REUTERS/Sumita Layek

Gold climbs on coronavirus-driven bets on interest rate cuts

March 2, 2020

“Gold rose more than 1.5% on Monday, recovering from its biggest one-day decline in nearly seven years, on the potential for interest rate cuts by the U.S. Federal Reserve to soften the economic impact from the coronavirus outbreak.  Spot gold was up 1.5% at $1,608.13 an ounce at 1050 GMT and U.S. gold futures rose 2.7% to $1,609. 60.  Amid a broad sell-off across global markets on Friday, gold plunged by more than 4.5% for its biggest daily decline since June 2013 as investors liquidated positions to meet margin calls in other assets.

‘The major price slump at the end of last week was overdone. The situation remains in and around coronavirus causing insecurity in the markets … so gold prices are rising,’ said Commerzbank analyst Eugen Weinberg. Fed Chair Jerome Powell on Friday said the U.S. central bank will ‘act as appropriate’ to support the economy in the face of risks posed by the coronavirus epidemic.  The market expects about three interest rate cuts this year, which is why the dollar is under so much pressure, Weinberg added. Futures now imply a 50 basis point rate cut at the Fed’s March 18 monetary policy meeting.”

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CNBC/Pippa Stevens

Gold has ‘immunity’ to coronavirus, Goldman says

March 2, 2020

Gold has ‘immunity’ to coronavirus, Goldman says“As the coronavirus outbreak continues to pressure global markets, Goldman Sachs said there’s one asset class that’s safe: gold. ‘While so much about the current environment remains unclear, there’s one thing that isn’t: gold, which—unlike people and our economies—is immune to the virus,’ Goldman Sachs head of global commodities research Jeff Currie said in a note to clients.

Gold rallied more than 2% during early trading Monday, although the precious metal is coming off its worst week since 2016. While gold is considered a safe haven asset since it typically retains its value during times of volatility, amid the broad wave of selling investors also reduced their exposure to gold, and on Friday prices fell 4.61% for the worst daily performance in nearly 7 years. Still, Currie said that it’s the ‘currency of last resort and avoids the concern that paper currencies could be a medium of transfer for the virus.’ ‘As a result, gold has outperformed other safe haven assets like the Japanese Yen or Swiss Franc, a trend we see continuing as long as uncertainty around the full impact of COVID-19 remains,’ he added. Gold has gained 5% this year, far outpacing the S&P 500′s more than 8% decline.”

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CNN BUSINESS/Charles Riley

Coronavirus is plunging the global economy into its worst crisis since 2009

March 2, 2020

Coronavirus is plunging the global economy into its worst crisis since 2009“The coronavirus is plunging the world economy into its worst downturn since the global financial crisis, according to the Organization for Economic Cooperation and Development, which warned Monday that growth could be cut in half if the outbreak continues to spread. Global gross domestic product would grow by just 1.5% in 2020 if the coronavirus spreads widely throughout Asia, Europe and North America, the OECD said. That’s roughly half the 2.9% growth rate the group projected for 2020 before the outbreak, and severe enough to push Japan and Europe into recession.

Policymakers around the world must act now to prevent such a scenario, the OECD said. It called for a coordinated global response to contain the outbreak, recommending that governments increase spending and central banks implement policies to help cushion the blow from the virus.  Even in the best-case scenario, in which the epidemic peaks in China during the first quarter and only mild outbreaks develop in other countries, the OECD predicts that the global economy would grow only 2.4%. That somewhat more optimistic forecast would still be the weakest level of growth since the global financial crisis in 2009. Global growth was about 3% last year.”

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Goldman economists expect Fed to cut rates to head off impact of outbreak

March 1, 2020

Goldman economists expect Fed to cut rates to head off impact of outbreak“There is growing consensus that the world’s central banks, including the U.S. Federal Reserve, will soon take policy action to avert a financial meltdown due to the coronavirus outbreak. Goldman Sachs Group Inc. economists on Sunday predicted the Fed would cut rates, possibly before its next meeting, scheduled for March 16-17. In a note, Goldman economists Jan Hatzius and Daan Struyven said they expect a 50-basis-point cut at, or before, the meeting, and an additional 50-basis-point cut in the second quarter. Fed Chairman Jerome Powell said Friday that the central bank is ‘closely monitoring’ the outbreak. ‘We will use our tools and act as appropriate to support the economy,’ he said.

The Goldman economists said they also expect rate cuts from the central banks of Canada, the U.K., Australia, New Zealand, Norway, India, South Korea and Switzerland, as well as the European Central Bank. ‘Specifically, we see a high risk that the easing we expect over the next several weeks occurs in coordinated fashion, perhaps as early as the coming week,’ the Goldman economists said. ‘Chair Powell’s statement on Friday suggests to us that global central bankers are intensely focused on the downside risks from the virus. We suspect that they view the impact of a coordinated move on confidence as greater than the sum of the impacts of each individual move.’ While the economists expect the Bank of Japan to stay pat on rates, it may still take action. On Monday, Bank of Japan Gov. Haruhiko Kuroda said in a statement that the central bank ‘will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases.’”

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Why a Coronavirus Recession Would Be So Hard to Contain

February 29, 2020

Why a Coronavirus Recession Would Be So Hard to ContainA supply shock is not a problem our usual economic tools are particularly good at solving. But it’s the one we face. It looks more and more likely that the novel form of coronavirus will do meaningful economic damage to the United States. Stock and bond prices already suggest that the outbreak could halt the longest expansion on record and even send the nation into recession. The risks loom larger because this particular crisis is ill suited to the usual tools the government has to stabilize the economy. If a recession happens, it will probably be a result of this poor fit between the economic effects of the potential pandemic and the mechanisms the government uses to try to keep the economy growing.

Interest rate cuts by the Federal Reserve — which appeared more likely Friday after a late-afternoon statement by its chairman, Jerome Powell — can lower borrowing costs and raise stock prices. But they can’t replace the goods made by factories closed to keep their workers from getting sick with Covid-19, the serious respiratory illness the virus causes. The government can try to pump more money into people’s pockets directly, such as with tax rebates, but money alone won’t put goods on empty store shelves. Beyond the natural limitations of policy to cushion the damage, there is the economic and political backdrop of the current moment: a Fed with little room to cut already-low interest rates, and a Congress divided along partisan lines while a president seeks re-election.

If a potential coronavirus downturn were a fire, the recession-fighters would be like a fire brigade low on supplies, fighting among themselves, and probably lacking the right chemicals to quench the flames anyway.”

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Italy faces recession as coronavirus hits economy

March 2, 2020

Italy faces recession as coronavirus hits economy“Italy’s economy performed woefully in 2019 and is set to do even worse this year due to the coronavirus, with the threat of recession looming large, experts said Monday. ‘In the best scenario for Italy, we expect zero growth (in 2020) with a negative first quarter followed by a slow recovery,’ OECD chief economist Laurence Boone said. The economy expanded last year by just 0.3% — its worst figure since 2014, when gross domestic product (GDP) growth was zero. Europe had fared badly across the board recently, weighed down by Brexit and US President Trump’s protectionist threats.

But Italy, the third largest economy in the eurozone, has lagged well behind the bloc’s 1.2% growth. The economy is traditionally export-driven and has been hit hard by global trade tensions, political uncertainty at home — two general elections in two years — and a slowdown in Europe, particularly in Germany. Prime Minister Giuseppe Conte’s government has had some good news — the public deficit fell to 1.6% of GDP last year from 2.2% in 2018, while the debt ratio at least remained stable at 134.8%, well above the EU limit of 60 percent. But just as Italy was expecting a gradual improvement in both growth and debt, the coronavirus epidemic struck. The country is the worst-hit in Europe, with 1,694 positive cases and 34 deaths, one of the largest outbreaks outside Asia.”

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