REUTERS/Sumita Layek

Gold inches lower as new coronavirus cases dip

February 11, 2020

“Gold edged lower on Tuesday as European stocks surged to record highs and the dollar hit a four-month peak, after a fall in the number of new confirmed cases of coronavirus limited the appetite for lower risk assets and drove buying elsewhere.  Spot gold was down 0.1% at $1,569.80 per ounce, having touched its highest since Feb. 4 at $1,576.76 on Monday. U.S. gold futures shed 0.4% to $1,573.40.  ‘Equities are recovering and the Chinese economy is trying to come back to normal… so it’s not surprising to see risk-averse investments like gold coming under pressure,’ said Commerzbank analyst Eugen Weinberg.

With expectations of virus risks diminishing, ‘the impact to the Chinese economy and to some extent the world economy is likely to be only temporary,’ he said. European shares hit a record high, while Asian share markets followed on Tuesday as the number of new coronavirus cases slowed in China and factories slowly returned to work. China’s virus epidemic may peak in February and then plateau before easing, the government’s top medical adviser on the outbreak said. The virus in the world’s second-largest economy has killed more than 1,000 so far and threatened the country’s economic growth as companies struggled to return to work after an extended Lunar New Year holiday.”

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REUTERS/Heather Timmons

Powell says U.S. economy “resilient,” but warns on coronavirus, productivity

February 11, 2020

Powell says U.S. economy "resilient," but warns on coronavirus, productivity“Federal Reserve Chair Jerome Powell was fairly upbeat about the outlook for the U.S. economy in the first of his twice-a-year updates to Congress Tuesday, but cited a potential threat from the coronavirus in China and concerns about the economy’s long-term health.  The U.S. economic expansion, now in its 11th year, is the longest on record. Over the second half of 2019 ‘the economy appeared resilient to the global headwinds that had intensified last summer,’ Powell said in remarks to the House Financial Services Committee.

His remarks echo the formal report the Fed submitted to the U.S. Congress on Friday, which repeated the central bank’s view that its current target range for short-term borrowing costs, between 1.5% and 1.75%, is ‘appropriate’ to keep the expansion on track. With risks like trade policy uncertainty receding and global growth stabilizing, Powell signaled he sees no reason to adjust U.S. interest rates unless new developments cause a ‘material reassessment’ to the current outlook. However, he added ‘We are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.’”

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CNBC/Stephanie Landsman

Coronavirus is ‘one of the biggest risks to the market,’ $113 billion money manager warns

February 11, 2020

Coronavirus is ‘one of the biggest risks to the market,’ $113 billion money manager warns“Wilmington Trust’s Meghan Shue believes the coronavirus outbreak is a huge wildcard for Wall Street. If the infectious disease keeps spreading, stocks are in trouble, she said. ‘Coronavirus remains one of the biggest risks to the market at this point,’ the firm’s head of investment strategy told CNBC. ‘I don’t think we know enough to know whether we’re out of the woods as of yet.’ Despite the fears, stocks kicked off the week in record territory for the  S&P 500 and tech-heavy Nasdaq. The Dow rose 174 points on Monday. Shue, who has $113 billion in assets under management, expects elevated market volatility until number of coronavirus cases peak.

‘On the international front, we’re watching coronavirus very carefully,’ she said. ‘The U.S. economy is certainly more insulated from the impact of any international slowdown — not necessarily the S&P 500, but the economy as a whole.’ Shue sees two key things to consider: How much the virus spreads outside China and the impact on supply chains. ‘From what we’ve been hearing, the larger technology companies [and] semiconductor companies have been able to manage this so far. But we’re getting new information daily,’ said Shue. “So, everything I’m saying is with a healthy dose of humility that we still don’t know everything there is to know about the global impact that this disease will have.’”

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MARKET WATCH/Barbara Kollmeyer

Investors are counting too much on a Trump win, warns State Street

February 11, 2020

Investors are counting too much on a Trump win, warns State Street“Federal Reserve chairman Jerome Powell is in the spotlight on Tuesday, as he heads to Capitol Hill for two days of testimony. With the coronavirus and its potential effect on the global economy in the backdrop, some are oping for a ‘more dovish tone out of the Fed chairman, with maybe the door open to [a] rate cut later this year,’ said Jasper Lawler, London Capital Group’s head of research. The Democratic presidential primary in New Hampshire, where left-leaning senator Bernie Sanders is leading in some polls, will also vie for investor attention. That brings us to our call of the day from State Street Global Advisors’ deputy global chief investment officer, Lori Heinel, who cautions that investors need to give more thought to politics right now.

‘I think investors are sort of sanguine about the idea that [President Donald] Trump will mostly likely win, and if you look at most of the analysis, they predict overwhelmingly that Trump will defeat any of the likely Democratic candidates,’ Heinel told MarketWatch. ‘If that doesn’t happen or if it looks as though the Democratic candidates were gaining momentum, or depending upon which of the candidates it might be, the reversal in major policy imperatives would be quite dramatic,’ she said. That could mean the Trump administration’s mostly business-friendly policy approach to the energy, healthcare and financial industries could be ‘completely reversed under certain Democratic regimes,’ said Heinel, adding ‘investors clearly are not factoring in any kind of likelihood of a Democratic win.’”

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BLOOMBERG/Noah Smith

QE Works. It’s Just Not a Slam-Dunk Recession Stopper.

February 10, 2020

QE Works. It’s Just Not a Slam-Dunk Recession Stopper.“The U.S. economy seems to have reached a comfortable equilibrium, with low unemployment and steady growth. But if and when a recession comes, the Federal Reserve is going to have to fight it. The traditional tool for stabilizing the economy — interest rate cuts — won’t do much because rates already are so close to zero that further reductions probably won’t make much difference. Forward guidance — promising to keep rates low for a long time after a recovery — also probably isn’t going to be very effective. Who believes what the Fed says today about what it will do in the distant future? And how much difference would that even make for the plans of the typical company or consumer?

That leaves some kind of quantitative easing — mainly purchases of financial assets such as long-maturity bonds — as the main option. But how well would quantitative easing work? Economists have struggled to answer this question. It’s not even clear how well QE worked last time. All we know is that a lot of QE happened and that a recovery eventually followed, but that doesn’t mean the former necessarily caused the latter. Theoretically, there are a number of ways QE might have helped the economy during the Great Recession. One way is portfolio rebalancing: QE lowers interest rates on the assets similar to those that the central bank buys … QE also might be useful because the Fed effectively acts as a lender of last resort to distressed borrowers; this was the case when the central bank took toxic real-estate-backed bonds off of banks’ balance sheets after 2008.”

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THE WALL STREET JOURNAL/Richard Rubin and Kate Davidson

Trump Budget Forecast for Deficit Cuts Is Built on Shaky Assumptions

February 10, 2020

Trump Budget Forecast for Deficit Cuts Is Built on Shaky Assumptions“The Trump administration’s proposed budget projects federal deficits would be cut in half as a share of the economy by 2024, and in half again by 2029. While White House officials say they are serious about fulfilling the President’s promise to reduce swelling deficits, budget experts say the projections are built on questionable assumptions. The $4.8 trillion budget for fiscal 2021, released Monday, assumes that economic growth will be stronger than most forecasters project. To hit its targets, the budget excludes tax cuts the administration may propose later and includes spending cuts that are vague.

‘A lot of specific policies are meaningful, but the overall numbers are largely phony,’ said Marc Goldwein, senior VP at the Committee for a Responsible Federal Budget … The Trump administration budget assumes real annual gross domestic product will rise 3.1% in 2020 if its proposals are enacted … Independent forecasters aren’t as optimistic. Federal Reserve officials in December projected GDP growth of 2% in 2020 and 1.9% in 2021, where officials see it settling over the long term. The CBO last month said it expects GDP to rise 2.2% this year and 1.8% in 2021 … ‘It’s wonderful to aspire to 3% permanent growth but basing a long-term budget on that expectation is dangerous,’ said Brian Riedl, senior fellow at the Manhattan Institute.”

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