REUTERS/K. Sathya Narayanan
Gold retreats as China seeks to limit virus damage
February 3, 2020
“Gold fell 1% on Monday, retreating from its highest level in nearly four weeks as China’s steps to protect its economy from the impact of the coronavirus outbreak and a buoyant dollar stemmed some inflows into safe-haven assets. Spot gold fell as much as 1% and was down 0.8% at $1,577.11 per ounce as of 1321 GMT. Prices touched the highest since Jan. 8 earlier in the session. U.S. gold futures shed 0.4% to $1,581.70.
China’s central bank unexpectedly lowered the interest rates on reverse repurchase agreements and injected 1.2 trillion yuan ($171 billion) of liquidity into markets as authorities sought to relieve pressure on the economy from the rapidly spreading virus. ‘Uncertainty is generally supportive for gold but we have also seen China taking measures to support the economy. This is something financial markets are taking positively,’ said Julius Baer analyst Carsten Menke. European and U.S. shares were a little higher, but a gauge of global stocks hovered near seven-week lows. The U.S. dollar was up about 0.3% against its main rivals … ‘Once we get through this band-aid effect, the reality will set in that there is an economic tumult about to happen in China, which is going to spread globally and force a lot of central banks to cut rates,’ said Stephen Innes, chief market strategist at AxiCorp.”
MARKET WATCH/Mark DeCambre
‘Godfather’ of technical analysis says stock-market downturn is going to get worse: ‘I am looking at a 10% drop maybe a little bit more’
February 1, 2020
“It is going to get worse before it gets better for the stock market, says prominent technical analyst Ralph Acampora. A pioneer in the field of price chart-based trading, Acampora told MarketWatch that he thinks that the coronavirus fears are a catalyst for a market that had gotten too pricey and was due for a substantial pullback. ‘The market itself was stretched, which is true, so we were begging for some kind of correction and this is the catalyst,’ he said. He is expecting that the stock market will face at least a 10% drop from its recent peak, which would meet the criteria for a bona fide correction held by most market technicians.
Fresh worries grew over an Asian influenza that reportedly originated in Wuhan City, China, has infected 9,500 people, and claimed at least 213 lives, according to reports out of China. The illness, which has drawn comparisons with SARS, severe acute respiratory syndrome that hit Beijing in 2002-03, is being classified as a novel strain of coronavirus, or 2019 nCoV.”
If Bernie Sanders wins Iowa and gains momentum, that would spook the market
February 3, 2020
“Iowa’s Democratic presidential caucus Monday is a step toward narrowing the far-flung field of Democratic candidates, and investors could start getting worried if polls prove correct and Bernie Sanders emerges as the winner. Iowa is just the first ballot, but a win by the Vermont senator could give him more momentum, and that certainly could get the market’s attention. Analysts do not expect a sell-off just based on an Iowa win for Sanders, but if he begins to look like the nominee in more races, volatility could increase. New Hampshire’s primary is the following week.
‘I think the market really has run up for a lot of reasons, but they clearly have been pricing in a Trump re-election,’ said Lori Calvasina, chief U.S. equity strategist at RBC. ‘The betting markets are sending a positive signal on Sanders right now. The big sort of shift in trend is Bernie.’ Still, strategists say the left-leaning candidate would have a hard time beating President Donald Trump if he were the party nominee, but the fear is there’s now some level of risk that he could. Sanders is viewed as negative for the stock market, and he is in favor of significantly raising taxes on individuals and companies. Sanders had once been seen as a long shot, but he is now leading former Vice President Joseph Biden in Iowa polls by an average 24.2% to 20.2%, according to RealClearPolitics.com. Sanders is also leading Biden by a wider average 9.5 percentage points in polls in his neighboring state of New Hampshire. ‘Anybody who has won two of the first three, they’ve all gone on’ to be the nominee, said Daniel Clifton, head of policy research at Strategas.”
Gathering Risks Have Yields Headed for Recession Zone
February 1, 2020
“The world’s largest bond market looks set for yet another bout of fear-induced trading next week, and this one could drive yields back to the panicky lows reached a few months ago. The rising toll and rapid spread of the Wuhan coronavirus has strengthened demand for safe assets, sending Treasuries back to levels last seen when investors were fixated on recession risks. The yield curve re-inverted this week. The benchmark 10-year is close to slipping below 1.5% for the first time since early September, while the 30-year dipped below 2% on Friday.
It may not take a lot to rush through these levels, but a lot is certainly on the way. China’s stock market will open under duress as authorities struggle to contain the coronavirus. On the political front, attention turns from U.S. President Donald Trump’s impeachment trial to the Iowa caucuses and the popularity of the Democratic Party’s progressive wing. Hopes that a report will show a recovery at U.S. factories are looking dicey. And that’s just Monday. ‘What we’re seeing in bond markets right now is reflective of global economic concern as opposed to necessarily U.S. economic concern,’ said Lauren Goodwin, economist and multi-asset portfolio strategist at New York Life Investments. She reckons that more poor manufacturing data could hurt confidence in U.S. growth and tip yields lower.”
THE WALL STREET JOURNAL/James T. Areddy
Coronavirus Closes China to the World, Straining Global Economy
February 3, 2020
“China’s isolation amid the coronavirus outbreak, a rare freeze out for such a vital economic center, is rippling across the world. Uncertainty over the virus—which has infected more than 17,000 people— has disrupted world-wide trade and supply chains, depressed asset prices, and forced multinational businesses to make hard decisions with limited information. The U.S., and governments in Europe and Asia are enforcing new regulations to block visitors from China and screen returning U.S. citizens, while major airlines suspended flights to the country and companies pulled out expatriate executives.
‘The calls that I get are: ‘We don’t know what to do. Our employees are panicking,’’ says Rachel Conn, an employment attorney in San Francisco at Nixon Peabody LLP. ‘They’ve never dealt with a situation like this.’ Apple Inc. said this weekend it will close all of its stores and corporate offices in China through Feb. 9. The company, which employs 10,000 people in China, is also contending with work stoppages by factories that produce components for the products it sells around the world.
China’s health crisis is testing the entire global economic system, and placing unexpected and additional strain on the fragility of an extended boom. It’s also a test of China’s strength as a consumer—and the U.S.’s ability to step up as China lags. Levi Strauss & Co., which just opened its biggest China store in the city of Wuhan, the center of the outbreak, is among the international brands that together have closed thousands of outlets around the country, including McDonald’s Corp. and Starbucks Inc., in part to comply with government requests for people to remain off the streets.”
THE NEW YORK TIMES/Jack Ewing
European Economic Growth Slows Almost to Zero
January 31, 2020
“Friday was not a good day for Europe. As the European Union officially became smaller, losing Britain as a member, new data showed that economic growth in the bloc came almost to a standstill and that it is in danger of slipping into recession. The 28 countries in the European Union grew only 0.1 percent during the last three months of 2019 compared with the previous quarter, according to official statistics. The eurozone, the region that includes 19 of those countries that use the euro, grew by the same amount in that period.
It was the European Union’s worst performance since the beginning of 2013, and leaves Europe with little margin for error as it braces for the economic impact of the coronavirus. Compounding the problem: The American economy has also slowed, with growth at its lowest rate since 2016. The United States is Europe’s largest trading partner. A number of factors contributed to the unexpectedly bad growth figures, economists said. They include widespread strikes in France, political confusion in Italy and slumping world trade. But Brexit hasn’t helped. With the future terms of cross-channel trade still to be negotiated, some businesses may be hesitant to hire new workers or spend money on expansion. ‘It is one of the uncertainties weighing on investment,’ said Rosie Colthorpe, European economist at Oxford Economics in London. ‘It’s still quite uncertain what both sides want.’”