CNBC/Patti Domm
JPMorgan becomes first major bank to say first-quarter GDP will decline because of Covid surge

JPMorgan economists now see an economic contraction in the first quarter due to the spreading coronavirus and related restrictions being imposed by states and cities.

The new forecast is a departure from Wall Street’s widely held view that the first quarter would be positive, with an improving economy throughout 2021.

The JPMorgan economists said they expect the economy to expand briskly in the second and third quarter, based on positive vaccine developments.

“This winter will be grim, and we believe the economy will contract again in 1Q,” the economists wrote.

They projected that the first quarter will contract by 1% after growth of 2.8% in the fourth quarter. For the second quarter, they see the economy rallying and growth of 4.5% followed by a robust 6.5% in the third quarter.

The economists also expect about $1 trillion of fiscal stimulus, likely beginning near the end of the first quarter. That should help boost midyear growth.

“One thing that is unlikely to change between 2020 and 2021 is that the virus will continue to dominate the economic outlook. … Case counts in the latest wave are easily surpassing the March and July waves,” the economists wrote.

They noted that the economy was helped through the July outbreak by the economic reopenings. “The economy no longer has that tailwind; instead it now faces the headwind of increasing restrictions on activity. The holiday season — from Thanksgiving through New Year’s — threatens a further increase in cases,” they added.

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CNN Business/Hanna Ziady
The climate crisis is looming large on Wall Street

For all their environmental overtures, banks are still pumping billions of dollars into fossil fuel companies. That could become a high-priced habit, as regulators move to tighten rules around how lenders reflect climate-related risks in their accounts.

What’s happening: The European Central Bank said last week that it will start conducting “in-depth” assessments of how bank balance sheets account for climate risks in 2022.

Banks will, for example, be expected to disclose how flooding and storms could affect the value of their real estate portfolios and customer supply chains, as well as take into account losses that could arise if businesses adjust their operations to be less carbon intensive.

“Ensuring that banks’ balance sheets also reflect climate-related and environmental risks is a prerequisite not only for the resilience of the banking sector, but also for the accurate pricing of these risks,” the ECB’s supervisory arm said in a statement on Wednesday, adding that it will begin discussions with lenders on the new approach early next year.

JPMorgan Chase (JPM), Wells Fargo (WFC), Citi (C) and Bank of America (BAC) top a list of global banks funding fossil fuel firms. Since 2016, the four banks have poured over $800 billion into companies in the coal, oil and gas sectors, according to a report by the Rainforest Action Network, an environmental group.

Some major banks have recently pledged to align financing with the Paris climate goals, but the details remain hazy and the sheer size of their exposures mean it’ll be easier said than done.

Big picture: Aside from damaging the planet, climate change could lead to heavy losses at banks and threaten the stability of the financial system.

More than half the syndicated loans of major US banks are in sectors of the economy that make them vulnerable to the risks posed by climate change, according to sustainability non-profit Ceres. This extends beyond loans to fossil fuel companies and includes sectors such as construction, manufacturing and agriculture.

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Reuters/Nakul Iyer
Gold rises as softer dollar, stimulus hopes outweigh vaccine optimism

Gold climbed higher on Monday, as a softer dollar and hopes of further U.S. monetary stimulus to cushion the pandemic-hit economy offset optimism over the possibility of a COVID-19 vaccine rollout next month.

Spot gold rose 0.2% to $1,873.51 per ounce by 0510 GMT and U.S. gold futures were little changed at $1,871.70.

U.S. Treasury Secretary Steven Mnuchin on Friday reassured markets that the Fed and Treasury had many tools left to support the economy, after deciding to de-fund several Federal Reserve lending programs by the end of the year.

“Ironically, the failure to deliver a fiscal package is supportive for gold,” said Michael McCarthy, chief strategist at CMC Markets, noting there might be more reliance on Fed support likely in the form of liquidity and lower interest rates as a result.

Non-yielding gold is often seen as a hedge against inflation that is likely to result from stimulus measures.

Also lending support to bullion was a softer U.S. dollar that reduced the cost of purchasing it to other currency holders.

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