KITCO NEWS/Neils Christensen

Gold prices pushes to session highs, up 1.75% following disappointing flash PMI

February 21, 2020

“Nothing appears to be stopping the gold market as prices remain near fresh seven-year highs after preliminary data shows disappointing sentiment in the U.S. manufacturing and service sectors. Friday, IHS Markit said its flash U.S. manufacturing Purchasing Managers Index for February fell to a reading 50.8, down from January’s reading of 51.9. Economists were expecting to see a reading of 51.5. The report said that sentiment in the manufacturing sector is at its lowest level in six months. At the same time, the firm’s service sector PMI reading fell into contraction territory to a reading of 49.4, down from January’s reading of 53.3. Economists were expecting to see unchanged levels. In contraction territory, sentiment in the service sector is at its lowest level in more than six years, the report said.

The weaker than expected data is supporting gold prices as the market trades just off sessions highs, which is also a seven-year high. April gold futures last traded at $1,648.8, up 1.75% on the day. ‘With the exception of the government-shutdown of 2013, US business activity contracted for the first time since the global financial crisis in February. Weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing production also ground almost to a halt due to a near-stalling of orders,’ said Chris Williamson, economist at IHS Markit.”

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REUTERS/Pei Li and Se Young Lee

Coronavirus infects hundreds in China’s prisons as global markets take hit

February 21, 2020

Coronavirus infects hundreds in China's prisons as global markets take hit“The coronavirus has infected hundreds of people in Chinese prisons, authorities said on Friday, contributing to a jump in reported cases beyond the epicentre in Hubei province, including 100 more in South Korea. The 234 infections among prisoners outside Hubei ended 16 straight days of declines in mainland cases. State television quoted Communist Party rulers as saying the outbreak had not yet peaked.

Total cases in the capital of the coronavirus – known as COVID-19 – were at 396 with four deaths, out of an official mainland toll of 75,400 cases and 2,236 deaths. U.S. stock index futures lurched downwards as the rise in infections sent investors looking for safer assets such as gold and government bonds. Adding to the gloomy mood, data showed Japan’s factory activity suffered its steepest contraction in seven years in February, underlining the risk of a recession there as the impact of the outbreak spreads. Asian and European stocks also fell.”

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BARRON’S/Lisa Beilfuss

Contrarian Economist Warns of Recession & Deflation. He’s Been Right Before.

February 21, 2020Contrarian Economist Warns of Recession & Deflation. He’s Been Right Before.

“Economist David Rosenberg has been warning for years that the U.S. economy isn’t as healthy as it may seem. He has a history of bucking conventional wisdom. The longtime bond bull spent seven years as Merrill Lynch’s chief North American economist, where he picked up on signs of a deteriorating economy before many others did. In 2005, he warned about the U.S. housing bubble, a year before it began to burst, and he called the last recession well before his contemporaries did. In 2009, he moved to Toronto-based wealth manager Gluskin Sheff & Associates, serving as chief economist and maintaining his bearish outlook throughout one of the longest bull markets in history.

Now, a decade after his move, the 59-year-old self-described contrarian is as bearish as ever … He remains a bond fan, predicting that another recession and stretch of disinflation—if not deflation—are around the corner. His against-the-grain recommendations go beyond bonds to gold to drug retailers to oil and gas. He states, ‘The consumer has no doubt surprised me in terms of its resilience. But as the legendary economist Herb Stein famously said, anything that can’t last forever won’t, and the consumer-resilience narrative is looking pretty stale to me right now. I expect that the consumer will lose its resilience this year. The pace of job creation is likely to slow, and, along with that, personal income growth will moderate. There is no recession without the consumer playing a part, and there are some early detection signs that the consumer this year will not be what the consumer was last year.’”

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All-star economists urge Fed to use QE and ‘new tools’ to fight next recession

February 21, 2020

All-star economists urge Fed to use QE and ‘new tools’ to fight next recession“The Federal Reserve should use the same tools to fight the next recession that they developed during the financial crisis, even though the controversial strategies only achieved so-so results, according to a new paper released by a group of all-star economists Friday. Global central banks won’t be able to rely on their traditional policy tool of slashing their benchmark interest rates to fight the next recession because rates are already low or negative. The paper said policymakers should use some mix of tools, including:

  • QE, or quantitative easing, which is buying assets and expanding the central bank’s balance sheet to push long-term interest rates down;
  • Negative interest rates, to make it expensive for lenders to sit on cash;
  • Forward guidance, or telling the market that rates would stay low for a specific period of time so that rates don’t spike at the first sign of a recovery.
  • Yield curve control, which extends the maturity of interest rates that the central banks target.

The paper, which studies the crisis response in eight countries, stressed that some tools only worked occasionally, which central banks should bear in mind when fighting the next recession. ‘Our results are decidedly mixed. Most of the time, new monetary policies were insufficient to overcome financial headwinds,’ the paper concluded.”

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BLOOMBERG/Katia Dmitrieva

U.S. Business Gauge Tumbles to Lowest Since 2013 on Virus

February 21, 2020U.S. Business Gauge Tumbles to Lowest Since 2013 on Virus

“U.S. business activity shrank in February for the first time since 2013 as the coronavirus hit supply chains and made firms hesitant to place orders, a warning sign that the outbreak is starting to dent the world’s largest economy. The IHS Markit purchasing managers’ index measuring composite output at factories and service providers fell by 3.7 points to 49.6, the lowest level since October 2013, when the U.S. government shut down, according to preliminary figures released Friday. Readings below 50 indicate contraction.

The 30-year Treasury yield touched a record low and U.S. stocks extended declines after the first major piece of U.S. economic data to show a sizable hit from the coronavirus, which economists have seen as generally cutting more into Asian countries’ growth. Similar indexes in Japan and Australia also weakened, and how to cope with the disease’s economic impact is likely to be a key topic at this weekend’s meeting of Group of 20 finance chiefs … The stumble in the IHS Markit survey was led by service providers, whose new orders registered the first contraction in data going back to 2009, while the manufacturing PMI fell to a six-month low of 50.8. Companies in both sectors noted reluctance among clients to place orders amid the global virus scare. New exports contracted for a second month and hiring slowed, according to the composite index. The focus of the economic pain is in Asia, where numerous reports indicate the impact, at least in the short term, could be severe. Manufacturing in Japan shrank the most in seven years in February, while early export orders for South Korea showed a slump in Chinese demand.”

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THE HILL/Desmond Lachman

China’s coronavirus economic cardiac arrest

February 21, 2020

China's coronavirus economic cardiac arrest“In the best of times, an economic cardiac arrest in China, the world’s second-largest economy, would not be good for the global economy. But these are far from the best of times. This makes it all the more difficult to understand both the financial markets’ and world economic policymakers’ complacency about the real risk of a coronavirus-induced global economic recession in the months ahead. By now there should be little doubt that China is experiencing the equivalent of an economic cardiac arrest.

The number of those infected with the coronavirus is already some ten times higher than was the case with the 2003 SARS epidemic. At the same time, in an effort to bring the epidemic under control, around 150 million Chinese residents remain under lockdown. That is preventing Chinese factories from returning to normal production schedules, causing havoc in the Chinese transportation system and inducing Chinese consumers to scale back on their purchases. Already China’s economic problems are reverberating throughout the global economy. As underlined by Apple and Hyundai’s recent earnings warnings, global supply chains, reliant on in-time Chinese parts deliveries, are being seriously disrupted. At the same time, commodity export-dependent emerging market economies are being dealt a body blow by a Chinese induced decline in international commodity prices, while those economies reliant on Chinese tourism are being severely impacted.”

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