breakthrough in terms of lifting growth globally, in the U.S. or China,’ said Julius Baer analyst Carsten Menke.

‘Gold market investors are still a bit sceptical about the growth outlook next year so they prefer to hold onto their positions.’ The deal, announced on Friday, will reduce some U.S. tariffs on Chinese goods in exchange for increased Chinese purchases of U.S. agricultural, manufactured and energy products by some $200 billion over the next two years. The news pushed up world stock markets, which were trading a notch below a record high hit last week. U.S. Trade Representative Robert Lighthizer said U.S. exports to China will nearly double over the next two years. ‘There still remain concerns about what this deal entails and how much this phase one trade deal will alleviate the downward pressure on the global economy going into 2020,’ said FXTM market analyst Han Tan.”

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CNN BUSINESS/Julia Horowitz

A ‘black swan’ market indicator flashes a warning

December 15, 2019

Black Swan Market“A ‘phase one’ US-China trade deal. A resounding election victory for UK Prime Minister Boris Johnson that removes ambiguity on Brexit. In recent days, some of the political fog that’s hung over markets has lifted. Investors have responded by pouring into riskier assets. Stocks in the United States and Europe have reached fresh records amid the euphoria. But look at options markets, and a more cautious story emerges. Take the CBOE Skew Index, otherwise known as the ‘Black Swan’ index, since it tracks demand for options that would pay out if the S&P 500 were to see a sharp, unexpected drop. That index jumped to its highest level in nearly 15 months last week. This signals that investors are looking for protection in case the rally goes awry.

‘This options-based measure of the cost of disaster insurance on US stocks seems to indicate trouble ahead,’ Nicholas Colas, co-founder of DataTrek research, said … Right now, investors generally appear to be in the Colas camp. Demand for safe havens remains muted, with gold prices down more than 3.5% since September. But with all the excitement heading into the end of the year, talk of smart hedges looks poised to ramp up.”

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POLITICO/Kyle Cheney and Andrew Desiderio

Judiciary Committee impeachment report alleges Trump committed ‘multiple federal crimes’

December 16, 2019

Impeachment Report“President Donald Trump committed criminal bribery and wire fraud, the House Judiciary Committee alleges in a report that will accompany articles of impeachment this week.  The report, a 169-page assessment of the case for Trump’s removal from office, contends that Trump committed ‘multiple federal crimes’ — ones that Democrats addressed under the broad umbrella of ‘abuse of power,’ the first article of impeachment against the president.  ‘Although President Trump’s actions need not rise to the level of a criminal violation to justify impeachment, his conduct here was criminal,’ the panel’s Democrats argue, labeling Trump’s behavior ‘both constitutional and criminal in character’ and contending that the president ‘betrayed the people of this nation’ and should be removed from office.

The staff report, which was filed to the House Rules Committee just after midnight Monday, argues that Trump directed a months-long scheme to solicit foreign interference in the 2020 election, the allegation that forms the core of the two articles of impeachment — abuse of power and obstruction of Congress — approved by the Judiciary Committee last week. Democrats emphasized that proving a criminal violation is not required to justify impeachment. ‘The Framers were not fools. They authorized impeachment for a reason, and that reason would have been gutted if impeachment were limited to crimes,’ the report states.”

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Global Economy Steadies but Europe Remains a Weak Spot

December 16, 2019

Global Economy Steadies“The global economy seems likely to avoid a further slowdown next year, with a raft of supportive government policies lifting activity in China and the U.S. still on a robust path. However, Europe remains a weak spot, according to surveys of purchasing managers released Monday, with few signs that a long decline in manufacturing is nearing its end. Global economic growth steadied in the three months through September, as output in the Group of 20 leading economies expanded at the same rate as in the second quarter. But while there are signs the Fed’s rate cuts earlier in the year have helped to keep the U.S. economy on a robust growth path, the ECB’s have had a less noticeable impact.”

“‘The eurozone economy closes out 2019… with businesses struggling against the headwinds of near-stagnant demand and gloomy prospects for the year ahead,’ said Chris Williamson, chief business economist at IHS Markit. Eurozone factories have seen their overseas sales slow sharply since early 2018, partly reflecting a global cooling of trade linked to an exchange of tariff increases between the U.S. and China. The ECB’s economists Thursday lowered their economic growth forecast for next year to just 1.1%, the latest in a series of downgrades that stretches back to June 2018. However, ECB President Christine Lagarde gave no indication that policy makers are considering another round of stimulus measures to follow those announced in September, instead pointing to “some initial signs of stabilization.”

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BLOOMBERG/Catherine Bosley and Niclas Rolander

The Most Momentous Rate Decision This Month Isn’t Fed or ECB

December 14, 2019

Most Momentus Rate Decision“The world’s oldest central bank stands to be the most significant this month as it pioneers a shift away from negative interest rates. Sweden was among the handful of economies that reduced key interest rates half a decade ago below zero. Now officials at the Riksbank — founded in 1668 — insist the policy has done its stimulus work, so their so-called repo rate can stop being negative. That puts the rich Nordic country in the spotlight of global monetary policy as counterparts watch nervously to see how easy it is for subzero rates to be unwound. While the Fed has resisted President Trump’s calls to venture into negative territory, the euro zone, as well as Switzerland, Denmark and Japan, find themselves in the same boat as Sweden.

‘A Riksbank hike in December would be a signal that central banks admit that there’s a downside to too-low interest rates,’ said Thomas Elofsson, portfolio manager at Catella. ‘It will be interesting to follow how the SNB and the ECB communicates and acts with this new mindset.’ The Riksbank decision on Dec. 19 promises more monetary action than central banks in the U.S. and the euro zone delivered last week. 18 economists surveyed by Bloomberg predict a quarter-point increase in Sweden’s policy rate from the current minus 0.25% …  Sweden’s shift is taking place against a global backdrop of worries about the harmful effects of subzero policy. Complaints by banks about profit margins have grown louder, while both the Riksbank and the ECB were among central banks warning last month about the financial stability risks.”

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THE GUARDIAN/Mohamed El-Erian

What if the global economy’s luck runs out?

December 16, 2019

Global Economy and Luck“This year is ending on a relatively positive note, especially when compared with the same time last year … As tempting as it is to dwell on current financial and macroeconomic conditions, doing so risks obfuscating a key element in the outlook for the future. There is a curious contrast between the relative clarity of expectations for the near term and the murkiness and uncertainty that comes when one extends the horizon further – say, to the next five years.  Many countries are facing structural uncertainties that could have far-reaching, systemic implications for markets and the global economy.

For example, over the next five years, the EU will seek to establish a new working relationship with the UK, while also dealing with the harmful social and political effects of slow, insufficiently inclusive growth. The EU will have to navigate the perils of a prolonged period of negative interest rates, while also shoring up its economic and financial core. As long as the eurozone’s architecture is incomplete, consistent risks of instability will remain … Such fluidity clouds the economic, financial, institutional, political, and/or social outlook for other countries. Today’s macroeconomic and geopolitical uncertainties will amplify those fuelled by technological disruptions, climate change, and demographics. And they will raise questions about the functioning and resilience of the global economy and markets.”

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