REUTERS/K. Sathya Narayanan

Gold jumps past $1,700 level for first time in seven years on virus fears

March 8, 2020

“Gold prices jumped past the $1,700 per ounce level for the first time since late 2012 on Monday, as a widening coronavirus outbreak and a plunge in crude oil hammered equities and sent investors scurrying for safe havens. Spot gold rose 1.5% to $1,699.20 per ounce by 0054 GMT, having touched its highest since December 2012 at $1,702.45 earlier in the session. U.S. gold futures jumped 1.6% to $1,699.70 per ounce.  Asian equities sank as investors fled to bonds to hedge the economic shock of the coronavirus, and oil plunged more than 20% after Saudi Arabia slashed its official selling price.

“Japan’s economy shrank faster than initially estimated in the fourth quarter on a bigger decline in business spending, data showed, casting a deeper shadow over the outlook as the virus hit production and heightened recession risks … China’s exports contracted sharply in the first two months of the year while imports declined, data showed, as the health crisis triggered by the outbreak caused massive disruptions to business operations, global supply chains and economic activity.”

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NBC NEWS/Lucy Bayly

Trading halted as crude plunge pushes Dow down by 1,800 pts, S&P drops 7%

March 9, 2020

S&P drops 7%“The Dow Jones Industrial Average plummeted at the opening bell on Monday, sinking by more than 1,800 points as a fight over crude oil production created heightened pressure on a global economy already suffering the effects of the coronavirus epidemic. Within minutes of the opening bell, the S&P 500 plunged by 7 percent, triggering a “circuit breaker” that halted all trading for 15 minutes. Traders had anticipated a bloodbath on Monday, after oil prices cratered overnight by 30 percent, pushing all three major averages to declines of around 5 percent. Investors took shelter in safe havens, pushing gold to a seven-year high and pushing the 10-year Treasury yield to an all-time low of 0.3 percent by early morning.

The sell-off comes as fears mount that the viral outbreak will further disrupt supply chains, travel, and production around the world. Conditions worsened drastically after the world’s oil-producing countries failed to strike a deal at a meeting between cartel members in Vienna last week. The stalemate continued over the weekend, with Saudi Arabia and Russia reportedly planning to ramp up production on their own terms after the current deal expires at the end of the month.”

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BLOOMBERG/Dan Murtaugh and Alex Longley

Oil Crashes 31% in Worst Loss Since 1991 After Price War Erupts

March 8, 2020

Oil Crashes 31%“Oil crashed more than 30% after the breakup of the OPEC+ alliance triggered an all-out price war, with both Russia and Saudi Arabia poised to flood the market with cheap oil. The former allies pledged swift retribution for the collapse of the cartel’s meeting last week, with the Gulf kingdom slashing its official crude prices and threatening record production, while Russia’s largest producer said it will ramp up output next month. They risk swamping the market just as the coronavirus causes the first contraction in oil demand since 2009, according to the International Energy Agency. ‘The situation we are witnessing today seems to have no equal in oil market history,’ said IEA Executive Director Fatih Birol. ‘A combination of a massive supply overhang and a significant demand shock at the same time.’

Brent futures suffered the second-largest decline on record in the opening seconds of trading in Asia, behind only the plunge during the Gulf War in 1991. The international oil benchmark plummeted to as low as $31.02 a barrel and Goldman Sachs Group Inc. warned it could drop near $20. The cataclysmic price collapse will resonate through the energy industry, from giants like Exxon Mobil Corp. to smaller shale drillers in West Texas. It will hit the budgets of oil-dependent nations from Iraq to Nigeria and could also reshape global politics, eroding the influence of countries like Saudi Arabia. The fight against climate change may suffer a setback as fossil fuels become more competitive against renewable energy.”

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THE WALL STREET JOURNAL/Nick Timiraos

Fed Turns to Crisis-Era Playbook to Combat Market Disruptions

March 9, 2020

Combat Market Disruptions“A global market rout is forcing the Federal Reserve to revisit its 2008 crisis playbook in an attempt to ease strains on the plumbing of the financial system from investors’ reactions to the novel coronavirus.  The central bank took an initial step Monday to keep short-term funding markets operating by boosting the size of short-term lending operations, shelving its plans to gradually reduce those offerings.  The New York Fed said it would boost the amount of short-term lending it conducts on a daily and biweekly basis to satisfy rising demand from financial institutions and avoid further strains as U.S. banks and businesses prepare for greater disruptions from the coronavirus epidemic.

Investors have responded as the virus spread around the world, leading to plunging commodity prices, record low long-term Treasury yields and a renewed stock-market selloff. Monday’s adjustments by the Fed were designed to ensure that the supply of bank deposits held at the Fed, called reserves, ‘remains ample and to mitigate the risk of money market pressures that could adversely affect policy implementation,’ the New York Fed said. ‘They should help support smooth functioning of funding markets as market participants implement business resiliency plans in response to the coronavirus.’”

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MARKET WATCH/Andrea Riquier

Here’s how the plunging stock market could cause a recession

March 9, 2020

plunging stock market could cause a recession“The stock market is not the economy. But when stocks take as big of a hit as they have recently — plunging into a bear market in near-record time — Americans are right to be worried, as TS Lombard Chief U.S. Economist Steve Blitz explained. Here’s why. U.S. households are more heavily invested in stocks, whether directly or via funds, than at any time in decades. Blitz notes there was a strong correlation between the two in December 2018, when stocks ricocheted nearly 20% lower over a few weeks. ‘Nominal spending dropped 2.6% (month to month) in December but subsequently rebounded with the equity market,’ he wrote.

The biggest tailwind for the economy as the coronavirus sell-off began was the housing sector. Between construction, real estate financial services, and architecture and engineering jobs, housing-related employment was up 1.8% for the month in February. ‘Because confidence closely ties to the equity market, there being no greater statement of confidence than buying that first home, the sharp drop in equities most assuredly will reverse positive trends in housing,’ he said. Before trading was halted Monday morning, the Dow was down more than 1,880 pts, or 7.2%, while the S&P 500 index was off 7% and the Nasdaq was off 6.86%, following a selloff wave across global equity markets. There’s not a lot the Federal Reserve can do to help now. ‘The root of this equity downturn is an exogenous hit to earnings from the response to the virus, not in financial conditions that the Fed can readily walk-back by reversing policy,’ Blitz noted. That’s a contrast with not only the 2008 financial crisis, but also December 2018, which was resolved with Fed interest-rate cuts throughout 2019.”

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BUSINESS INSIDER/Spriha Srivastava

Gold hits 7-yr high but the ‘level of fear in markets’ could push it to $2,000

March 9, 2020

Gold hits 7-yr highGold prices jumped above $1,700 on Monday, hitting a 7-year high as a coronavirus-fueled sell-off pushed investors into safer assets.  However, analysts have said that the precious metal could continue to climb higher.  ‘Gold could go through $2,000 this year, especially post the Fed’s emergency action last week and the follow through we expect from them,’ Clark Fenton, manager of diversified returns at RWC Partners, said. ‘It may look like gold has already rallied strongly, but investors have not missed their opportunity – we think it has a long way to go from here, not simply because it’s commonly viewed as a safe haven but because the world has now changed fundamentally. We’ve never seen real rates this low globally, so investors will be forced to search beyond bonds to preserve their wealth,’ he added.

Assets such as government bonds and gold are viewed as safe havens for investors. When there is uncertainty and challenging market conditions, investors tend to rush from riskier assets … In the current market conditions, gold has found itself back near highs as stocks and bonds across the globe continue to remain under pressure. Adrian Lowcock, head of personal investing at Willis Owen, described the next few weeks as ‘potentially critical’ for investors, especially as the spread of coronavirus and the way governments and businesses deal with it evolve.”

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