KITCO NEWS/Anna Golubova

Gold jumps as U.S. economy disappoints with 145,000 rise in nonfarm payrolls

January 10, 2020

Gold Jumps in Economy“Gold prices rose following weaker-than-expected U.S. employment data from December. U.S. nonfarm payrolls rose by 145,000 in December, according to the Bureau of Labor Statistics. The monthly figure came below market consensus projecting 164,000 new positions. The U.S. unemployment rate remained unchanged at 3.5%, a 50-year low, and the number of unemployed was also unchanged at 5.8 million. Meanwhile, wages, which is another key element in the report, also disappointed.

Average hourly earnings rose only 2.9% versus the expected 3.1%. The biggest jobs gains were in retail trade and healthcare, while the mining sector saw job losses. Gold prices jumped after the data was released, recovering all daily losses. Overall, the U.S. job growth ended the year on a softer note, said CIBC Capital Markets economist Katherine Judge. ‘The disappointments shouldn’t materially change tracking for Q4 GDP which we have at just below 2%, however, could add a slight bid to U.S. fixed income markets today,’ Judge wrote on Friday.”

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MARKETWATCH/Jeffry Bartash

U.S. creates 145,000 jobs in December as hiring slows and wage growth softens

January 10, 2020

US Creates Jobs in December“The economy created 145,000 jobs in the final month of 2019 to cap off the ninth straight year in which new hires topped the 2 million mark, but workers still aren’t reaping a windfall from the strong labor market through rapidly rising pay. The increase in new jobs fell short of the 165,000 forecast of economists polled by MarketWatch. Wall Street was expecting a drop-off after a surprisingly robust 256,000 gain in the prior month. The unemployment rate, stayed at a 50-year low of 3.5%.

What’s more, a broader measure of joblessness known as the U6 rate fell to 6.7% to mark the lowest level on record. The sturdiest labor market in decades has shielded the economy from a broad slowdown in global growth triggered in part by the U.S. trade war with China. Skilled workers are so hard to find companies are afraid to lay anyone off in case the economy speeds up. The low unemployment rate hasn’t produced fatter paychecks for American workers like it usually did in the past, however. The pace of hourly wage growth fell below 3% in December for the first time in a year and a half.”

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THE NEW YORK TIMES/Neil Irwin

Economy in a Nutshell: Manufacturing in Recession. Services Booming.

January 10, 2020

Economy in a Nutshell“Sometimes, the monthly employment numbers seem to come out of left field, and don’t really align with all the other evidence about how the economy is evolving. December is not one of those months. To the contrary, pretty much everything in the latest numbers released Friday fits the broader story. It’s a mostly benign picture, though not without some challenges. Job creation was steady, with employers adding 145,000 jobs in December. It’s a far cry from the revised 256,000 jobs added in November. But the lower number is more consistent with recent growth in G.D.P. and an economy that appears closer to full employment than it has in two decades.”

“There is a more complex story in the composition of those jobs, though. The manufacturing recession underway shows up in the employment numbers: The nation’s factories shed 12,000 jobs in December, with the steepest loss in the making of fabricated metal products. A further 8,000 jobs were lost in the mining sector, reflecting a slump in spending on energy exploration. Transportation and warehousing employment fell by 10,400, another potential knock-on effect of the manufacturing slump. This story is not too complicated: The sectors that bear the brunt of the global economic slowdown and the trade wars are cutting jobs, or at least they were in December. Last week’s report from the Institute of Supply Management adds some color. Its manufacturing index fell sharply in December, the fastest rate of contraction since June 2009, when the economy was struggling to emerge from a deep recession.”

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THE WALL STREET JOURNAL/Matt Wirz and Tom McGinty

Low Liquidity Fueled Hidden Flash Crash in Junk Bonds

January 10, 2020

Price of Bon Due 2023“When Party City Holdco Inc. reported a large decline in quarterly earnings in November, holders of the retailer’s junk-rated debt scrambled to sell. Buyers were hard to find, and prices cratered by as much as 50% before recovering some of the loss. Investors who didn’t sell the company’s bonds and loans took paper losses of half a billion dollars in five trading days, according to a Wall Street Journal analysis of data from MarketAxess and IHS Markit. It was the largest price move since Party City issued the debt.

Such violent price swings were commonplace last fall in the riskiest segment of the roughly $2.4 trillion market for corporate bonds and loans rated below investment-grade, analysis of trade data by the Journal shows, striking a sharp contrast to the relative calm in most markets at the time. Prices snapped back sharply in December, but the volatility confirmed traders’ fears that poor liquidity—how easily sellers and buyers can transact—in high-yield debt is making the market particularly vulnerable to such flash crashes. ‘Given the spikes in volatility, you have to be more tactical in your trading,’ said Steven Rocco, a partner at Lord Abbett. ‘We definitely are weighing liquidity more now.’ Dips in the riskiest segment of the junk bond markets were more extreme this autumn than in December 2018, when volatility ravaged global markets, according to the Journal’s analysis of trade data from MarketAxess.”

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CNBC/Sam Meredith

World Bank warns of global debt crisis following the fastest increase in borrowing since the 1970s

January 9, 2020

Warnings of Global Debt“The World Bank has warned of the risk of a fresh global debt crisis, urging governments and central banks to recognize that historically low interest rates may not be enough to offset another widespread financial meltdown. In its biannual Global Economic Prospects (GEP) report, the Washington D.C.-based group said there have been four waves of debt accumulation over the last 50 years. The current wave — which started in 2010 — is thought to be ‘the largest, fastest and most broad-based increase’ in global borrowing since the 1970s. The World Bank said that while low levels of interest rates — which financial markets expect to be sustained over the medium term — ‘mitigate some of the risks associated with high debt levels,’ the previous three waves of broad-based debt accumulation all ended with financial crises in many developing and emerging economies.

‘Low global interest rates provide only a precarious protection against financial crises,’ Ayhan Kose, director of the World Bank’s Prospects Group, said. ‘The history of past waves of debt accumulation shows that these waves tend to have unhappy endings. In a fragile global environment, policy improvements are critical to minimize the risks associated with the current debt wave.’ The so-called ‘fourth wave’ of global debt was found to bear many similarities to the previous three: a changing global financial landscape, mounting vulnerabilities and concerns about inefficient use of borrowed funds. The first three waves of global debt accumulation were identified as running from 1970-1989, 1990-2001 and 2002-2009.”

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KITCO NEWS/Neils Christensen

Central banks can’t do QE forever, hold 25% commodities as inflation hedge

January 10, 2020

“The U.S. has officially closed the book on a momentous decade as the S&P continues its longest bull run in history; the market has rallied consistently for the last 10 years. The Index is up 184% since 2010. The gold market is also attracting new attention on the cusp of the new epoch. Although prices are still down from its record highs hit eight years ago, the precious metal ended the decade with a gain of 34%. The questions investors are now asking is: what is in store for markets as the world embarks on a new decade. What are the risks and opportunities to watch for in the next 10 years? For Kitco News’ we have asked a panel of experts:”

Expert: Frank Giustra – Chairman of Leagold, co-founder of The Clinton Giustra Enterprise Partnership

“If someone has a maximum of $100,000 to invest, my suggestion would be to own at least 20% gold and stay liquid. Most investments (stocks and bonds) are overvalued. I am mostly keeping my eye on global trends in both central bank monetary policy and debt levels … I fear one of the biggest threats is a potential implosion of the corporate bond market. Too much of that massive debt is a hare’s breath away from junk status … The current equity bull market is already the longest in history. It’s been fueled by artificially low interest rates. We are beyond bubble territory… and overdue for some kind of accident in the financial markets. Some, yet unknown catalyst will set off a chain of events that will destroy a lot of wealth … stay liquid and make sure you own a lot of gold.”

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