REUTERS/K. Sathya Narayanan

Gold holds gains on worries of coronavirus impact on world economy

January 30, 2020

“Gold held onto gains on Thursday, supported by concerns over the potential impact on global economic growth of a fast-spreading coronavirus outbreak in China which has killed 170 people. Spot gold was up 0.2% to $1,579.63 per ounce by 1220 GMT after rising 0.7% on Wednesday, while U.S. gold futures were 0.6% higher at $1,579.00 per ounce. ‘The whole run into gold and government debts (bonds), away from equities, is due to worries regarding the scale of the outbreak of the virus,’ said SP Angel analyst Sergey Raevskiy. ‘Copper prices are falling off a cliff, which is an indication of how the markets perceive the risks of the virus to the economic growth.’ Copper is often regarded as a leading indicator of the health of the global economy.

Global equity markets fell, while Germany’s benchmark 10-year Bund yield dropped to a near three-month low and U.S. 10-year Treasury yields hit their lowest since Oct. 10. A Chinese government economist on Wednesday said China’s economic growth may drop to 5% or even lower due to the outbreak, which has spread to more than 10 countries. Federal Reserve chair Jerome Powell acknowledged the risks of a short-term slowdown in China, including to the U.S. economy, following the central bank’s widely expected decision to keep interest rates unchanged. Bullion is often seen as a safe store of value during times of political and economic uncertainty.”

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Coronavirus Infections in China Hit 7,700, as WHO Mulls Emergency Declaration

January 30, 2020

Coronavirus“As the number of coronavirus cases shot to 7,700 in China on Thursday, almost 200 American evacuees remain at a California military base while health officials monitor them for any signs of possible infection. Meanwhile, countries around the world took steps to cut the risk of the virus spreading to their citizens, and World Health Organization officials are meeting Thursday to decide whether to declare the outbreak an international health emergency.

Overnight, the number of cases of what is dubbed the 2019-nCoV coronavirus in China shot from 5,974 to 7,700, while the death toll climbed to 170. Those counts eclipse the 5,327 cases and 348 deaths reported in China during the 2003 SARS outbreak, the Associated Press reported. In the United States, health officials explained on Wednesday what measures are being taken to make sure the Americans who were evacuated from Wuhan, China, on Tuesday are not infected …The ‘CDC is expanding entry screening to 20 U.S. ports of entry where CDC has quarantine stations.’”

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CNBC/Jeff Cox

Fourth-quarter GDP rose only 2.1% and full-year 2019 posts slowest growth in three years at 2.3%

January 30, 2020

fourth quarter gdp“The U.S. economy grew 2.1% in the fourth quarter, closing out a year in which gross domestic product decelerated to its slowest pace in three years amid a continuing drag in business investment. The GDP increase matched the third quarter and met expectations of economists surveyed by Dow Jones. For the full year, the economy grew 2.3%, below the 2.9% increase from 2018 and the 2.4% gain in 2017, the first year of Donald Trump’s presidency, according to the initial estimate released Thursday by the Commerce Department. The move in 2019 was well below the White House’s projections following the 2017 tax bill that cut corporate and individual rates. The administration has said the stimulus would lead to GDP increases of at least 3%, but that hasn’t happened yet.

Continued gains in consumer spending helped propel the economy in the year’s final three months, though the rate of increase came in at 1.8%, well below the 3.2% pace in the third quarter. Still, personal consumption expenditures added 1.2 percentage points to the quarterly rise. The consumer accounts for 68% of what is now a $21.7 trillion U.S. economy. For the full year, PCE rose 2.6%, off the 3% pace in 2018. Real disposable income was up 1.5% in the fourth quarter, a decline from the 2.9% rise in the previous period. The full-year gain came in a 3%, below the 4% increase in 2018. The savings rate was 7.7%, little changed from the third quarter. Economists saw the Q4 numbers as reflective of a broader trend toward steady but slower growth.”

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MARKET WATCH/Joy Wiltermuth

Low rates are raising questions about the next commercial real estate unwind

January 29, 2020

low rates are raising questions“Rents may be too damn high for apartment dwellers, but they look pretty weak for the rest of the U.S. commercial property market as prices skyrocket. That might not be a problem now, particularly as the Federal Reserve reaffirms its plan to keep rates low, its balance sheet available and credit spigots open. Yet analysts at BCA Research see potential trouble when the next downturn comes for office buildings, shopping centers and industrial properties that were purchased in the past decade at soaring prices.

This chart shows sagging rents at most U.S. commercial property types since the 2007-’09 recession, even as property prices have eclipsed their prior peak. “With the exception of multifamily residential real estate, American real rents have fallen, revealing that low rates have propelled commercial properties’ price appreciation over the past decade,” wrote BCA Research strategists Ryan Swift and Doug Peta, in a client note Wednesday. ‘The combination of falling real rents and surging property prices has depressed commercial real estate cap rates to cyclical low levels, raising the question of a potential unwind.’”

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BLOOMBERG/Anchalee Worrachate and Liz McCormick

The Inverting Yield Curve Is About More Than Recession This Time

January 30, 2020

inverting yield curve“A key slice of the U.S. yield curve inverted on Thursday for the first time since October, reviving memories of growth fears that plagued investors last year and signaling doubts that the Federal Reserve will succeed in reviving inflation. The gap between the yield on three-month and 10-year Treasuries at one point slipped to as low as minus 2 basis points on Thursday. The spread — seen by some as a warning signal because it has inverted before each of the past seven U.S. recessions — last reached those levels as economic conditions deteriorated at the height of the trade war. With the coronavirus outbreak threatening to disrupt the Chinese economy, concerns about the business cycle are undoubtedly a factor. But more important still are emerging doubts over the ability and commitment of policy makers to shore up growth and spur inflation.

The inversion has deepened since Chairman Jerome Powell and colleagues kept rates unchanged this week and signaled they would pull out all the stops to combat a global disinflationary downdraft.

Following his press conference, fed funds futures showed increased conviction by traders that a cut is coming this year, although they continue to price in just one-quarter point reduction. Meanwhile, inflation-linked debt markets are expressing doubts that price pressures will increase, with so-called breakeven rates slipping in the wake of Powell’s comments. ‘The bond market is basically telling the Fed that it hasn’t done enough and will be called back to do more and that the longer they wait the more they will have to do,’ said Michael Darda, market strategist at MKM Partners.”

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THE WALL STREET JOURNAL/Xie Yu and Caitlin Ostroff

U.S. Stocks Slide as Chinese Viral Outbreak Picks Up

January 30, 2020

US stock slides“U.S. stocks edged lower Thursday, weighed down by declines among shares of airlines, cruise operators and consumer companies whose profits are vulnerable to fallout from an intensifying coronavirus outbreak … More than 7,700 people have been infected and 170 individuals have died from the new coronavirus since it was identified in December. The virus threatens to further slowdown growth in China, the world’s second-largest economy, as officials restrict travel and close factories, cancel flights and take other steps to contain the virus’s spread.

That could in turn take further steam out of the stock market, analysts and investors say. Before the outbreak began, stock indexes around the world had risen to records, bolstered by bets that global economic growth would pick up slightly this year. Because China is a key engine for the global economy, money managers say a worsening of the outbreak could have widespread ramifications reaching beyond Asia. ‘We have yet to see the bottom,’ said Alex Au, managing director at Alphalex Capital Management, a Hong Kong-based hedge fund. He said the ‘climax of the contagion’ could occur when the holiday period ends next week and many people in China return to work. Markets on the mainland are scheduled to remain closed until Feb. 3.”

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