Gold gains as risk appetite falters, trade optimism sours
November 14, 2019
“Gold rose on Thursday, extending gains to a third session, as weak Chinese data and doubts about whether Beijing and Washington will reach a trade deal anytime soon dented demand for riskier assets. Spot gold was up 0.4% at $1,468.23 per ounce, as of 1224 GMT, having climbed to a high of $1,470.33. U.S. gold futures also rose 0.4% to $1,468.90 per ounce. China and the United States are holding ‘in-depth’ discussions on a first-phase trade agreement, and cancelling tariffs is an important condition to reaching a deal.
‘We are seeing some risk aversion in the markets,’ said Craig Erlam, OANDA senior market analyst, adding: ‘The commentary from both sides has kind of taken away some optimism around this phase one deal.’ On Tuesday, President Trump said a trade deal with China was ‘close’ but offered no details and warned he would raise tariffs ‘substantially’ on Chinese goods without
such an accord. ‘Gold should be in greater demand at least in the short term because the negotiations of a partial agreement in the trade dispute between the U.S and China appear to have stalled,’ Commerzbank analyst Daniel Briesemann said in a note.”
KITCO NEWS/Anna Golubova
Gold in 2020: Prices to climb to $1,600 in 12 months after correction
November 13, 2919
“Gold is heading higher next year, but investors should wait until the current correction is over before jumping in, according to one Dutch bank. ABN Amro’s 2020 gold forecast sees gold starting next year at $1,450, then heading to $1,500 in Q2, followed by a rise to $1,550 by the end of Q3, and then $1,600 by the end of Q4.
‘For 2020 we are more optimistic for gold prices if a considerable amount of long positions has been closed. Our year-end 2020 gold price forecast remains at USD 1,600 per ounce,’ wrote precious metals strategist Georgette Boele … ‘The long position is still a crowded trade. In the absence of a renewed rally, investors will likely take profit on part of their positions. This will result in more near-term price weakness,’ she said. But gold will be back at its September’s multi-year high of $1,557 in less than a year, according to the bank’s forecast.”
THE WALL STREET JOURNAL/Paul Hannon, Tom Fairless and Megumi Fujikawa
Growth in Economic Powerhouses Starts to Diverge
November 14, 2019
“A split in the fortunes of the global economy is emerging as Europe’s stuttering powerhouses start to steady but their Asian counterparts remain caught in a downward trajectory, a division that demonstrates growth’s vulnerability both to trade tensions and the reluctance of business to invest. Growth in China, the world’s second-largest economy, slowed further in October, according to government data released Thursday, as a trade war with the U.S. drags on. Industrial output, household consumption and fixed-asset investment all produced disappointing figures for the month.
In Japan, the next-biggest economy, growth in the three months through September hit its weakest point since the same time last year as the U.S.-China trade dispute and Tokyo’s frictions with South Korea weighed on exports. In Australia, an economy with close ties to China, the number of people in employment fell by 19,000 during September—the largest such drop in three years. But there are some signs that the slowdown has come to a halt in Europe. Germany, the continent’s largest economy, has been hard hit over the past year by slowing exports to the U.K. and Asia, alongside problems in its key automobile industry. However, figures released Thursday showed it narrowly avoided recession—defined as two consecutive quarters of economic contraction— in the third quarter. Taken as a whole, recent signals from the global economy don’t offer much hope of a significant world-wide rebound soon.”
MARKET WATCH/Jeffry Bartash
U.S. jobless claims jump to nearly 5-month high of 225,000
November 14, 2019
“The number of people who applied for jobless benefits last week shot up to a nearly five-month high, but the surprising spike likely stemmed from season quirks just ahead of the holiday season instead of a pronounced increase in layoffs. Initial jobless claims rose 14,000 to a seasonally adjusted 225,000 in the seven days ended Nov. 9, the government said Thursday. That’s the highest level since late June. Economists polled by MarketWatch estimated new claims would total 215,000. The monthly average of new claims nationwide, meanwhile, rose a much smaller 1,750 to 217,000.
… Actual or unadjusted jobless claims posted inordinately large increases in a handful of states, including California, New Jersey, New York, Minnesota and Texas. It’s possible the wildfires in California contributed to the increase in that state. The level of unadjusted claims, however, was virtually unchanged compared to the same week in 2018 … That might be a sign the big increase in seasonally adjusted claims is an anomaly. The government adjusts jobless claims to account for periodic swings in seasonal employment patterns. In most weeks the adjustments don’t matter, but can result in gyrations that are pronounced around big holidays such as Thanksgiving and Christmas. Wall Street is sure to watch jobless claims closely in the coming weeks to see if they continue to rise.”
YAHOO FINANCE/Clare Jim and Sumeet Chatterjee
As recession takes hold, Hong Kong banks worry about risk of easier mortgage rules
November 13, 2019
“Even as Hong Kong has reduced down-payment requirements to help young professionals and families to buy homes, banks are beefing up mortgage application standards to ensure that a recession does not saddle them with bad loans, bankers and mortgage brokers said. Last month, Hong Kong Chief Executive Carrie Lam, struggling to restore confidence in her administration after five months of civil unrest, approved rules allowing first-time homebuyers to borrow as much as 90% of a HK$8 million ($1 million) home’s cost. Earlier, such a high ratio was only permitted on properties worth half as much. The move increased sales of used homes.
But as the protests take a heavy toll on the special administrative region’s economy, banks fear a deepening recession, unemployment and bankruptcies, which could make it hard for borrowers to pay them back, two bankers said. Historically, mortgage delinquency is rare in Hong Kong, with a rate of about 0.02%. One of the top mortgage lenders in Hong Kong, recently issued a guideline that buyers cannot have a mortgage payment that exceeds 65% of their monthly income, must hold a full-time job and own no other property, said two industry sources. Lenders including HSBC, Standard Chartered and Bank of China Hong Kong also plan to increase interest rates for mortgages and reduce cash rebates to borrowers in the months ahead, two bankers said. The cash rebate – essentially a discount – has come down to as low as 0.5% now, compared with an average of 2% earlier this year. Some banks are planning to phase it out completely, they said. ‘We have to use all the tools… to protect our profitability and asset quality in this environment. You will see more measures in the next few months,’ said a Hong Kong-based banker with a European bank.”
BLOOMBERG/Karl W. Smith
Powell’s Warning to Congress About the Next Recession
November 13, 2019
“Federal Reserve Chair Jerome Powell had a message for Congress in his testimony Wednesday before the Joint Economic Committee: The Fed won’t be able to fight the next recession all by itself — it’s going to need help from Congress. Powell is undoubtedly correct that fiscal policy will have to play a major role in any response to the next economic crisis. But he should also be realistic about what it can achieve. The Fed will also need a better monetary framework.
There is no escaping the fact that unless the U.S.’s economic conditions change substantially; the Fed will not be able to cut interest rates enough to significantly mitigate (let alone turn around) a major recession. As Powell noted, during a downturn the Fed has historically cut interest rates by about five percentage points. Currently interest rates are at 1.75%. While it’s technically possible for them to go below zero, doing so causes significant problems in the financial sector and the Fed has all but ruled out the possibility. That implies that the Fed has only roughly a third as much room as usual to cut rates in response to a recession.”