REUTERS/ Asha Sistla

Gold dips in volatile trade as rush for cash overshadows stimulus efforts

March 19, 2020

“Gold fell in volatile trade on Thursday as fears of a worsening epidemic and its fallout on the global economy sent investors scrambling for cash. Spot gold was trading down 0.4% at $1,480.00 per ounce by 0753 GMT. The metal fell about 3% on Wednesday along with other precious metals. U.S. gold futures rose 0.3% to $1,481.70. ‘When panic strikes people liquidate everything that isn’t perfectly liquid … when sentiment steadies a bit the whole thing goes the other way,’ said DailyFx currency strategist Ilya Spivak. ‘Yesterday was a big liquidation on day, and now we’re seeing a liquidation off correction.’

The ECB launched a 750 billion euro ($818 billion) emergency bond purchase programme on Wednesday to push down borrowing costs in a bloc struggling with the economic fallout of the virus.  The Japanese government is expected to lay out economic packages, while Germany’s Chancellor urged its citizens to adhere to rules to reduce social contact. The U.S. Senate overwhelmingly passed legislation providing billions of dollars to limit the damage from the outbreak through free testing, paid sick leave and expanded safety-net spending.”

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CNBC/Pipa Stevens

Bank of America says the recession is here: ‘Jobs will be lost, wealth destroyed’

March 19, 2020

Broken Eggs“Bank of America warned investors on Thursday that a coronavirus-induced recession is no longer avoidable — it’s already here. ‘We are officially declaring that the economy has fallen into a recession … joining the rest of the world, and it is a deep plunge,’ Bank of America U.S. economist Michelle Meyer wrote in a note. ‘Jobs will be lost, wealth will be destroyed and confidence depressed.’ The firm expects the economy to ‘collapse’ in the second quarter, shrinking by 12%. GDP for the year will contract by 0.8%.

Bank of America looked at the labor market as a way to understand the ‘magnitude of the economic shock.’ The firm expects the unemployment rate to nearly double, with roughly 1 million jobs lost each month of the second quarter for a total of 3.5 million. The coronavirus outbreak has already sent global markets into a tailspin. The S&P 500 and Dow Jones Industrial Average are trading in bear market territory, and now sit around 30% below their all-time high levels from just last month. Meyer said it’s only going to get worse. The firm sees a trough in April, followed by a ‘very slow return to growth thereafter with the economy feeling somewhat more normal by July.’”

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NASDAQ/Marshall Gittler

The Longest Record Broken: Gold/Silver Ratio Hits Highest in Over 5,000 Years

March 17, 2020

gold/sigols/silver ratio“Another day, another disaster … This is the fastest the stock market has ever gone from a peak to a bear market … The most amazing record broken was not in the stock market, however. It was the long-standing record in what’s perhaps the longest-running price series in financial history: the gold/silver ratio (i.e. the price of one ounce of gold in terms of ounces of silver). Monday’s market sent that price to a record high – the highest level in over 5,000 years.

We have data for this series going back a long, long time … There’s evidence that the ratio goes up before and during recessions. One view by Wheaton Precious Metals is that the ratio is ‘an indicator of the global monetary condition’ and ‘during periods of inflationary monetary proliferation, the ratio falls. During eras of deflationary monetary destruction, the ratio rises. To put it plainly, these highs are alerting us to a pervasive capital shortage’ …. It would also explain why this historical high coincides with the most powerful coordinated central bank injection of funds since the Global Financial Crisis, and indeed perhaps ever. Perhaps the 5,000-year high in this indicator is warning us of a tremendous deflationary period ahead … It seems that the ‘paper’ market, the futures and ETFs do not reflect the heightened demand on the street for hard metal during this time of insecurity. In that case, gold prices could be even higher and the ratio even higher than what we see. Given how exceptional the current ratio is – does this mean silver is a good bet to appreciate vs gold now? Over the longer term, I would think so. A ratio like this cries out for mean reversion.”

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MARKET WATCH/William Watts and Andrea Riquier

Stocks open mostly lower as government, central bank efforts fail to calm nerves

March 19, 2020

european union“U.S. stocks opened mostly lower in seesaw price action as investors digested the latest economic data showing the impact of the coronavirus pandemic as well as moves by government and central banks to alleviate the crisis.  Overnight stock futures received some support from the Federal Reserve which announced a facility to backstop money-market mutual funds and the European Central Bank which rolled out an expanded asset-purchase program.  The Dow Jones Industrial Average opened 130 points, 0.7%, lower, at about 19,769 while the S&P 500 was down 12 points, 0.5%, lower, opening at about 2,386. The Nasdaq Composite Index opened about 4 points, less than 0.1%, near 6,994, then turned slightly negative.

On Wednesday, the Dow fell 1,338.46 points, or 6.3%, to end at 19,898.92, for its lowest close since Feb. 2, 2017. The S&P 500 dropped 131.09 points, or 5.2%, to end at 2,398.10, while the Nasdaq Composite lost 344.94 points to end at 6,989.84, down 4.7%. The Fed announced a new Money Market Mutual Fund Liquidity Facility, or MMLF, to assist money-market funds in meeting demands for redemptions by households and other investors. Meanwhile, the European Central Bank, in an emergency meeting, said it was launching a new program that would allow it to buy 750 billion euros ($820 billion) in government and private sector bonds as well as commercial paper.”

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BLOOMBERG/Elizabeth Stanton

‘Fear Factor’ Reigns as U.S. Prepares to Sell Debt

March 19, 2020

market-implied inflation“It’s a dicey time to sell bonds, but that’s how the U.S. Treasury Department rolls. Measures aimed at shoring up liquidity in the tumultuous U.S. debt market face a key test Thursday when investors will be asked to pony up $12 billion in arguably the Treasury market’s most problematic corner — inflation-linked notes. While the entire $17 trillion U.S. government bond market has experienced sky-high volatility this month, the bottom has fallen out of Treasury Inflation-Protected Securities (TIPS) amid concern about a deflationary economic slowdown.

‘The fear factor is going to be very, very high,’ said Gang Hu, managing partner at Winshore Capital Partners. The auction shouldn’t fail, because primary dealers will place bids, though they are likely to be extremely cautious, Hu said. The success of the auction will depend on demand from investors, including passive funds, which have grown. But without strong buy-side demand, ‘you could see a tail larger than anything we’ve ever seen,’ Hu said … The global economic and financial crisis caused by the coronavirus pandemic has drained liquidity from financial markets, including from Treasuries, the world’s deepest debt market. The damage has been particularly acute in TIPS, which have less liquidity than regular Treasuries to begin with. They also are sensitive to movements in the oil market, which this week saw West Texas crude collapse to as little as $20 a barrel.”

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CNN BUSINESS/Julia Horowitz

Wall Street is updating its recession predictions. They’re extremely bleak

March 19, 2020

money paper plane crashing“JPMorgan Chase (JPM), the biggest US bank, has dramatically changed its economic forecast for the next year. And it’s bleak. ‘There is no longer doubt that the longest global expansion on record will end this quarter,’ Bruce Kasman, the bank’s head of economic research, told clients on Wednesday. ‘The key outlook issue now is gauging the depth and the duration of the 2020 recession.’ JPMorgan believes China’s economy will shrink by 40% compared to the previous quarter between January and March, the biggest contraction over the past 50 years. That will reverberate across Asia. The shock to the U.S. and Europe, meanwhile, is expected to be concentrated between April and June as daily life grinds to a standstill. The bank thinks US GDP will shrink an annualized rate of 14% in the second quarter, far worse than in the fourth quarter of 2008, which yielded the steepest contraction of the Great Recession.

The European Central Bank on Wednesday announced a huge new money-printing program. It said it would spend €750 billion ($821 billion) buying government debt and private securities before the end of 2020, and stands ready to do even more if necessary. But even that action has failed to steady stock markets, which fell again in much of Europe in early trading … the updated forecasts from the bank — which has global growth contracting 12% in the first quarter and 1.2% for the second quarter, as China gets its economy back on track — is among the most dire published by Wall Street. It’s a sign of how rapidly the situation is changing, and how investors are still racing to catch up to complete shutdowns in large parts of the world.”

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