Gold Futures dropped 3.23 percent last week, as risk appetite fades in the markets given the shattering expectations for a V-shaped recovery. U.S. and European futures tumbled and haven assets climbed on Monday, returning markets to last Thursday’s risk-off mode, spurred by worries over a second wave of infections that could dash hopes for a V-shaped recovery. Two U.S. officials who helped negotiate an overhaul of North American trade rules have offered their services as private-sector advisers to future clients — making solicitations for post-government work while still on the federal payroll.
Unemployment levels will remain high until the end of the year and the economic recovery may take some time.
Gold Futures dropped 3.23 percent last week, as risk appetite fades in the markets given the shattering expectations for a V-shaped recovery. Despite the weekly gains, Gold lost some ground against the dollar on Friday, while US Stocks recovered some of the lost ground by closing the week on the negative side.
Last week the Federal Reserve Chairman, Jerome Powell announced the bank’s intention to keep the interest rates at low levels as long as it’s needed, highlighting that recovery may take some time and that unemployment levels will remain high until the end of the year.
Powell, who nevertheless remains optimistic regarding the future of the US economy, said that the heavily expected recovery may take more time than expected, shattering any expectation for quick recovery.
“It may take a while. It may take a period of time. It could stretch through the end of next year. We really don’t know,” he said during an interview with the CBS.
Powell highlighted that assuming there’s not going to be a second wave of the epidemic, the economy will recover steadily in the second half of this year, hence it may not be wise to bet against the US economy in the long-run and even in the medium-run.
The Federal Reserve’s expectations regarding the unemployment level are also not the most encouraging. The Bank expects that at the end of the year unemployment will remain at 9.3 percent, which is close to the worst levels of the 2008 crisis despite being over the current 13.3 percent. Even more so, the bank expects that unemployment will fall to 5.5 percent at the end of 2022 and will only come back below the 4.1 percent level in the long term.
The US President, Donald Trump disregarded the Federal Reserve’s comments, claiming that the institution is “wrong so often” and that 2021 will be one of the best years for the United States economy.
“I see the numbers also, and do MUCH better than they do,” commented Trump on his Twitter account, “We will have a very good third quarter, a great fourth quarter, and one of our best ever years in 2021,” he added, highlighting his hopes for seeing a vaccine for the coronavirus soon, something that Powell considers is essential for a full economic recovery.
The World Bank confirmed Powell’s comments, as it foresees that the global economy won’t come back to the pre-coronavirus levels until 2022.
Another factor that is causing unease in the markets is the fear of a second wave of the epidemic. At the moment, the possibility for this event is being downplayed by several US government officials, including Dr. Anthony Fauci who commented that having a second wave is not inevitable and that it depends on whether the outbreak is approached in a proper way.
However, it’s a fact that some of the states that are now amid the process of reopening their economies are reporting spikes in the number of infections, among them Florida. In the global scene countries like Australia and Israel are already reporting an increase in the daily coronavirus cases, which causes many to ask whether imposing a lockdown may be needed again to contain the virus.
At the moment, there are about 7,884,772 coronavirus cases worldwide and a death toll of 432,638. The United States leads the list of the most affected countries, with 2,142,224 reported infections and a death toll of 117,527, followed by Brazil and Russia.
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The geopolitical situation is not good either. China’s attempt to intervene in Hong Kong was not well received by the international community, increasing the tensions and even the fears for a trade war.
Some analysts consider that last weeks’ enthusiasm for risk was misplaced, so according to this approach what happened in the gold markets makes sense, now that the markets are more aligned with the economic reality. After all, when optimism fades traders and investors tend to favor safe-haven assets.
Nevertheless, just as Powell said, we don’t really know about the future, so it wouldn’t be surprising to keep seeing intermittent misplaced optimism dominating the markets.
Author: Ibeth Rivero
U.S. Futures Tumble, Havens Gain in Risk-Off Wave: Markets Wrap
U.S. and European futures tumbled and haven assets climbed on Monday, returning markets to last Thursday’s risk-off mode, spurred by worries over a second wave of infections that could dash hopes for a V-shaped recovery.
Futures on the S&P 500 slid over 3% at one point, and European contracts were down more than 2%. Japanese, Australian and Hong Kong stocks also slumped, with South Korea sinking 4% plus. The dollar climbed along with the yen, and Treasuries advanced. Crude oil crumbled. The moves suggested the stabilization on Wall Street Friday in wake of a near 6% stock slide may be temporary.
“We’ve gone risk-off because the reality of the U-shape pick-up” is hitting home, David Bloom, global head of foreign-exchange strategy at HSBC Holdings Plc, said on Bloomberg TV. “It’s a U-shape pick-up, and it’s going to be slow and patchy” he said of the recovery.
Chinese economic data Monday showed the world’s second-largest economy had a smaller bounce back in May than economists had expected, with retail sales continuing to drop and industrial output rising less than forecast.
On the virus front, more than 20 U.S. states are seeing a pick-up in cases, Tokyo reported a jump over the weekend and a fresh outbreak in Beijing prompted officials to close a market there.
“The risk is that, globally, we get a second wave,” said Chris Iggo, the chief investment officer for core investments at AXA Investment Managers. “Now is the time to have that long-duration bond exposure in the portfolio.”
Stephen Schwartz, Fitch Ratings Head of Asia Pacific Sovereign Ratings, says APAC economic momentum should turn positive in 2H 2020.
These are some key events coming up:
- Policy decisions from the Bank of Japan, Bank of England and the Swiss National Bank are due this week.
- China on Monday releases industrial production and retail sales data for May.
- CBOE plans to open its trading floor, which has been electronic only since March 16.
- Federal Reserve Chairman Jerome Powell delivers his semi-annual policy report to Congress.
These are some of the main moves in markets:
- S&P 500 futures fell 2.7% as of 7:18 a.m. in London. The S&P 500 advanced 1.3% on Friday.
- Japan’s Topix index was down 2.5%.
- Hong Kong’s Hang Seng fell 2.1%.
- Kospi Index dropped 4.4%.
- Shanghai Composite was down 0.6%.
- Australia’s S&P/ASX 200 Index, which tumbled almost 5% the previous two sessions, was down 2.2%.
- Euro Stoxx 50 futures retreated 2.4%.
- The yen rose 0.2% to 107.22 per dollar.
- The offshore yuan slipped 0.2% to 7.0936 per dollar.
- The euro was at $1.1236.
- The Bloomberg Dollar Spot Index rose 0.5%.
- The yield on 10-year Treasuries fell about five basis points to 0.66%.
- Australia’s 10-year yield fell five basis points to 0.86%.
- West Texas Intermediate crude dropped 4.9% to below $34.48 a barrel.
- Gold was at $1,720 an ounce, down 0.6%.
U.S. Trade Officials Sought Consulting Work on Rules They Wrote
Photographer: Krisztian Bocsi/Bloomberg
Photographer: Krisztian Bocsi/Bloomberg
Two U.S. officials who helped negotiate an overhaul of North American trade rules have offered their services as private-sector advisers to future clients — making solicitations for post-government work while still on the federal payroll.
Jason Bernstein and Fred Fischer were key negotiators in U.S. Trade Representative Robert Lighthizer’s office responsible for the so-called rules-of-origin that dictate how much of a car must be made in North America to avoid tariffs under President Donald Trump’s renegotiated trade deal with Canada and Mexico.
They have reached out to companies in the auto industry to offer help implementing the U.S.-Mexico-Canada Agreement after they leave government service, according to documents reviewed by Bloomberg News and three people familiar with the communications who requested anonymity to discuss the private exchanges.
“As you know, Jason and I are looking to leave USTR, and we would like to assist companies directly with their USMCA implementation needs,” Fischer, the USTR’s senior automotive industry trade adviser, wrote last week in an email to an auto industry representative that was seen by Bloomberg News. The email referred the recipient to autovisory.com, which Fischer in the email called “our website,” for additional information.
The outreach came after the two told auto industry officials as early as March that they intended to leave their posts at the USTR and in the meantime had recused themselves from work related to the auto industry content rules within USMCA, according to people familiar with the communications.
When reached by phone Friday, Bernstein and Fischer declined to provide a comment and didn’t respond to subsequent email and voice messages seeking a response. A USTR spokesman didn’t reply to numerous telephone messages and emails.
The company’s website and its Instagram and Twitter accounts appeared to have been deactivated after Bloomberg News sought comment.
It is not uncommon for federal regulatory officials to cash in on their expertise after leaving the government by advising clients about the agencies where they once worked. But offering services as part of a private venture while on the government payroll would go a step further, according to ethics experts.
It couldn’t be learned if the men had asked for or received any clearance from the USTR ethics office to make the private solicitations. The office didn’t respond to numerous calls and emails sent after business hours seeking comment or confirmation the two had recused themselves from related work.
Virginia Canter, chief ethics counsel at the Citizens for Responsibility and Ethics in Washington, said that the conduct might be permissible under ethics laws if the officials recused themselves but it was still inappropriate.
“If you’re dealing with potential clients in the government workplace that would also have business before the government, it’s a problem,” she said.
Kedric Payne, general counsel and senior director for ethics at the Campaign Legal Center, said someone offering services while still working for the government could be breaching federal ethics requirements that prevent government employees from using their public positions for private gain.
“It just sounds like this is a straightforward example,” said Payne, who advised on executive branch ethics laws at the Energy Department.
Payne said even with recusals, promotion of a consulting business while still working for the agency should raise a red flag to ethics officials.
QuickTake: Free Trade and Its Foes
The USMCA is one of the main economic achievements of Trump’s first term and his administration has touted the stricter auto content rules as one of the most significant successes of its overhaul of the North American Free Trade Agreement.
Fischer wrote in emails to industry members that he and Bernstein, who is a senior trade adviser, would help companies conform to the new parts-sourcing rules in the USMCA. The two helped negotiate those complicated regulations, which many in the industry are trying to prepare for and are set to go into effect July 1.
The emails included a link to the website for Autovisory, which listed the two men as “founding partners” and says they “led the team” that developed the USMCA rules of origin regulations.
The website said it “helps companies comply with the new USMCA rules of origin” and advises on compliance with free trade agreements, government relations and strategy.
The site was freely available until Friday when Bloomberg News began making inquiries.
In a presentation attached to the emails to potential automotive clients and a trade association, the two men touted their more than 40 years of combined automotive and trade experience. They also noted their “extensive relationships within the U.S. Government, with the governments of Canada and Mexico, and throughout the automotive industry.”