Gold gains as coronavirus epidemic fuels safe-haven demand
February 5, 2020
“Gold prices rose on Wednesday, recovering from a sharp drop in the previous session, as safe-haven demand was boosted by worries over a fast-spreading coronavirus outbreak in China. Spot gold gained 0.6% to $1,561.62 per ounce by 0801 GMT, after declining 1.5% on Tuesday — the biggest since early-November. U.S. gold futures climbed 0.7% to $1,565.60 per ounce. ‘There’s an increase in demand (for gold) because of flight to safety with the coronavirus and concerns about (economic) growth,’ said John Sharma, an economist at National Australia Bank (NAB).
‘We are still witnessing deaths and quarantine problems. As long as deaths are around, there’ll still be increasing demand for gold.’ The death toll in China passed 490, as two U.S. airlines suspended flights to Hong Kong following the first fatality there and 10 cases were confirmed on a quarantined Japanese cruise ship. The virus would delay a surge in U.S. exports to China expected from the Phase 1 trade deal that is set to take effect this month, the White House’s top economic adviser said on Tuesday … ‘Gold tested and failed numerous times ahead of $1,590 an ounce over the last week. It implies that the Wuhan situation would need to escalate sharply to give gold the necessary momentum to rise above $1,600 an ounce,’ Jeffrey Halley, senior market analyst at OANDA, said in a note. Gold hit a four-week high of $1,591.46 an ounce earlier this week.”
Cruise ships quarantined in Asia strand more than 5,000
February 5, 2020
“More than 5,300 people are being quarantined on two cruise ships off Hong Kong and Japan amid concerns passengers and crew were inadvertently exposed to the Wuhan coronavirus by infected passengers. People aboard both ships are being given health screenings, and those with suspicious symptoms are being tested for the virus that has quickly spread throughout mainland China and beyond.
Concerns about potential infection among thousands of passengers at sea exposes the vulnerability of cruise ships to viral illnesses, like the coronavirus. The threat also raises questions about the durability of Asia’s booming leisure cruise industry, which counts the elderly as among its most loyal customers. Older people are especially susceptible to the Wuhan coronavirus — China’s National Health Commission said Tuesday that 80% of all fatalities in mainland China were over the age of 60.
… The virus has infected more than 20,000 people in mainland China and nearly 200 worldwide across 25 countries and territories. It has claimed 492 lives worldwide, all but two in mainland China.”
A Fed rate cut in 2020 is now on the table as coronavirus spreads
February 5, 2020
“Central banks to the rescue? As coronavirus spreads, market participants are trying to assess whether global central banks will make a concerted effort to stem the damage in their respective economies by leveraging monetary policy tools. The People’s Bank of China kicked things off Monday with a $22 billion injection in an effort to boost liquidity as Asia stocks plunged on the first trading day after the Lunar New Year. The outbreak could even force the Federal Reserve to step in and cut interest rates to ease the pain in U.S. markets, said Benn Steil, director of international economics and senior fellow at the Council on Foreign Relations.
‘The [Federal Open Market Committee] traditionally has been like a giant tanker,’ Steil told CNBC’s in an interview. ‘It takes quite a few months in order for it to turn around’ Given how much Fed Chairman Jerome Powell has done to emphasize the central bank’s ‘wait-and-see’ posture following its last cut, Steil doesn’t see the Fed moving immediately — but he’s not writing off another cut for this year. ‘I would anticipate, if there are clear signs of a slowdown, that we will indeed see a rate cut sometime in the spring,’ the economist said. China’s economic growth could also be at stake as the virus weighs on Chinese corporate activity. China’s gross domestic product could fall to 5.5% from the 6.1% reported at the end of 2019 if the crisis worsens, Goldman Sachs predicted this week.”
Oil Nears Point That Could Trigger a Wall Street Sell-Off
February 4, 2020
“As computer screens flash red for energy markets from Houston to Singapore, oil traders are urgently asking themselves one question: is a historic crash about to repeat itself? The meltdown caused by the Chinese coronavirus outbreak is increasingly reminiscent of a plunge that happened just over a year ago. In October 2018, a sell-off across commodity markets left Wall Street banks racing to cover insurance policies, such as options contracts, that they had written to oil producers, sparking a new wave of selling that ultimately caused prices to tumble by more than 40% over two months to $49.93 a barrel.
Brent crude, the global oil benchmark, has fallen by as much as 25% to a one-year low of $53.85 a barrel. The danger zone for a similar financial sell-off starts around $50 a barrel for Brent, according to Greg Newman, head of Onyx Capital Group, an oil market-maker based in London. ‘If this is to happen then, yes, the option sellers will scramble to sell futures to cover their positions.’ he said. Though oil prices so far haven’t been driven by Wall Street selling, but rather by the collapse in Chinese oil demand, traders are alert to the potential for a vicious selling cycle. It’s what’s known on Wall Street as ‘negative gamma’ event — the Greek letter labeling a gauge of how sensitive options contracts are to price moves in the underlying asset.”
MARKET WATCH/Steve Goldstein
The market’s trading like it’s the end of the cycle, and here’s how an analyst says to position for it
February 5, 2020
“Tesla is parabolic. The yield on the benchmark 10-year Treasury note even before the coronavirus outbreak, couldn’t top 2%, and the yield curve even when it isn’t inverted has been very flat. Commercial construction has tapered off. Vehicle sales have peaked. Banks plan to tighten lending standards at the same time as they expect a flattening of demand, according to a survey. Even those loss-making initial public offerings, or near IPOs in the case of real-estate company WeWork, are starting to run a tighter ship.
Over two years, zero-coupon have produced nearly double the return of the S&P 500. ‘It is the type of stuff you see at the end of credit and economic cycles,’ says Mike Larson, senior analyst at Weiss Ratings. ‘I am concerned about the durability of this market and economic expansion.’ He is dismissive of the three interest-rate cuts from the Fed, calling them both too late and too timid to make a major difference, though he concedes the housing market has stabilized in response. Larson says over two years, ‘boring’ stocks like utilities, real-estate investment trusts and consumer staples have done well, and in the call of the day he expects those sectors to continue to perform, even if they are overbought in the short term. Larson says these sectors offer high dividend yields and protection from economic weakness—even if talking about utilities may put you to sleep.”
BUSINESS INSIDER/Theron Mohamed
Investor sounds alarm on Tesla’s 300% stock rally, says ‘the punch bowl has been aggressively spiked’
February 5, 2020
“Tesla‘s stock has skyrocketed more than 300% in six months, boosting the electric-car maker’s market capitalization to about $160 billion. The astronomical rally is a sign markets are messed up, according to VGI Partners Global Investments, an Australia-based asset manager with nearly $1 billion invested across stocks such as Amazon, Spotify, and Mastercard. ‘Do I think that this is an indication of euphoria or an indicator of a party where the punch bowl has been aggressively spiked later in the night?’ Robert Luciano, VGI’s portfolio manager, asked rhetorically on an earnings call this week. ‘It certainly feels like it,’ he continued. ‘When a market cap of that size can go hyperbolic in a short period of time for no real reason, it is certainly symptomatic of an environment that is not normal.’”
“‘At various points in time, the mathematics and the outlook for the business has made little sense to us,’ he said, adding that fierce competition in electric vehicles and Tesla’s other business areas posed other risks. Tesla’s stock surge has boosted Musk’s net worth by nearly $18 billion this year, catapulting him among the 20 wealthiest people in the world, according to the Bloomberg Billionaires Index. The polarizing executive has been celebrating the rise, despite using a Warren Buffett analogy to dismiss the company’s stock price as a ‘distraction’ last year.”