REUTERS/Brijesh Patel

Gold dips over 2% as dollar rises, but heads for quarterly gain

March 31, 2020

“Gold dropped as much as 2.4% on Tuesday as the dollar strengthened and strong Chinese economic data boosted risk appetite, but bullion was heading for a sixth straight quarterly rise amid fears over a global shutdown due to the coronavirus. Spot gold was down 1.1% at $1,604.91 per ounce by 1306 GMT. It has gained 5.7% for the quarter, and more than 1% this month. U.S. gold futures fell 1% to $1,606.70. ‘The combination of a strengthening dollar and better risk appetite is weighing on gold,’ OANDA analyst Craig Erlam said.

Strong Chinese factory data lifted world stocks on Tuesday but markets were heading for their worst quarter since 2008 on jitters about the economic hit from the coronavirus. More than 777,000 people have been infected by the new virus across the world and 37,561 have died, according to a Reuters tally. Central banks around the world have announced major fiscal and monetary packages to try to limit economic damage, as governments have extended lockdowns to combat the virus’ spread. ‘With central banks unleashing a tsunami of quantitative easing (QE) at a time when fear is running rampant in markets and (as) government debts are about to explode, it seems like the perfect cocktail that could push gold back to record highs,’ said Ajay Kedia, director at Kedia Commodities.”

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MARKET WATCH/ William Watts

The stock market might not bottom until the VIX comes down

March 31, 2020

magnifying glass over charts“Here’s one reason investors aren’t convinced the bear-market rout triggered by the global COVID-19 pandemic hasn’t bottomed out: a stubbornly high reading for an index known as the VIX. A closely watched measure of stock-market volatility, the Cboe Volatility Index typically was lower Monday at 58.74. That puts it on track to break a 10-session streak of closes above 60, a run that’s eclipsed the previous record eight-day stretch in November 2008, in the midst of the financial crisis. The index, which has a long-run average around 20, hit an all-time high earlier this month as stocks plunged into a bear market.

‘While the S&P 500 rallied 20%+ from its low during the week, VIX remained stubbornly elevated along with stock implied correlations,’ said Julian Emanuel, chief equity strategist at BTIG. ‘True bull markets tend to be low volatility and uncorrelated — December and January seem so long ago.’ It would likely take a sustained move below 50 by the VIX for stocks to make sustainable upside progress, he said, while a retest of the March 23 lows is ‘entirely possible as a base is built.’”

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CNN BUSINESS/Christine Romans

It will be a devastating week for the US economy. There is no playbook — and stimulus must come fast

March 31, 2020

two trees separated by water“The economy is cratering deeper than we have seen in our lifetimes. Layoffs are coming so quickly, the state unemployment offices can’t keep up. Banks are flooded with calls about upcoming mortgage and loan payments. Downtowns are deserted, malls are closed, bars are empty, and airplanes are grounded.  A sudden stop in the economy so severe, Goldman Sachs economists now forecast real GDP growth of negative 9% in the first quarter and down an astonishing 34% in the second. Economists at Goldman Sachs expect the economy to recover mid-year with a 19% gain in the third quarter.

The biggest economy in the world has stopped. The demise is so swift, it hasn’t been reflected yet in the monthly data.  Consider Tuesday morning’s consumer confidence report. It will likely show consumers’ confidence commensurate with a healthy economy.  Friday’s monthly jobs report will barely begin to reflect the devastating fallout in the jobs market. The survey period was the second week in March, a time when Americans were just waking up to the threat of the virus and social distancing had not yet been implemented.  Economists at Goldman Sachs predict the jobless rate with hit 15% by mid-year. The window into the carnage comes in the weekly data. We learned last week 3.28 million Americans filed for jobless benefits for the first time.  This week will probably show millions more layoffs. Moody’s Analytics chief economist forecasts another 4.5 million first-time filings for jobless benefits this week, which would be the highest in history.”

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CNBC/Jeff Cox

Coronavirus job losses could total 47M, unemployment may hit 32%, Fed says

March 30, 2020

New York Department of Labor“Millions of Americans already have lost their jobs due to the coronavirus crisis and the worst of the damage is yet to come, according to a Fed estimate. Economists at the Fed’s St. Louis district project total employment reductions of 47 million, which would translate to a 32.1% unemployment rate, according to a recent analysis of how bad things could get. The projections are even worse than St. Louis Fed President James Bullard’s estimate of 30%. They reflect the high nature of at-risk jobs that could be lost to a government-induced economic freeze aimed at halting the coronavirus.

‘These are very large numbers by historical standards, but this is a rather unique shock that is unlike any other experienced by the U.S. economy in the last 100 years,’ St. Louis Fed economist Miguel Faria-e-Castro wrote last week. There are a couple of important caveats to what Faria-e-Castro calls ‘back-of-the-envelope’ calculations: They don’t account for workers who may drop out of the labor force, thus bringing down the headline unemployment rate, and they do not estimate the impact of recently passed government stimulus, which will extend unemployment benefits and subsidize companies for not cutting staff. However, the jobless picture already looks bleak. A record 3.3 million Americans filed initial jobless claims for the week ended March 21. Economists surveyed by Dow Jones expect another 2.65 million to join them this week.”

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Economists Are Losing Hope in a ‘V-Shaped’ Post-Virus Recovery

March 31, 2020

economists losing hope“The base case for forecasters is that a recovery, perhaps even a vigorous one, gets under way in the second half of 2020. But as the pandemic spreads through Europe and the Americas, and the wide range of knock-on effects comes into clearer view, caveats to that call are piling up. Underlying all of them is the simple fact that economic outcomes hinge on something that’s beyond the professional competence of most economists to forecast: the trajectory of the disease itself.

‘We have no certainty the virus will be gone by the end of the second quarter,’ said Nobel prizewinner Joseph Stiglitz, a professor at Columbia University. If it ‘lasts through the summer, then all the effects will be amplified.’ Beyond that, there is an array of questions for economists to grapple with — and those doubts increasingly undermine projections for what’s known as a ‘V-shaped recovery,’ in which lost output is quickly restored. Rather than sounding a decisive ‘all clear,’ health authorities seem likely to advocate a gradual return to normal working life, so the behavior known as ‘social distancing’ may stick around. Along with financial blows sustained during the downturn, that is likely to damp spending on travel or spending at shops or restaurants — assuming those businesses can stay afloat in the first place. ‘It takes more time to get ‘back to play’ than to get back to work,’ said Catherine Mann, chief economist at Citigroup Inc. This ‘underpins concerns for the trajectory for services-dependent advanced economies in the second half of 2020,’ she said.”

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BARRON’S/Pierre Briançon

Why The ‘Coronabond’ Dispute Is Tearing Europe Apart

March 31, 2020

Euro sinking“Revisiting their old quarrels in the heat of a new crisis, European leaders are at loggerheads on the best way to beef up their economic response to the coronavirus. Successive meetings of either finance ministers or EU leaders in the past month have failed to come up with any decision on how to proceed. The dispute has crystallized around the proposal that the eurozone should consider launching so-called coronabonds, a form of joint debt vehicle, to help finance the major fiscal effort needed to fight the virus.

The divide in Europe, between governments arguing for more risk-sharing and governments for whom charity begins at home with strict fiscal discipline, may sound eerily like the one that threatened the eurozone’s very existence in the heat of the euro crisis ten years ago … The terms of the debate are simple. European governments have reacted on time, and with significant packages, to the predictable economic shock. A simple, back-of-the-envelope calculation shows that they have already announced, and begun to implement, a fiscal boost equivalent to about 2.5% of their combined gross domestic product. But that may not be nearly enough even on a temporary basis But whether they can agree or not, and however much time it takes them to do so, European leaders, by rehashing their old differences, illustrate that they have begun to ponder a question that they will have to tackle sooner or later: how to manage their economies with increased debt once the pandemic is over?”

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