The decline of the U.S. dollar could happen at ‘warp speed’ in the era of coronavirus, warns prominent economist Stephen Roach
“Stephen Roach, a Yale University senior fellow and former Morgan Stanley Asia chairman, tells MarketWatch that his forecast for a sharp deterioration of the U.S. dollar could be a very near-term phenomenon, not an event that looms off in the distance.
‘I do think it’s something that happens sooner rather than later,’ the economist told MarketWatch during a Monday-afternoon interview.
His comments come as the financial expert has been warning for weeks of an epic downturn of the buck that could signal the end of the hegemony of the greenback as a reserve currency — an event that would ripple through global financial markets.
‘In a COVID era everything unfolds at warp speed,’ Roach told MarketWatch on Monday. He pointed to the contraction of the U.S. economy from an employment rate that was hovering around a 50-year low at around 3.5% near the start of 2020 to one that shows some 49 million people unemployed since the pandemic took hold in March. He also noted the rapid and unprecedented fiscal and monetary response that has ballooned the Federal Reserve’s balance sheet to more than $7.2 trillion from $4 trillion at the start of the year as examples of the celerity at which the currency market could change.”
The Fed’s corporate bond buying is stoking bubble fears
“The Federal Reserve’s move into the next phase of its corporate bond buying is generating renewed concerns over potential asset bubbles.
While the initial announcement of the program provided a major lift to Wall Street, there now are worries that the risk-on sentiment could be getting carried away.
‘The Fed’s shock-and-awe campaign worked amazingly well,’ Yardeni Research founder Ed Yardeni said in his daily market note Monday. ‘This raises the question of whether the Fed really needs to do much more.’
Indeed, the mere pronouncement on March 23 that the Fed would establish two credit facilities – one for newly issued bonds and leveraged loans and another for those already on the market and tracked through ETFs – helped assuage a market that had locked up amid coronavirus fears.
The worries are that the market has now gone too far as interest rates linger around record lows and issuers count on perpetual Fed support should buyer appetite wane.
‘The goal was to restore liquidity to the credit markets,’ Yardeni said. ‘They are clearly functioning well again. If the Fed persists in flooding the markets with liquidity, the risk is that the Fed will create the greatest financial bubble of all times.’”
Gold prices get another boost as U.S. existing home sales disappoint in May
“Gold prices saw more gains and traded near five-week highs after U.S. existing homes sales missed expectations in May.
Existing home sales tumbled 9.7% last month to a seasonally adjusted and annualized rate of 3.91 million units, compared to April’s annualized rate of 4.33 million homes, the National Association of Realtors (NAR) said on Monday. The drop comes following a plunge of 17.8% in April. Economists were expecting to see a decline of 3% to 4.12 million units in May.
Gold prices edged up after the data release with August Comex gold futures last trading at $1,778.80, up 1.47% on the day.
Overnight, gold prices rallied and climbed to five-week highs on increased safe-haven demand triggered by a concerning rise of COVID-19 infections around the globe.
‘Traders and investors continue to weigh the positive aspect of economies continuing to come back to life and at a faster pace than most expected versus the negative aspect of a worrisome rise in Covid-19 cases worldwide, including in many states in the U.S. Importantly, the sense of the marketplace is that major central banks of the world will continue to print money if global economies show further signs of sputtering,’ said Kitco’s senior market analyst Jim Wyckoff.”