REUTERS/ K. Sathya Narayanan

Gold dips ahead of U.S.-China deal, palladium hits record high

January 14, 2020

“Gold slipped to more than one-week low on Tuesday as strength in equities markets and hopes for a smooth signing of the U.S.-China Phase 1 trade deal tarnished bullion’s safe-haven appeal, while palladium hit a record high. Spot gold dipped 0.4% to $1,542.50 an ounce after touching their lowest since Jan. 3 at $1,535.63 … ‘As long as stocks continue to make these record highs, there is no real need for the insurance policies you’ll find in gold,’ Saxo Bank analyst Ole Hansen said. ‘We have the signing of the trade deal … we are probably not going to see anyone rocking the boat at this stage, but nevertheless it will give the market an opportunity to read the text and see what’s in the deal.’

Only a day before the Phase 1 trade deal signing, the U.S. Treasury on Monday dropped China’s designation as a currency manipulator, fuelling market optimism. Global equities are at record highs but the tide turned at the opening of European markets as traders took profits ahead of the trade deal. ‘In the current market environment, characterised as it is by high risk appetite among market participants, gold is not in demand,’ Commerzbank analysts wrote … Bullion rose to its highest in nearly seven years last week on worries over potential military conflict between the United States and Iran, but the rally faded in the absence of any further escalation in tensions.”

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CNBC/Yen Nee Lee

The Fed could cut interest rates 3 times this year, UBS predicts

January 14, 2020

Fed Cut Interest Rate“Swiss wealth giant UBS has predicted that the U.S. Federal Reserve could lower interest rates three times in 2020 — a forecast that differs widely from many other projections calling for no change or just one rate cut this year. Arend Kapteyn, global head of economic research at UBS, said on Tuesday that tariffs implemented in the trade war between Washington and Beijing would drag down U.S. growth to just 0.5% year-on-year in the first half of 2020.

The U.S. last raised tariffs on Chinese goods in September, with China following up with its own duty increase on a variety of American products. Further tariff hikes initially scheduled for December were put off as both sides agreed to hammer out the so-called phase one trade deal. ‘We think this tariff damage is going to push U.S. growth down … that’s actually going to trigger three Fed cuts, which is way off consensus, nobody believes that,’ he told CNBC from the UBS Greater China Conference in Shanghai. The CME FedWatch tool places the probability of the Fed standing pat on interest rates at more than 50% through September.”

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CNN BUSINESS/Anneken Tappe

The world is drowning in debt

January 14, 2020

Drowning in Debt“The world’s already huge debt load smashed the record for the highest debt-to-GDP ratio before 2019 was even over.  In fact, it broke that record in the first nine months of last year. Global debt, which comprises borrowings from households, governments and companies, grew by $9 trillion to nearly $253 trillion during that period, according to the Institute of International Finance. That puts the global debt-to-GDP ratio at 322%, narrowly surpassing 2016 as the highest level on record.  More than half of this enormous number was accumulated in developed markets, such as the United States and Europe, bringing their debt-to-GDP ratio to 383% overall.

There are plenty of culprits. Countries like New Zealand, Switzerland and Norway all have rising household debt levels, while the government debt-to-GDP ratios in the United States and Australia are at all-time highs. In emerging markets, debt levels are lower, for a total of $72 trillion, but they have risen faster in recent years, according to the IIF.  China’s ratio of debt to GDP, for example, is approaching 310%, the highest level in the developing world. Investors have long kept a skeptical eye on the highly-leveraged country. Following a push for Chinese companies to reduce their borrowing in 2017 and 2018, debt levels rose again last year, the IIF said in its Global Debt Monitor report.

Such massive worldwide debt is a real risk for the global economy, especially because the IIF expects levels to rise even further in 2020.”

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MARKET WATCH/Rupert Steiner

BlackRock’s Larry Fink warns climate change is on edge of reshaping finance

January 14, 2020

Climate Change“Sustainable investments that take into account climate change will deliver better returns, says BlackRock founder Larry Fink. The boss of world’s largest fund manager warned: ‘In the near future—and sooner than most anticipate—there will be a significant reallocation of capital. I believe we are on the edge of a fundamental reshaping of finance.’ BlackRock which has around $6.84 trillion of assets under management as one of the top index fund managers, is the world’s most powerful investor and has come under criticism for not doing enough to address climate change.

“BlackRock announced initiatives which Fink said will place sustainability ‘at the center of our investment approach, including pushing companies for more transparency and disclosure of climate risks, and quitting investments in thermal coal producers.’ Fink’s letter comes as Australia continues to battle bush fires that have been burning since September … The extent of the damage from one of most severe fire seasons on record has caused governments to focus policies on climate change. Climate change is one of the six key themes being discussed at the 50th annual meeting of the World Economic Forum at Davos next week. Some of the biggest names in the corporate and investment world to answers: ‘How to mobilize business to respond to the risks of climate change and ensure that measures to protect biodiversity reach forest floors and ocean beds.’”

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BLOOMBERG/Anirban Nag

How the World’s Fastest-Growing Economy Plunged into Stagflation

January 13, 2020

Fastest Growing“Just two years ago, Prime Minister Narendra Modi was helming an economy expanding 8%, spurring optimism India was on a path to become a major global growth driver. Now, stagflation looms as the economy grinds toward its slowest expansion in more than a decade and inflation spikes above the central bank’s target, driven by higher food prices. Social unrest against a restrictive new citizenship law is yet another challenge.

And there are few good options to deal with the slowdown. Dwindling government revenue and an already-stretched budget limit scope for fiscal support, while the shock 7.35% surge in retail inflation in December and the threat of higher oil prices mean the door for further interest rate cuts is closing. Sovereign bonds dropped after the inflation data. The yield on the benchmark 10-year bond rose as much as 10 basis points to 6.7% on Tuesday, the most since Dec. 5. Wholesale price inflation quickened to a seven-month high of 2.59% last month, latest data show. So, what went wrong? At the heart of India’s problems is a slump in consumption following a combination of policy missteps, from the unprecedented decision to ban high-value cash notes at the end of 2016, to the chaotic implementation of a unified goods and services tax the following year. That was followed shortly after by a credit crunch, which triggered — and then was worsened by — a crisis among shadow lenders which are a key provider of small loans to hundreds of millions of consumers and businesses.”

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CNBC/Yun Li

The 5 biggest stocks are dwarfing the rest of the market at ‘unprecedented’ level

January 13, 2020

5 Biggest Stocks“It’s no secret that a handful of tech giants have been dominating the stock market, but their leadership has reached a level that is raising eyebrows on Wall Street as being unsustainable. The top five U.S. companies — Apple, Microsoft, Alphabet, Amazon and Facebook — now make up 18% of the total market capitalization of the S&P 500, the highest percentage in history, according to Morgan Stanley. ‘A ratio like this is unprecedented, including during the tech bubble,’ Mike Wilson, the bank’s head of equity strategy, said Sunday. ‘Capital concentration is following corporate inequality like never before.’

These mega tech firms have been the front-runners in this record-long bull market as investors bet on superior growth and dominant market share in their respective industries. They were the biggest contributors to the market’s historic gains last year and the trend shows no signs of stopping in 2020. However, multiple Wall Street strategists are sounding alarms on the increasing dominance of Big Tech, warning of a potential pullback in the stocks ahead … Going back to 1990, only five stocks — Apple, Microsoft, Generic Electric, Cisco Systems and Exxon Mobil — have claimed more than 4% of the S&P 500, and their leader status has typically been short-lived, Segner noted. General Electric stayed the longest — 15 months — above the threshold, while Cisco only lasted a month, he said.”

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