Fox Business/Jonathan Garber
US dollar to weaken as coronavirus recovery forges ahead
“The U.S. dollar is set to weaken further as risky assets gain momentum while the economy recovers from a COVID-19 induced slowdown, according to Wall Street analysts.
The greenback, which is mired in a four-week losing streak, its longest in nearly one and a half years, has fallen 6.69 percent from its year-to-date peak on March 20 through Friday.
“Although the U.S. dollar has stabilized over the past month or so fears about a second wave have held back the rebound in risky assets, we continue to think that it will lose further ground over the rest of 2020, unless the resurgence of new cases undermines the global economic recovery,” wrote Jonas Goltermann, senior markets economist at London-based Capital Economics.”
U.S. bank deposits not worth what they were before COVID-19
“Big banks are making a lot less money from their deposits than they did before the coronavirus pandemic.
Net interest income, the difference between what banks pay for money and what they receive lending it out, fell by $5 billion, or 10%, at the four biggest U.S. banks in the second quarter from a year earlier.
The plunge came after the Federal Reserve pushed down overnight interest rates in March to near zero to support the economy’s struggle against the coronavirus pandemic.
With rates down on loans and securities, the banks earned less investing their deposits. JPMorgan Chase & Co, (JPM.N) for example, reported that its net interest spread from consumer deposits fell to 1.52% in the second quarter, from 2.60% a year earlier when the Fed benchmark was 2.25%.
Bank of America Corp (BAC.N), which boasts the most consumer deposits of U.S. banks, said profits from consumer deposits fell to $785 million from $2.2 billion a year earlier.
“Those deposits aren’t as valuable in a lower-rate environment,” Chief Financial Officer Paul Donofrio told analysts. “You’re now seeing us getting hurt.””
Yahoo Finance/Reuters/Brijesh Patel
Gold firms near nine-year high on stimulus bets, silver soars
“Gold held firm near a nine-year peak on Tuesday as expectation of higher inflation from increased stimulus countered the resultant gain in risk appetite, while silver breached the $20 level for the first time since September 2016.
Spot gold was up 0.2% at $1,818.23 per ounce by 0510 GMT after hitting its highest since September 2011 on Monday. U.S. gold futures rose 0.2% to $1,821.10.
“What’s really driving the gold market is stimulus and we are going to get more of it. It’s the eye candy that’s driving sentiment right now,” said Stephen Innes, chief market strategist at financial services firm AxiCorp.
Gold tends to benefit from widespread stimulus as the metal is widely viewed as a hedge against rising prices and currency debasement.”
FX Street/Giles Coghlan
Three reasons gold is set for more gains
“Gold has further to go for the following three reasons. The primary reason for more gold upside is that there is more stimulus to come from around the world. The EU recovery fund was agreed yesterday and this puts pressure on the UK to add further stimulus to their economy as Brexit looms. Furthermore, the increase in COVID-19 cases globally, especially in the US, means that the Fed is likely to ease more which will suit gold upside. So, here are three reasons to support gold’s upside:
Fed officials have warned that the US outlook is getting worse and easing is the answer. Chicago Fed Chief said, ‘I’m worried about the downside risks and I think that’s how policy needs to be positioned’. John Williams and Raphael Bostic also gave additional signals.
The Bank of England is expected to add more stimulus to the UK economy as it is stuck with Brexit and COVID-19 struggles. Economists at Goldman Sachs think that the bank could signal in August that rates could turn negative.
Thirdly, Jean-Sebastian Jacques, head of diversified miner Rio Tinto and an executive keyed in with the heartbeat of the global economy says: ‘the uncertainty in the marketplace is because there is no doubt -it’s a question of when – we will have a second wave of COVID-19.
So, gold has taken out and been supported at the $1800 level. The $2000 is not looking impossible by year-end.”