Gold rises on policy stimulus expectations as G7 meets
March 3, 2020
“Gold prices rose on Tuesday on hopes of interest rate cuts by central banks as leading policymakers from the Group of Seven (G7) nations met to discuss how to contain the economic impact from the global coronavirus outbreak. Spot gold was up 0.8% at $1,602.85 an ounce by 1217 GMT, having gained more than 1% in the previous session … ‘The Fed fund futures have seen a shift from just pricing in one rate cut this year to three now. These shifting expectations have resulted in the weakening of the dollar and a supportive environment for gold prices,’ said FXTM market analyst Han Tan. Markets are pricing in a cut of at least 25 basis points to the current 1.5-1.75% target rate at the U.S. Fed’s March 17-18 meeting and a 10 basis point cut to the ECB’s rate at its March 12 meeting.
Investors are now focused on a G7 conference call on Tuesday, in which finance ministers and central bank governors will discuss ways to bolster their economies in the face of the spreading coronavirus outbreak … ‘Global economic conditions were fragile entering into 2020 and any hopes of them recovering in light of the expected dilution in trade tensions were snuffed out because of this coronavirus outbreak,’ FXTM’s Tan said.”
KITCO NEWS/Jim Wyckoff
Gold prices up; G-7 offers no specifics to combat coronavirus
March 3, 2020
“Gold and silver prices are higher on a further corrective bounce following sharp losses posted late last week. The safe-haven metals are also getting a bid after the Group of Seven finance ministers released a statement just a short while ago that offered no specifics on dealing with the coronavirus outbreak. That knocked the U.S. stock indexes down from their overnight highs. There is still risk aversion in the marketplace.
The G-7 statement, following a scheduled teleconference held, said central bankers ‘stand ready to cooperate further’ to address the coronavirus outbreak. Some market watchers were hoping the statement would provide more details on stimulating monetary policies to thwart the economic impact of the outbreak … President Trump again brow-beat the Federal Reserve in a tweet overnight, urging the U.S. central bank to lower interest rates … it’s very likely that higher market volatility will resurface, and probably soon. The Covid-19 outbreak has moved on and off the front burner of the marketplace many times over the past couple months, and such will likely continue for the near term.”
Fed Cuts Rates Half Point in Emergency Move Amid Spreading Virus
March 3, 2020
“The U.S. Federal Reserve delivered an emergency half-percentage point interest rate cut Tuesday in a bid to protect the longest-ever economic expansion from the spreading coronavirus. ‘The coronavirus poses evolving risks to economic activity,’ the Fed said in a statement. ‘In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point.’
The central bank also said it is ‘closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.’ The vote for the emergency cut to a range of 1% to 1.25% was unanimous. The Fed also said in the statement that the ‘fundamentals of the U.S. economy remain strong.’ The Fed acted hours after Powell and finance chiefs from the Group of Seven nations said they would ‘use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.’ That echoed a statement Powell made on Friday.”
MARKET WATCH/Rex Nutting
Coronavirus takes aim at heart of the American economy: Consumer spending
March 3, 2020
“We need to stop assuming that the coronavirus outbreak will have only a minor impact on the U.S. economy. With the virus that causes COVID-19 now spreading in communities around the country, it’s becoming more likely that the epidemic will slam consumer spending, at least for a few months. A recession cannot be ruled out. Most of the economic analysis on the virus has assumed that the biggest impact on the U.S. economy would come from disruptions to global supply lines from China and the rest of East Asia, leaving U.S. manufacturers and retailers without the goods they need.
In other words, it would hit the supply side of the economy, but not the demand side. But that assumption is so last week. Over the weekend, medical researchers punched a big hole in the rosy scenario that the outbreak would be contained, saying it’s likely that the highly transmittable virus has been spreading in Washington state for weeks without anyone knowing. That’s both good and bad news, because it means the disease may be less deadly than thought. But the bad news is that it’s easier to spread than hoped. That would mean that the outbreak is probably not going to be contained, as the Centers for Disease Control quietly telegraphed last week. And contrary to all the reassurances by the political leaders inside the Trump administration. If the virus should spread easily through the United States, Europe and the rest of the world, the rosy scenario of a modest economic impact would be wrong. The Organisation for Economic Co-operation and Development, although it is still clinging to containment as its base case, warned that growth could be negative worldwide.”
CNN BUSINESS/Matt Egan
Stocks got slammed. Here’s what history suggests happens next
March 3, 2020
“Last week’s coronavirus-fueled meltdown on Wall Street rivaled some of the scariest moments in modern history: The Great Depression, Black Monday, the Sept. 11 terror attacks and the 2008 financial crisis. Recession fears sent the S&P 500 careening 11.5% lower last week, plunging the index from record highs into a near-bear market. It was just the 14th time ever that the S&P 500 lost more than 10% of its value in a single week. History shows that markets tend to post powerful rebounds the week after such severe selling. And that scenario is playing out Monday, with the S&P 500 climbing nearly 3% on hopes that global central bankers will respond to the crisis by slashing interest rates. The Dow climbed more than 750 points, recovering a chunk of last week’s 3,583-point nosedive.
In the week after a 10% drop or more, the S&P 500 has averaged a 3.5% gain, according to Bespoke Investment Group. The index was positive 80% of the time, with the two exceptions occurring in 1929 and 1940, at the beginning and end of the Great Depression. The returns are a bit more mixed in the longer run, however. Bespoke found that three months after a 10% weekly plunge, the S&P 500 averaged a gain of 5.6%. However, the median gain was just 1.1%. And the broad index was actually down more often than it was up … The recovery from the current period of turmoil will be dictated by the economic damage done by the outbreak and ability of policymakers to soothe nervous investors. ‘It’s a little too soon for us to call an all-clear just yet,’ said Rob Haworth, senior investment strategist at US Bank Wealth Management. Haworth said he needs more clarity on the number of infections and deaths from the coronavirus — as well as the consequences to the economy.”
THE SOUTH CHINA MORNING POST/Zhou Xin
Coronavirus: will China’s economy shrink for the first time since the Cultural Revolution in 1976?
March 3, 2020
“The odds are rising that China will report a sharp deceleration in growth – or a contraction in the first quarter as a result of the impact of the coronavirus epidemic. The outbreak has paralysed the country’s manufacturing and service sectors, putting Beijing in the difficult position of either forgoing its economic growth goal for 2020 or returning to its old playbook of massive debt-fuelled economic stimulus to support growth. The deterioration in the official and private sector purchasing managers’ indices for both the manufacturing and services sectors to all-time lows in February – economic indicators showing the extent of the economic damage done by the epidemic – has prompted economists to slash their growth forecasts.
Several are even expecting the once unthinkable scenario in which China’s economy posts a zero-growth rate or even a contraction compared to the previous quarter. A contraction in first quarter growth would be the first since the end of the Cultural Revolution in 1976. A report published by the East Asian Institute at the National University Singapore noted that China could report a contraction of 6.3% in the first quarter from the first quarter of 2019, while the growth rate for 2020 is set to fall well short of the 5.6% needed by Beijing to meet its economic goal.”