Gold gains as virus concerns linger, investors await Fed
January 29, 2020
“Gold rose on Wednesday, propped up by lingering concerns over the economic impact of a coronavirus outbreak in China, while investors awaited a policy decision from the U.S. Federal Reserve later in the day. Spot gold was up 0.2% at $1,569.38 per ounce at 1323 GMT, having fallen about 1% in the previous session after positive U.S. data drove a recovery in equities.
‘The coronavirus will definitely have some impact on the Chinese economy and that will mostly affect the country’s currency, but an impulsive bull trend in gold is not expected yet,’ said Bernard Sin, head of trading at MKS. Safe-haven gold held aloft despite signs of stabilisation in global stock markets as equities investors tried to look past the outbreak, encouraged by better-than-expected earnings. While rising stocks are capping gold’s gains, it is still being supported by uncertainty around President Trump’s impeachment and tensions in the Middle East, said analyst Peter Fertig. Risk aversion has not lifted. With the number of coronavirus fatalities now at 132 and 6,000 cases reported worldwide, there are fears the outbreak could damage Chinese growth. If there is an escalation, gold could breach $1,600, Jeffrey Halley, senior market analyst at OANDA, said.”
China first quarter growth may dip below 5% as virus spreads
January 29, 2020
“China’s economic growth may drop to 5% or even lower due to the coronavirus outbreak, a government economist said on Wednesday. The fast-spreading outbreak, which has killed more than 130 people and infected almost 6,000 in China, could cut first-quarter GDP growth by about 1 percentage point, said Zhang Ming. ‘GDP growth in the first quarter of 2020 could be about 5.0%, and we cannot rule out the possibility of falling below 5.0%,’ Zhang said. Zhang, an economist at the Chinese Academy of Social Sciences – said his forecast was based on assumptions the outbreak will peak in early to mid-February and end in March.
Zhang is among many government economists and, while the Academy’s views often serve as a recommendation for Chinese policymakers, his views may not fully align with those of the government, which has yet to issue any assessments. China’s growth slowed to a near 30-year low of 6% in the fourth quarter, and analysts have said they expect the epidemic to drag on the economy.
Zhang estimated its impact on China’s economy could be significantly bigger than that of Severe Acute Respiratory Syndrome (SARS), a coronavirus that originated in China and killed nearly 800 people globally in 2002 and 2003.”
MARKET WATCH/Shawn Langlois
Coronavirus shock could deliver double-digit hit to stock market, investor warns
January 29, 2020
“‘I don’t think we fully understand the scope of what’s going on with the coronavirus, I wouldn’t be surprised to see additional headlines come out that might shake the markets a bit.’ And by ‘shake the markets a bit’, Jeffrey Mills of Bryn Mawr Trust means a potential double-digit percentage drop in stocks. ‘A 5% to 10% drawdown would bring us right around the upward sloping 200-day moving average [for the S&P 500] around 3,000,’ he told CNBC this week. ‘In that case, we would be buyers.’ No such drop is taking shape Wednesday, with the Dow Jones Industrial Average building on prior session gains. The S&P 500 and Nasdaq Composite are also up nicely. But not so fast, Mills warned.
‘I wouldn’t give the all-clear sign just yet,’ he said. ‘The problem is in the very near term, what’s transpired over the last couple of days has not been enough to get rid of some of the overbought signals just from a technical perspective.’ Mills pointed out that the average peak-to-trough in any given year is about 12%, and he sees that as a real possibility.”
December pending home sales fall 4.9% as supply hits a record low
January 29, 2020
“Pending home sales, which measure signed contracts, not closings, dropped 4.9% in December compared with November, as the supply of homes hit a record low during the month. Sales were projected to rise 1% month-to-month. December is historically the slowest month of the year in the housing market. Despite the month-to-month drop, though, 2019 ended up slightly stronger than the year before. Pending home sales were 4.6% higher last month than in December 2018, according to the National Association of Realtors.
Regionally, pending sales in the Northeast fell 4% for the month and were 0.1% lower than a year ago. In the Midwest, sales dropped 3.6% monthly but were 1.3% higher annually. Pending home sales in the South decreased 5.5% monthly but were 7.4% stronger compared with a year ago. Pending sales in the West fell 5.4% monthly but were up 7% annually. Buyers were likely buoyed by low mortgage rates. The average rate on the 30-year fixed mortgage hovered around 3.75% in December, a full percentage point lower than the rate in December 2018. Home price gains accelerated last fall, after easing for much of the year, but lower mortgage rates helped to offset that increase. But supply remains an issue. The inventory of homes for sale fell to its lowest level on record in December. Supplies are leanest on the low end, where demand is strongest. That is likely to persist through 2020 … ‘The state of housing in 2020 will depend on whether home builders bring more affordable homes to the market,’ said Lawrence Yun, chief economist for the NAR. ‘Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains,” he added.”
THE WALL STREET JOURNAL/Akane Otani
Coronavirus Tests Market’s Faith in Global Economy
January 28, 2020
“Investors who began the year feeling largely sanguine about the stock market are struggling to make sense of whether a growing coronavirus outbreak could upend their bets on a global economic recovery. Just days ago, global stocks looked poised to close out January on a strong note. Benchmark indexes from the S&P 500 to the Stoxx Europe 600 to India’s S&P BSE Sensex climbed to records. Investors projected that with issues including the U.S. and China’s trade war and central-bank rate increases in the rearview mirror, the global economy would likely be able to stage a modest rebound in 2020.
Now that view is being tested. The viral outbreak that originated in Wuhan, China, has infected thousands and spread to the U.S., Japan, South Korea and other countries. The disease threatens to hamper an already-slowing Chinese economy, in turn potentially jeopardizing the global recovery that many investors had counted on to materialize this year. Markets bounced higher Tuesday, paring losses after anxiety over the outbreak sent stocks from Japan to Germany to the U.S. to their biggest one-day declines in months Monday. ‘I don’t think markets anticipated how contagious this disease has proven to be and how quickly it’s spreading,’ said Michael Farr, president of Farr, Miller & Washington. Over the past several months, Mr. Farr said his firm has been gradually selling some of its riskier investments, reasoning that the stock market had already managed to run up well past what most had expected in 2019. ‘It really has yet to be seen whether this [downturn] will gain traction or not,’ Farr said. ‘But it certainly seems like the ingredients for a further decline are coming together.’”
CNN POLITICS/Donna Borak
CBO projects a decade of trillion-dollar deficits and soaring US debt
January 28, 2020
“The federal deficit is projected to keep rising over the coming decade, driving US debt to the highest level since World War II over the next 10 years, according to a Congressional Budget Office report released Tuesday. The annual congressional report projects that the US budget deficit is likely to blast through the symbolic threshold of $1 trillion this year despite a healthy economy with record low unemployment. And that number is expected to widen each year over the next decade through 2030. As a result of the rising deficits, US government debt held by the public will soar from nearly $18 trillion at the end of 2020 to $31.4 trillion by the end of 2030.
Over that same period, that debt held by the public as a share of the economy will grow from 81% of GDP this year to 98% by 2030 — the highest percentage since 1946. The CBO warned that rising federal debt would likely reduce national savings and income, boost the government’s interest payments, limit policymakers’ ability to respond to unforeseen events and increase the likelihood of a fiscal crisis. ‘Today’s CBO report shows 10 straight years of trillion-dollar deficits,’ said Michael Peterson, CEO of the Peter G. Peterson Foundation. ‘That’s a sad reflection of our nation’s poor fiscal health, and it adds insult to injury that we’re piling on all this debt in a growing economy.’”