REUTERS/ K. Sathya Narayanan

Gold gains 1% as virus fears fan growth worries

January 27, 2020

“Gold jumped 1% on Monday to a near three-week high as growing concerns that the coronavirus outbreak could impact the global economy pushed investors towards safe havens.  Spot gold was up 0.6% at $1,580.45 per ounce by 1221 GMT, having earlier touched its highest since Jan. 8 at $1,586.43.  U.S. gold futures rose 0.5% to $1,579.50 per ounce. ‘Risk aversion is pushing up gold prices. Weekend news showed that (the coronavirus) is still spreading in many countries across the globe and this could impact economic activity and market sentiment,’ Commerzbank analyst Carsten Fritsch said.

Safe-haven flows were such that a U.S. dollar holding near two-month highs scaled in the previous session was doing little to deter gold buying, despite it making dollar-denominated bullion costlier for investors holding other currencies. The death toll from the coronavirus outbreak has risen to 81 in China, with 2,744 confirmed cases, and the virus has spread to more than 10 countries, including the U.S. and France. World shares slipped to the lowest in two weeks, while U.S. 10-year Treasury yields fell to their lowest in more than three months. ‘Despite the strength of the greenback, the bullion price is taking advantage of this uncertain situation,’ ActivTrades analyst Carlo Alberto De Casa said.

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BLOOMBERG/Phoebe Sedgman and Swansy Afonso

Safe Havens Shine as Spreading Virus Spurs Rush to Buy Gold

January 26, 2020

Gold Prices Jan 27“Gold jumped as the spread of the coronavirus globally spurred demand for haven assets. Prices rose as much as 1.1% as risk-off sentiment swept markets, with equities and crude oil tumbling. In the latest attempt at containment, China extended the week-long Lunar New Year holiday and banned all outgoing overseas group tours to avoid having travelers contribute to its spread.

President Xi Jinping’s government is under pressure to combat the outbreak that shows little sign of slowing down, with more than a dozen countries and territories reporting the illness within their borders. While the return of risk aversion is supportive of haven assets like bullion, investors are also assessing the extent to which the virus may keep consumers away from shops, damping the usual pick up in gold purchases during the holiday period. ‘News flow on the virus is pushing safe haven buying,’ Gnanasekar Thiagarajan, director at Commtrendz Risk Management Services, said by phone from Mumbai. “In this kind of environment, stock markets could tank and that fear is further adding to the risk-averse sentiment. The outlook is bullish for gold, targeting $1,610 in the near term.”

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CNBC/Fred Imbert and Silvia Amaro

Dow drops more than 400 points as coronavirus fears rise, travel stocks slide

January 27, 2020

Coronavirus and Stock Drops“Stocks tanked on Monday after more cases of the coronavirus were confirmed over the weekend, ratcheting up worries over the virus’ impact on the world economy. The Dow Jones Industrial Average plunged 439 points, or 1.5%, led lower by Nike and American Express. The 30-stock average was down more than 500 points earlier in the day. The S&P 500 dropped 1.5% while the Nasdaq Composite slid 1.9%. There are 2,862 confirmed cases so far in China and the death toll in China has risen to 81. The World Health Organization’s director general is traveling to China to meet with government and health officials. In the U.S., a fifth case of coronavirus was confirmed over the weekend.

‘China is the biggest driver of global growth so this couldn’t have started in a worse place,’ said Alec Young, managing director of global markets research at FTSE Russell. ‘Markets hate uncertainty, and the coronavirus is the ultimate uncertainty in that no one knows how badly it will impact the global economy.’ Airline stocks American and Delta both dropped more than 4%. United slid 5.7%. Gaming stocks such as Las Vegas Sands and Wynn Resorts dropped 8.4% and 9.6%, respectively. MGM Resorts slid more than 5%. Travel stocks Expedia, Carnival and Marriott International all pulled back at least more than 4%. Consumer shares with exposure to China such as Apple, Disney, Nike and Estee Lauder all dropped at least 3%. Caterpillar, a bellwether for global growth, fell 2.8% while the VanEck Vectors Semiconductor ETF dropped 3.1%. Nvidia and Micron Technology fell more than 4% each while AMD dropped 3%.  Overseas, global stocks took a hit, as the Japanese Nikkei 225 dropped 2% while the German Dax lost 2.6%. France’s CAC 40 also pulled back more than 2%.”

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THE WALL STREET JOURNAL/Sarah Chaney

New Risk to World Economy: Synchronized Housing Slowdown

January 27, 2020

New Risk to World Economy“Housing markets across the world, from the U.K. to China to Australia, are losing steam, holding back prospects for the global economy that last year grew at its slowest rate since the financial crisis. Across 23 countries, an index of inflation-adjusted home prices compiled by the Federal Reserve Bank of Dallas grew 1.8% in the third quarter of 2019 from a year earlier, down from a recent peak of 4.3% in 2016, according to an Oxford Economics analysis. In 18 large economies, world-wide residential investment dropped on a year-over-year basis for four consecutive quarters through September, the longest stretch of declines since the 2008-09 crisis, according to Oxford Economics’ analysis of national accounts.

A key catalyst is the global slowdown over the past two years that kept a lid on housing demand and home-price gains. In large cities, affordability constraints are deterring many would-be buyers, and foreigners’ appetite for overseas properties has cooled. Heightened uncertainty, for example over the U.S. trade war with China, Brexit and protests in Hong Kong, continue to weigh on home-buyer sentiment. ‘It matters because…the housing market is a big asset market which has quite large potential impacts on consumer spending,’ said Adam Slater, an economist at Oxford Economics. ‘It tends to be a sector when it booms, it booms; when it busts, it busts.’”

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MARKET WATCH/Greg Robb

Fed starts some tricky communications with financial markets this week

January 27, 2020

Fed Starts Tricky Communications“The Federal Reserve seems on course to disappoint financial markets at some point this year, but maybe not this week. Starting early in 2019, the Fed has consistently moved in a market-friendly direction. The central bank cut rates its benchmark interest rate three time since July and started expanding its balance sheet in October at a $60 billion per-month pace of Treasury bill purchases. It has also been lending billions of dollars into the short-term money market.

Stocks rallied, credit spreads tightened further and the dollar fell, all easing financial conditions.

But with valuations higher, sentiment positive and fundamentals still soft, Fed policy is now carrying a heavy load, said Andrew Sheets, chief cross-asset strategist at Morgan Stanley. Morgan Stanley experts think the Fed wants to end its $60 billion-a-month purchases of Treasury bills at the end of April and let its balance sheet plateau. In its place, they expect a smaller $15 billion-a-month of purchases across the Treasury curve, Sheets said. Mark Cabana of Bank of America thinks the Treasury-bill purchases will continue through June but might be tapered. He thinks the lending to the repo market will end in May. Such policy shifts could rattle the stock market, said Diane Swonk, chief economist at Grant Thornton. ‘Many financial market participants believe that the liquidity provided by the Fed has helped to boost stock prices above and beyond what rate cuts along could do; any moves to stop that growth could show up as a loss in momentum for stock prices,’ Swonk said.”

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THE WASHINGTON POST/Robert J. Samuelson 

America’s debt spree isn’t stopping. It might soon be too late.

January 26, 2020

America's Debt Spree“What is missing in this campaign — is an informative and honest discussion of the role of government in American life. We don’t want to admit that government worth having is worth paying for, through taxes — with the well-known exceptions of recessions and wars, when deficits are often inevitable and ­desirable. Let’s concede that higher deficits are one problem that can’t be blamed on President Trump. Since the 1970s and 1980s, Democrats and Republicans alike have evaded the hard questions required to balance the budget. Should we direct more — or less — aid to those in the bottom half of the income distribution? Have we shortchanged defense? … Should we raise eligibility ages for Social Security and Medicare? Should government continue to run a railroad (Amtrak)? Are we undertaxed? Do farmers need to be so heavily ­subsidized?

We have deferred these and other difficult decisions. Instead of cutting spending or raising taxes, successive presidents and Congresses have covered the gaps by borrowing. Since 1961, federal deficits have occurred in all but five years (1969 and 1998-2001). Even these materialized only at the end of the long economic booms of the 1960s and late 1990s. By the end of 2018, the federal debt held by the public — the total of all past annual deficits — was near $16 trillion, equal to 78 percent of the economy (gross domestic product, or GDP). On present trends, the Congressional Budget Office projects that the debt will reach $29 trillion in 2029, about 95 percent of GDP.”

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