REUTERS/Sumita Layek

Gold scales two-week high as coronavirus hits business

February 18, 2020

“Gold climbed to a two-week high on Tuesday as investors sought safe havens after a revenue warning from iPhone maker Apple due to coronavirus, exacerbating fears of the outbreak’s impact on global economic growth.  Spot gold was up 0.4% at $1,586.63 per ounce by 1257 GMT, having earlier risen to its highest since Feb. 3 at $1,589.40 … ‘We’re seeing some renewed weakness in the stock markets following the announcement by Apple … it highlights that this (coronavirus epidemic) is not just an isolated event unfolding in China,’ said analyst Ole Hansen. ‘It’s having a global impact on supply chains and shipments, this will have a negative impact on growth expectations,’ he added.

Gold is considered a hedge against risks from political and economic turmoil. Apple’s warning that its sales would fall short sent shockwaves across markets and knocked global equities off their recent record highs.  Manufacturing facilities in China that produce Apple’s iPhone and other electronic goods have begun to reopen but are ramping up more slowly than expected, Apple said. China had to extend Lunar New Year holidays, shut businesses, impose lockdowns and restrict transport to try to contain the outbreak … Meanwhile, gold in euros hit an all-time peak of 1,468.54 euros per ounce.”

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KITCO NEWS/Neils Christensen

Gold in striking distance of $1,600 despite strong rise in New York Fed survey

February 18, 2020

Gold in striking distance of $1,600 despite strong rise in New York Fed survey“Gold prices are holding on to gains, pushing close to $1,600 an ounce even as sentiment in the New York manufacturing sector improves significantly in February. Tuesday the New York Federal Reserve said that its Empire State manufacturing survey’s general business conditions index rose to a reading of 12.9 in February, up from January’s reading of 4.8. The report solidly beat expectations as consensus forecasts were calling for a rise to 5.8.

This is the highest reading in the Empire State survey since May 2019. ‘Manufacturing firms in New York State reported that business activity grew at a faster pace than in recent months,’ the report said. However, the gold market is ignoring economic data as investors focus on the growing uncertainty surrounding the spread of the coronavirus and its impact on the global economy. Weaker equity markets around the world is creating a safe-haven bid in the yellow metal. April gold futures last traded at $1,592.60 an ounce, up 0.38% on the day.”

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MARKET WATCH/Barbara Kollmeyer and Emily Bary

Apple’s coronavirus warning wasn’t a surprise, but magnitude rattles Wall Street

February 18, 2020

Apple’s coronavirus warning wasn’t a surprise, but magnitude rattles Wall Street“Apple Inc. realized Wall Street’s worst fears with a U.S. Presidents Day holiday warning that the company won’t be able to meet its fiscal second-quarter financial guidance due to the coronavirus in China. ‘Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,’ Apple said in a Monday statement. About 15% of Apple’s revenue derives from China and many of its products including the iPhone are manufactured there.

The company’s announcement triggered global stock losses. Apple shares fell nearly 3% in morning trading.

As for analysts, long-term bulls were not throwing in the towel. ‘While trying to gauge the impact of the iPhone miss and potential bounce back in the June quarter will be front and center for the Street, we remain bullish on Apple for the longer term 5G supercycle thesis despite today’s news,’ said Wedbush analysts Daniel Ives and Strecker Backe, in a note to clients. They are sticking to an outperform view, with a $400 price target. Apple shares recently changed hands near $316.

Apple stock has climbed around 11% so far this year, but has underperformed other big technology names, such as Microsoft Corp. which is up 17%. Wall Street remains worried that Foxconn, which manufactures iPhones for Apple, is struggling to resume production.”

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CNBC/Pippa Stevens

‘Chernobyl-like’ response by China means ‘worst is yet to come’ for coronavirus, Raymond James says

February 18, 2020

‘Chernobyl-like’ response by China means ‘worst is yet to come’ for coronavirus, Raymond James says“As the coronavirus outbreak rages on, Raymond James said China’s delayed response is inciting comparisons to the Soviet Union’s response to the Chernobyl nuclear disaster, and that things could get worse in terms of economic and market impact. China’s ‘slow reaction and continued unanswered questions appear to be sowing real concerns among the Chinese people,’ wrote a team of Raymond James analysts led by Chris Meekins in a note to clients, which is amplifying concerns over General Secretary Xi and the Chinese Communist Party’s grip on power.

The firm said it has been ‘receiving questions on whether or not this will be a Chernobyl-like event for China — the comparison being the impact of the Chernobyl nuclear power plant disaster on the fall of the Soviet Union.’ Raymond James said that following conversations with government officials and academics, it believes the ‘worst is yet to come’ and that the ‘market is underappreciating the potential dangers and what the key government leaders on the virus are saying’ … ‘If this virus becomes a true global pandemic, the actions by the Chinese leadership will come under great fire as they no doubt contributed to the spread,’ Raymond James said, before adding that ‘the real impact will likely take years to fully measure.’”

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BLOOMBERG/Liz McCormick and Saleha Mohsin

Fed Doesn’t Want Another Repo Crisis, But Treasury Isn’t Helping

February 18, 2020

Fed Doesn’t Want Another Repo Crisis, But Treasury Isn’t Helping“The Federal Reserve has doled out tens of billions to calm the short-term lending markets after they went haywire in September. But initiatives by the U.S. Treasury Department — to ensure it always has enough cash to pay its bill as the deficit soars to a trillion dollars — could make it harder for the Fed to prevent a repeat. As the department copes with higher spending, large swings in the amount of money it has on deposit with the central bank have already undercut the Fed’s ability to keep bank reserves stable. Last year, one particularly big shift helped to drain so much liquidity from the banking system that it contributed to a spike in overnight lending rates.

Now, as Treasury considers setting aside even more money, market watchers say the swings are bound to get worse. That could lead to more disruptions and upend the Fed’s goal of scaling back its involvement in the repo market. Treasury’s cash needs ‘have created dislocations that are putting greater strains on the Fed’s reserve management and funding markets,’ said Ward McCarthy, a former economist at the Richmond Fed. ‘But the Treasury needs to fund the government, so the Fed has to work around that.’ The situation underscores how America’s fiscal imbalance has been exacerbated by the combination of tax cuts and spending increases under the Trump administration, is putting strains on the financial system. Though arcane even in finance circles, repurchase agreements — or repos for short — are what keep the global capital markets spinning. And that includes the $16.7 trillion market for U.S. government debt.”

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THE WALL STREET JOURNAL/Caitlin Ostroff

Euro Extends Decline on Weak German Data

February 18, 2020

Euro Extends Decline on Weak German Data“The euro ticked lower against the dollar to trade at near its lowest level in almost three years after a measure of economic expectations in Germany dropped. The measure, which assesses sentiment about economic outlook, declined to 8.7 points in February from 26.7 in January, per the ZEW economic research institute. Achim Wambach, the institute’s president, cited fears over the coronavirus’s effects on global trade. The euro was down 0.2% against the dollar from Monday afternoon to trade at $1.0824 Tuesday, its lowest level against the greenback since April 2017.

The data presents a picture at odds with the stock market, where the Stoxx Europe 600 is up 4.6% this month and the S&P 500 is up 4.8% over the same period, said Lauri Hälikkä, a strategist at Sweden’s SEB Bank. While the move in the euro was ‘a knee-jerk reaction,’ he said, the common currency has fallen in recent weeks as investors worry that lower output from Chinese factories could hurt European growth. Investors will look to data due Feb. 24 from Germany’s Ifo Institute for a better sense of business expectations and how the coronavirus will affect the European economy.”

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