REUTERS/K. Sathya Narayanan
Gold softens as trade deal signs boost equities, dollar
November 27, 2019
“Gold prices dipped back towards the previous session’s two-week low on Wednesday as increasing signs that an interim trade deal could soon be reached buoyed riskier assets and the U.S. dollar. Spot gold was down 0.4% at $1,456.01 per ounce as of 1327 GMT, while U.S. gold futures were 0.3% lower at $1,455.80. Having dropped to a two-week low of $1,450.30 early on Tuesday, gold prices bounced back to settle higher, ending a four-session losing streak.
‘The decline of today is relatively small and can be seen as a consolidation after yesterday’s recovery,’ said Carlo Alberto De Casa, chief analyst at ActivTrades. Rising share prices and a recovering dollar were relatively bearish for gold, he said. ‘What’s important is that prices are holding above $1,450… If prices fall below $1,445, then there will be a clear signal that we are entering a danger zone,’ De Casa said, adding the markets are waiting for further details on the trade talks.
U.S. President Donald Trump on Tuesday said Washington was in the ‘final throes’ of a deal that would defuse the 16-month tariff dispute with Beijing.”
MARKET WATCH/Barbara Kollmeyer
December selloff warning from strategist who predicted last year’s rout
November 27, 2019
“Around this time a year ago, Seema Shah, chief strategist at Principal Global Investors, warned that stocks were facing an imminent selloff. Her call proved spot on as 2018 closed with the worst December Dow and performances since 1931. Fast forward and the S&P is set for its best annual return since 2013, provided next month isn’t a disaster. Shah provides our call of the day, cautioning that equities are at risk of another selloff if a partial trade deal can’t be reached before the next tariff deadline on December 15.
‘If that trade deal doesn’t happen and if everything falls apart and it feels like tensions are getting worse, then I think we are facing a potential repeat of last year, and it will be worse,’ Shah told MarketWatch. She explains a ‘bigger shock move’ would be probable because liquidity falls so much in December. (Read more about why another December meltdown is easily repeatable.) But Shah thinks markets will get that trade deal because President Donald Trump is facing an election year and China can’t afford more economic pressure. Further support for stocks will come from a stabilizing global economy in 2020 and continued low-interest rate central bank policies. But she’s keeping her S&P 500 outlook for next year moderate—3000 to 3250.”
Global car sales to slide by 3.1 million in steepest drop since Great Recession
November 25, 2019
“Car sales around the world are expected to see their steepest year-over-year decline in 2019 since the financial crisis as consumer demand from the U.S. to China softens. Global car sales are expected to fall by about 3.1 million in 2019, a bigger drop than in 2008, Fitch Ratings economics team said Monday, citing data collected by the International Organisation of Motor Vehicle Manufacturers. The slowdown in auto sales is contributing to a drag on global manufacturing, Fitch said. ‘The downturn in the global car market since the middle of 2018 has been a key force behind the slump in global manufacturing and the car sales picture is turning out a lot worse than we expected back in May,’ Brian Coulton, chief economist at Fitch Ratings, said in a statement.
Global passenger car sales fell to 80.6 million in 2018 from 81.8 million new units sold in 2017, which was the first annual decline since 2009, Fitch said. Worldwide sales in 2019 look likely to fall by another 4% to around 77.5 million new vehicle sales. Falling demand in China, the world’s largest auto market, is a major factor in the worldwide decline this year. Sales there fell 11% during the first 10 months of this year compared with the same time last year. Coulton said weak credit growth, a rise in used car sales and new emissions standards depressed new car sales in China.”
BLOOMBERG/Craig Stirling and John Ainger
Global Risk-Taking Binge Is Worrying Central Banks
November 26, 2019
“Global central banks are approaching the end of the year with a collective shudder at the risky behavior that their low interest-rate policies are encouraging. Policy makers from European Central Bank and the Federal Reserve are among those raising cautionary flags at potentially unsafe investing stoked by their efforts to flood economies with ultra-cheap money. Stock indexes from the U.S. to India are at records, and low sovereign bond yields have pushed funds into property seeking better returns.
The warnings are couched in measured language that doesn’t signal panic, but the combined message is one of growing anxiety, laced with the discomfort that central bankers can’t easily tighten policy either. The danger is that such risk-taking recreates a backdrop similar to that preceding the global financial crisis a decade ago. ‘Markets have been complacent, but this is probably the outcome of low rates or negative rates,’ Sergio Ermotti, chief executive officer of UBS Group AG, told Bloomberg TV last week at the New Economy Forum in Beijing. ‘The chances that one day or the other things are going to be out of sync is increasing.’ Historically-low interest rates are warping markets. In August, some $17 trillion of global investment-grade debt, around a third of the total, had negative yields. That means investors holding a bond to maturity may receive less at the end than they paid out at the beginning — upturning financial wisdom that you should get compensated for lending money.”
Fed analysis warns of ‘economic ruin’ when governments print money to pay debt
November 25, 2019
“Federal Reserve economists warn that printing money to pay for deficit spending has been a disaster for other nations that have tried it. In a paper that discusses the burgeoning U.S. fiscal debt, Fed experts note that high levels are not necessarily unsustainable so long as income is rising at a faster pace. They note that countries that have gotten into trouble and looked to central banks to bail them out haven’t fared well. ‘A solution some countries with high levels of unsustainable debt have tried is printing money. In this scenario, the government borrows money by issuing bonds and then orders the central bank to buy those bonds by creating (printing) money,’ wrote Scott A. Wolla and Kaitlyn Frerking. ‘History has taught us, however, that this type of policy leads to extremely high rates of inflation (hyperinflation) and often ends in economic ruin.’
They cite Weimar-era Germany, Zimbabwe in the 2007-09 period and Venezuela currently. All three faced massive deficits that led to hyperinflation due to money printing. ‘An important protection against this type of policy is to create an independent central bank that is insulated from the political process and has clear objectives (such as a specific target for the inflation rate) so that it can make policy decisions to sustain economic health over the long run rather than respond to political pressures,’ the economists added.”
THE GUARDIAN/Martin Farrer and Kalyeena Makortoff
As Hong Kong suffers, China risks losing its financial window on the world
November 26, 2019
“The most recent violence in the autonomous Chinese region have been the worst disturbances of the six-month long pro-democracy protests. US lawmakers have passed legislation threatening Hong Kong’s special trading status and the territory has slumped into its worst recession for 10 years. With next year shaping up to be even tougher, the protesters appear to have achieved the ambition expressed in a recent poster on social media this week. ‘Squeeze the economy to increase pressure,’ it urged. Trade and commerce are the lifeblood of Hong Kong but it is bleeding badly. The economy is expected to shrink by 1.4% in 2019 and economists think growth could wither by as much as 3% in 2020 without a big fiscal stimulus.”
“The decision by the US Congress to pass the Hong Kong Human Rights and Democracy Act could represent a more significant long-term threat to the territory’s economic fortunes. The bill has infuriated Beijing as an ‘intervention’ in its affairs but despite the delicate stage of US China trade talks, Donald Trump is expected to sign the legislation … A second bill, which the Senate also approved unanimously, would ban the export of certain crowd-control munitions to Hong Kong authorities. George Magnus, the former chief economist of UBS and now an associate of the London School of Economics’s IDEAS thinktank, said the legislation was potentially damaging for China. ‘Hong Kong is China’s financial window on the world, and vice versa. The territory lends China capital, clout and kudos. All of this is now at risk.’”