The Fed knows the economy isn’t roaring back
“The Federal Reserve has tipped its hand and its expectations to hold interest rates at the zero-bound range for the next two years is sapping hope of a sharp recovery out of financial markets and boosting gold prices.
Gold prices have recently pushed back to the top of their two-month trading range and in an interview with Kitco News, Christopher Vecchio, senior currency strategist of IG Group, said that in the current environment, it is only a matter of time before gold prices breakout to the upside. Additionally, a second wave of COVID-19 is likely to slow down any economic growth.”
Government’s cure for the coronavirus recession is worse for the global economy than the disease
“A major legacy of the COVID-19 pandemic will be a significant increase in already high global debt levels. In the U.S., government debt is expected to rise to $27 trillion by September 2020 from $23 trillion a year ago — a debt-to-GDP ratio of 135%. In OECD countries, debt levels are expected to increase by $17 trillion, rising from 109% to more than 137% of GDP.
Public sector debt increases reflect higher healthcare spending, actions to alleviate the economic effects of the COVID-19 crisis, emergency loans and the loss of tax revenues. Households and businesses have also substantially increased borrowings to cover income shortfalls. If the recovery is slower than expected, then the rise in borrowings will be greater.
Growth and debt are now inextricably linked. Increasing amounts of debt are needed to generate growth. Globally, around $2-$3 of new debt are needed to produce each dollar of growth. This means debt is increasing at a faster rate than growth.’
CNBC/Fed Imbert and Eustance Huang
Wall Street comeback fades, Dow now up 300 points
“Stocks rose on Friday, clawing back some of the sharp losses from Wall Street’s worst day since March.
The Dow Jones Industrial Average traded 329 points higher, or about 1.3%. The S&P 500 gained 1% while the Nasdaq Composite advanced 0.9%. The major averages were off their session highs, however. The Dow had gained more than 800 points earlier in the day.
Despite those sharp gains, the major averages were all on pace to post their first weekly losses in four weeks. The Dow and S&P 500 are both down more than 5% week to date while the Nasdaq has lost 2.4%.
Investors on Friday went right back into the plays whose fates hinge on a successful reopening of the economy. Carnival Corp jumped 11.1%. United Airlines climbed 11.2%. Other winners included brick-and-mortar retailers Kohl’s and Gap. Those stocks were hit big time during Thursday’s sell-off as investors feared the reopening of the economy could be delayed by a second wave of cases”
CNBC/Ranjeetha Pakiam and Elena Mazneva
Gold set for biggest weekly gain since April on bearish economic outlook
“Gold rose on Friday as fears regarding the resurgence of coronavirus infections and grim economic outlook by the U.S. Federal Reserve boosted demand for bullion, leading the metal towards its biggest weekly gain since early-April.
Spot gold gained 0.3% to $1,732.91 per ounce, and has jumped about 2.8% so far this week, which could be its biggest gain since the week of April 10. U.S. gold futures eased 0.1% to $1,738.60.
“One of the reasons has been the statement form the FOMC and the testimony of the (Fed Chair) Jerome Powell, painting a darker picture of the U.S. economy,” said Quantitative Commodity Research analyst Peter Fertig. Also, “there is talk about second wave especially after cases of new infections of the virus have risen again in some countries. A warning which many people ignored.””