The Precious Metals Week in Review – March 8, 2019

1. Economic data out of the U.S., China and Europe were primary factors for market volatility this week. The Non-Farm Payrolls report for February will be closely watched when it is released on Friday for further indication that the U.S. economy might be slowing.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dipped by 3,000 claims to a new level of 223,000 for the week ending March 2. The previous week’s level was revised higher by 1,000 claims. The four-week moving average of claims dropped by 3,000 claims to a new level of 226,250. The previous week’s moving average was revised higher by 250 claims.

3. Friday’s Non-Farm Payrolls report in the U.S. showed that the pace of job growth in the U.S. appears to be slowing significantly. The U.S. economy added just 20,000 jobs to its payrolls in February, far below the monthly average that has come to be expected. Economists were quick to point out that there may be errors in the data due to the government shutdown’s impact on workers during the survey period. Payrolls have been coming in well above 100,000 for months and the extraordinarily weak figure for February has economists questioning their projections that while the economy might be slowing slightly, a recession is not immediately imminent.

4. The number of expected retail store closure announcements in the U.S. climbed to 4,810 according to a new report released this week by Coresight Research. Dollar Tree and Abercrombie & Fitch both announced multiple store closures this week and when lumped in with other retail closures that were announced earlier in the year by troubled brick and mortar stores, the number of stores closing their doors for good is now more than double that of new store openings.

5. China’s government confirmed that it will support Huawei’s lawsuit against the U.S. government. The tech giant, who has suffered under threats of a ban on its telecommunications equipment as well as the arrest of one of its top officers on allegations of sanctions violations, filed suit against the U.S. government on Thursday. The firm claims that a ban on the sale of its telecommunications equipment, much of which would enable so-called “5G” for cell phones in the U.S., is unconstitutional. China’s top diplomat in the region, Wang Yi, said “China has and will continue to take all necessary measures to resolutely protect the legitimate and lawful interests of Chinese businesses and citizens. At the same time, we support the company and individual in question in seeking legal redress to protect their own interests and refusing to be victimized like silent lambs.”

6. Venezuela suffered a massive power outage this week that left most of the country in the dark just as most commuters were leaving work to head home in the evening on Thursday. The blackout halted subway service and caused massive traffic backups as stop lights went dark. Embattled self-proclaimed leader Nicolas Maduro seized on the event to further blame the U.S. for his country’s troubles, calling the blackout an “electrical war” yet offering no evidence as to how or why the U.S. might be responsible for the issue. Communications Minister Jorge Rodriguez oddly appeared to blame Florida Republican Senator Marco Rubio for the blackout, saying right-wing extremists were “causing mayhem” in the country on Rubio’s orders. Marco Rubio responded, in a tweet that mocked Mr. Rodriguez’ claim, saying 99     

7. China’s trade data came in much worse than expected for February, with exports falling more than 20%. The overall trade surplus for the month was also much weaker than expected, coming in at $4.12 billion as opposed to the expected $26.38 billion. China and the U.S. continue their negotiations to tackle the trade dispute that has been one of the factors affecting imports and exports for both countries as they engaged in tit-for-tat tariffs on each other’s goods last year. Sources told CNBC that the negotiations continue to move forward and that the talks could end with an agreement within the month.

8. The European Central Bank surprised markets this week when it slashed economic growth forecasts and said it would keep interest rates at record laws all the way through December of 2019. At a press conference following the ECB’s decision to keep interest rates unchanged again, ECB President Mario Draghi seemed to cast doubt on whether the decision to continue its low-interest stimulus program would work at all, saying “We are aware that our decisions certainly increase the resilience of the euro zone economy, but actually can they address these factors that are weighing on the euro zone economy in the resto of the world? They cannot.” Draghi further clarified that statement, telling reporters that growing protectionism and geopolitical risks were the factors that he was referring to which the ECB’s stimulus could not combat.

9. The weak jobs report out of the U.S. and weak economic data out of Europe and China all acted to send oil prices sliding lower this week. Combined with climbing production outputs in the U.S., the downward pressure on the price of oil looks like it could continue for the foreseeable future. Brent Crude closed the week down nearly 1 percent around $65 a barrel and West Texas Intermediate fell 1.2 percent, bouncing to just over $56 a barrel after hitting a three-week low of $54.52 earlier.

10. The euro drifted lower against the U.S. dollar for much of the week, in a fairly steady line. On Thursday, following the European Central Bank’s announcement that it was slashing growth forecasts for 2019 to just 1.1 percent, the euro nosedived against the U.S. dollar. The euro hit its lows for the week late on Thursday and staged a modest recovery but will still finish the week out lower against the U.S. dollar. The Japanese yen bumped slightly higher against the U.S. dollar at the start of trading, dipped back to even, then embarked on a fairly steady climb higher for the rest of the week. The climb accelerated to the upside in early trading on Friday and the yen appears set to close the week out higher against the U.S. dollar.

Weakening economic data across the globe has many economists and analysts reconsidering their projections on exactly when another recession will strike.

In Europe, as the U.K. continues to struggle to come up with an agreement on their exit terms from the European Union, the European Central Bank has reduced its growth projections for 2019 and projected that it will keep its ultra-low interest rate policy in place through the rest of the year in an attempt to combat a slowing economy across the EU.

In the United States, February’s jobs data came in far underneath expectations. The U.S. economy added just 20,000 jobs in February, far underneath what has become an expectation for the addition of well over 100,000 jobs per month. China also added a slew of weaker-than-expected economic data to Europe’s and the U.S.’ poor numbers.

The trade dispute between China and the U.S. has been economically harming both countries as it has lingered on and if negotiations fall apart between the two again, which could trigger another increase in U.S. tariffs on Chinese goods, then that weakness will likely further spread into Europe and the rest of the world.

Prime Minister Theresa May is facing a series of votes next week that she must win in order to allow the U.K. to exit the EU under some form of agreement on their future relationship with each other. On Tuesday, parliament will make its second vote on May’s Brexit deal, the first vote having ended disastrously in January. If that vote fails to gain a simple majority then the governing body will vote on whether they want the UK to leave the EU with no deal in place, the so-called “no deal Brexit”. If THAT vote fails to gain a majority then parliament must finally vote on whether to allow Prime Minister May to extend Article 50, which would delay the UK’s exit beyond the approaching March 29 deadline.

Nothing much has changed in the Brexit agreement since it was first voted down. The item of major concern to parliament is the so-called “Irish Backstop”, which would leave Northern Ireland with closer ties to the EU than the rest of the U.K. in order to prevent a hard border between it and the Republic of Ireland. European leaders in Brussels have steadfastly refused to reconsider or adjust the Irish Backstop proposal, offering the U.K. nothing but seemingly vague reassurances that the backstop is seen only as the option of last resort should the exit process take longer than expected.

Venezuela continues to unravel as the current regime continues to deny aid and much-needed supplies from reaching its citizens. The latest issue to strike the country was a massive power outage that struck on Thursday evening, leaving much of the country in the dark and infrastructure practically unusable in the darkness as subways shut down and stop lights ceased to function.

Finally, in the wake of President Trump’s failed summit in Vietnam with North Korean leader Kim Jong Un, South Korean intelligence agencies reported this week that North Korea appears to have begun rebuilding facilities at a long-range rocket launch site between February 16 and March 2. The facilities in question have long been believed to be involved in the attempted production of rockets capable of targeting and reaching the U.S.

As geopolitical and macroeconomic conditions continue to decline, savvy investors continue to take steps to ensure that their portfolios are well-diversified against a sudden drop in the equity markets. Many of these investors have continued adding physical precious metals to their portfolios on price dips, viewing the temporary drops as just another buying opportunity to acquire more product at a discount.

Remember that precious metals should always be viewed as a long-term investment and that the key to profitability through the ownership of physical precious metals is to actually acquire and own the physical products and to hold them for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long term.

Trading Department
Precious Metals International, Ltd.

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