Gold slides from 7-year high, coronavirus concerns persist
February 25, 2020
“Gold prices dipped on Tuesday as investors booked profits after the metal soared to a seven-year high in the previous session against the backdrop of a rise in coronavirus cases outside China. Spot gold had slipped 0.5% to $1,652.35 per ounce by 1450 GMT, having shed more than 1% at one point earlier in the session. U.S. gold futures fell 1.3% to $1,655.30. On Monday, the metal surged as much as 2.8% to $1,688.66, its highest since January 2013.
Global stock markets stabilised on Tuesday after European shares had their worst one-day loss since June 2016 in the last session. Countries around the world are stepping up efforts to stop a pandemic of the virus that emerged in China and is now spreading in Europe and the Middle East … Gold in euros and gold priced in sterling slid from all-time peaks hit on Monday. ‘With the virus spreading to other regions, and if China experiences a relapse and the drags on growth extend into April, (spot) gold could move to $1,650–1,700 per ounce,’ UBS analysts wrote in a note. The rapid spread of the virus beyond China has heightened fears over its impact on the global economy, driving some bets that the U.S. Federal Reserve will be pressed to cut rates to cushion the hit.”
CNN BUSINESS/Paul R. La Monica
Gold at a seven-year high and bond yields flirt with record lows as fear grips Wall Street
February 25, 2020
“Fear has returned to Wall Street. The spread of coronavirus cases in Italy, Iran and South Korea is shaking investors out of their recent complacency. Investors are nervous that the global economy will slow dramatically in the first quarter because of coronavirus. And they are piling into classic safe haven fear trades as a result and shunning anything that seems risky. Stocks around the world are plunging. The Dow fell more than 1,000 points. Gold is at a seven-year high and miner Newmont (NEM) was the second-best performing stock in the S&P 500 Monday, gaining 3%. Long-term bond rates are falling sharply as worries about a recession increase. The 30-year US Treasury yield is at an all-time low and the 10-year is not far from its 2016 record low of 1.32%. The price of US oil fell 5%.
‘Investors are starting the week on the back foot and no one is ready to risk big. Traders are anxious about the global economic growth number for the first quarter,’ said Naeem Aslam, chief market analyst with AvaTrade, in a report. ‘Central banks will be pushed in the corner due to the global economic meltdown caused by coronavirus and this mean more stimulus.’”
MARKET WATCH/Barbara Kollmeyer
The S&P 500 has to hold this level or risk a 10% correction, warns strategist
February 25, 2020
“Those pinning hopes on a rebound for stocks after Monday’s brutal equity selloff are in for a nervous day. Stocks are attempting to rally after a choppy morning and New York traders are waking up to find coronavirus headlines are no less worrying on Tuesday. It may just be too soon for some investors to take up Monday’s advice from Berkshire Hathaway’s Warren Buffett, who suggested they could use a selloff to buy a stock they like for even cheaper. In short, it takes a ‘brave soul to be buying these markets,’ notes Chris Weston, head of research at Australian forex broker Pepperstone.
‘When countries are closing borders, the threat of an outbreak is becoming more pronounced in Europe and the Middle East and supply chains are just going to be more disrupted, how do we model risk when we can’t even model economics with any confidence?’ Weston asks. He says any investors tempted to buy stocks right now should keep an eye on this important level on the S&P SPX, -0.55%. ‘If we see price head through 3200, then it will lead to even higher volatility and risk of a 10% drawdown. The bulls need to defend this level or its good night Vienna,’ said Weston … As the number of coronavirus cases continue to grow across the globe, the Trump administration has asked for $2.5 billion in emergency funds to fight it. United Airlines and Mastercard have become the latest companies to warn about fallout from the virus. And UBS analysts warned of a hit to Apple’s smartphone sales in China.”
CNBC/Matthew J. Belvedere
‘This is different’ — El-Erian warns against buying coronavirus pullback
February 25, 2020
“Economist Mohamed El-Erian told CNBC on Tuesday that investors should hold off on buying equities that were hit hard in the latest coronavirus-driven plunge. ‘I stress, this is different,’ the Allianz chief economic advisor said in an interview, a day after the Dow Jones Industrial Average plunged over 1,000 points or 3.5%, in its worst single-session in more than two years. Just because buying market dips has worked in the past does not mean it’s going to work this time, he said. ‘I would continue to resist, as hard as it is, to simply buy the dip.’ Disruptions to corporate earnings and economic growth from ‘shock’ events such as the coronavirus tend to stick around longer than more fundamental downturns, said El-Erian.
‘We’re going to have a lot of risk-aversion on the part of economic actors. It’s going to take time,’ he said. ‘Economic sudden stops are hard to restart.’ The World Health Organization on Tuesday warned countries around the world to ready for the coronavirus to come ‘knocking at the door.’ On Feb. 3, El-Erian first warned investors not to buy market drops as they might have in the past. He said at the time that the coronavirus is going to ‘paralyze China,’ adding that it will ‘cascade throughout the global economy.’ That’s exactly what’s happening.”
Dollar pressured by Fed rate cut expectations
February 25, 2020
“The U.S. dollar stayed soft on Tuesday amid expectations that the Federal Reserve may cut interest rates this year to curb downside pressure on the economy caused by China’s coronavirus outbreak.
The dollar initially rose as the virus spread further around the world, with investors eyeing all U.S. assets as safe-haven investments. However, money managers now think the Fed would be more likely to ease monetary policy and cut rates given that it benefits from the biggest room to do it. Against a basket of currencies, the dollar was 0.2% weaker at 99.19, drifting away from the three-year high reached last week. However, without much good news on the virus, few expect the dollar to give back too much of its recent gains.
The euro was last up 0.1% at $1.0863, drifting away from the three-year low it fell to last week, sending it below $1.07 as money flooded into the safe-haven dollar … Japan’s Prime Minister Shinzo Abe said on Tuesday that clusters of coronavirus cases had emerged in the country and that the government would take stronger steps to fight contagion … The yen last traded up 0.2% at 110.53 per dollar. China, meanwhile, reported a rise in new coronavirus cases in Hubei province, the epicentre of the outbreak, even though the rest of the country saw a fourth-straight day of declines. South Korea, which has the most virus cases in Asia outside China, reported 60 new cases on Tuesday, increasing the total number of infected patients there to 893.”
MARKET WATCH/Rex Nutting
If the coronavirus isn’t contained, a severe global recession is almost certain
February 25, 2020
“The world woke up Monday to the reality that the coronavirus epidemic is going to have a much bigger impact on the global economy than investors and policy makers had assumed. Just how big, no one really knows. Last week, it seemed as if financial markets believed that COVID-19 would be contained. But new cases in Italy, South Korea and Iran over the weekend undermined that belief. The World Health Organization tried to reassure the public on Monday, saying the disease was not yet a pandemic because it was not spreading in an uncontained way. No matter, stock markets and other financial markets were quickly recalibrating the worst-case scenario.
Investors are just beginning to price in the possibility of a sharp and nasty global recession that would be followed by a rapid rebound once the disease has run its course. Whenever that will be. In the longer run, of course, a pandemic could have more far-reaching effects, including a smaller and less productive workforce and even a reordering of globalization. We’d like to think that we can know the worst that could happen, but there is still so much that isn’t known about COVID-1… Most of the economic analysis is based on past pandemics, such as the 1918 global influenza pandemic, and more recent bouts with avian flu, SARS and MERS … The potential for disaster is sobering. The economies of the world are extraordinarily resilient, yet extraordinarily dependent upon each other in a crisis.”