1. The carnage in equity markets continued this week as the spread of COVID-19 expanded across the globe. Volatility seemed to surge on each new headline with regards to the virus.
2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 3,000 claims from the previous week’s unrevised level to hit 216,000 for the week ending February 29. The four-week moving average rose by 3,250 claims to reach a new level of 213,000. The previous week’s moving average was also unrevised. Unemployment data can be expected to remain volatile as the uncertainty over the spread of COVID-19 around the globe continues.
3. The Non-Farm Payrolls report for February was released on Friday and the numbers were far better than expected. Non-Farm payrolls surged by 273,000 in February vs. economists’ estimates for 175,000. The official unemployment rate dipped lower to 3.5% and December and January’s estimates were both revised higher by a combined total of 85,000. The revisions for December and January bring the 3-month average of monthly payroll additions to 243,000. The 3.5% unemployment rate matches the lowest unemployment rate in more than 50 years in the United States. Average hourly earnings, a closely watched figure by the Federal Reserve, grew by 3% while the average work week, which is a measure of productivity, edged higher to 34.4 hours.
4. COVID-19 cases passed the 100,000 mark worldwide on Friday as the virus continued its spread across the globe from its original epicenter in China. The majority of cases remain in China, followed by South Korea, then Iran and Italy. The death toll as of Friday stands at 3,398. The World Health Organization’s Director-General Tedros Adhanom Ghebreyesus called for extensive and coordinated action, saying “This epidemic can be pushed back but only with a coordinated and comprehensive approach that engages the entire machinery of government. We’re calling on every country to act with speed, scale and clear-minded determination.” The WHO remains “deeply concerned” over the continued spread of the virus into more countries, particularly those with weaker healthcare systems.
5. The Federal Reserve caved into growing market pressure on them to take action to reduce the economic impact of the spread of the virus and conducted an emergency rate cut of 50 basis points this week. The G-7 had stated earlier in the week that the world’s central banks would take “coordinated” action to combat the economic impact of COVID-19’s spread, but the U.S. Federal Reserve did not appear to be making much of an effort at such coordination when it made its surprise rate cut announcement outside of its normal meeting cycle. The Fed is not due to meet until later this month and fear is growing that they acted too early in making the emergency rate cut and will be forced to cut rates by at least another quarter point at the conclusion of the regular March meeting.
Jeffrey Gundlach, CEO of DoubleLine and frequently referred to as the “Bond King”, said “If we look at history, once the Fed does a panic, inter-meeting rate cut, particularly when it’s 50 basis points…they typically cut pretty quickly again. I’m in the camp that the Fed is going to cut rates again, perhaps even in two weeks.” Gundlach added “We will see short rates headed toward zero.”
6. The yield on the 10-year Treasury in the U.S. continued its collapse, setting new record lows this week as it dipped to 0.692%. The global flight to safety as investors pile into U.S. government debt while equity markets plummet is driving the plunge in yields, which drop as bond prices increase. Ian Lyngen, head of rates strategy at BMO Capital Markets, said “It’s a brave new world of 0-handles and we’ve now taken to referencing 10-year yields in basis point terms. 1.0%, thanks for the memories.” Lyngen added, “The ‘great repricing’ continues, encouraged by falling equity prices and reports that coronavirus infections are approaching 100,000 worldwide. The economic implications are still unknowable at present, even if the logic that ‘the longer the global shutdown continues the deeper the impact’ resonates among market participants.”
7. In non-virus-related news, discussions between the U.K. and the EU on their post-Brexit trade relationships seem to be hitting snags. Michel Barnier, the EU’s Brexit chief told reporters this week “To be completely frank with you…there are many divergences and they are very serious divergences, which is probably quite natural after a first round of negotiations.” Barnier went on to clarify that the differences mainly surround competition rules, fisheries and future oversight of the relationship between the U.K. and EU. Barnier further went on to tell reporters that he believes there is still a possibility to strike a trade deal, but “only if there is mutual respect and no reneging on previous commitments.” U.K. Prime Minister Boris Johnson wants to strike a trade deal along the lines of the one the EU has with Canada, with no tariffs. The Canada deal took over 7 years to hammer out with the EU – the U.K. now has just shy of 9 months to strike its own similar deal. The U.K. has also said it would seek a deal similar to a deal between Australia and Europe if the Canada-based agreement proves impossible. Either deal will surely face criticism as shown last week at a Chatham House meeting in London when Amelie de Montchalin, the French secretary for EU affairs, said of the U.K.: “You are not Canada, you are certainly not Australia.”
8. OPEC+ held its meeting in Vienna, Austria this week and came away without any hint of a new deal to limit output among OPEC members and other participating countries beyond the end of March. Crude oil plunged over 8% to multi-year lows Friday as word spread that OPEC’s outside allies rejected the idea of additional production cuts. Brent crude, the international benchmark for oil, slid to $45.70 per barrel while U.S. West Texas Intermediate (WTI) slid to $41.77. These are the lowest levels for WTI since August of 2016 and the lowest for Brent since June of 2017.
9. The euro opened trading with an immediate move higher against the U.S. dollar this week. The euro rose through Monday afternoon when it plateaued and began an essentially sideways move that took it into Thursday afternoon. On Thursday, the euro resumed its climb against the U.S. dollar and is set to finish out the week to the upside against the dollar. The Japanese yen spiked higher against the U.S. dollar at the open of trading for the week but had dipped into negative territory by Monday morning. The yen bounced back and forth between positive and negative territory through early Tuesday, when it began moving to the upside. The yen also plateaued on Wednesday, moving sideways through most of the day, but resuming its climb by early Thursday morning. The yen too appears set to finish out the week to the upside against the U.S. dollar.
COVID-19 remains the primary concern and the most important factor affecting every single market. The virus continues to spread outside of China, with cases in South Korea, Italy, France and the U.S. all continuing to grow. In the U.S., the number of cases is beginning to expand into the hundreds and signs of community transmission – transmission to individuals that have no history of travel to affected areas or any known contact with infected individuals – also appear to be escalating daily.
After a G-7 meeting, following which the world’s central banks assured they would take coordinated action to combat the growing economic impact that the outbreak has clearly triggered, the U.S. Federal Reserve announced a surprise rate cut of 50 basis points. Many analysts – the same ones who had been clamoring for the Fed to take preemptive action to head off the specter of a looming recession – immediately criticized the Fed for acting too early and essentially wasting what little ammunition that they have left since interest rates were never truly normalized after the Great Recession and remain distressingly low. Initial market reaction was positive, but equities quickly resumed the downward journey that they began last week.
Market expectations now appear to be that the Fed will be forced to cut rates by another quarter point when they hold their next official Federal Open Market Committee meeting closer to the end of the month.
OPEC+ apparently could not come to an extended agreement in Vienna, Austria this week on further output cuts to help offset the plunging price of oil. It appears Russia was not willing to make further cuts and the meeting ended with no additional agreements in place. Current production limits will be in place until the end of March as was originally planned, but any extension of those cuts is now completely uncertain. Demand for oil has plunged as the spread of the virus has halted production lines and impacted the transportation sector. Both Brent and West Texas Intermediate plunged to multi-year lows on Friday, sliding by as much as 10%, marking the worst daily performance in over 5 years after the failure of OPEC+ to come to further agreement on output limits was reported.
The benchmark 10-year Treasury yield in the U.S. followed equities into free-fall this week, dipping below 0.7% for the first time ever as investors flooded into bonds, which are considered safer assets in a recessionary environment.
Economists are still cautiously optimistic that the effects of the COVID-19 virus are temporary and will not completely derail the global economy, particularly as data continues to suggest that China is slowly restarting its factories and can begin working to alleviate supply chain bottlenecks. Supply chain disruptions that have been created as China’s workforce was forced to remain home under quarantine are the primary concern that could continue to put recessionary pressure on the global economy. If the virus continues to spread at a rapid rate outside of China, there could be serious knock-on effects as China rebuilds its supply inventories only to find that it has no one to sell those products and components to since the rest of the world’s workforce may be under similar quarantine conditions to China’s early days. If factories have no workers to make their products, then orders for components obviously will be delayed or terminated completely.
It remains vitally important to pay attention to global news outlets for updates on actions being taken by world governments not only to contain the virus, but to minimize the recessionary impact of the supply shocks that have ensued as a result of the outbreak.
Savvy investors continue to take steps to ensure that their portfolios remain well-diversified against over-exposure to any single asset class and many of these investors have continued acquiring physical precious metals as part of their diversification plans.
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.
Friday to Friday Close (New York Closing Prices)
|
Feb. 28th2020 |
Mar. 6th2020 |
Net Change |
|
|
Gold |
$1565.50 |
$1671.73 |
106.23 + 6.79% |
|
Silver |
$16.46 |
$17.27 |
0.81 + 4.92% |
|
Platinum |
$865.70 |
$897.65 |
31.95 + 3.69% |
|
Palladium |
$2591.10 |
$2529.20 |
(61.90) – 2.39% |
|
Dow Jones |
25409.36 |
25864.78 |
455.42 + 1.79% |
Previous year Comparisons
|
Mar. 8th2019 |
Mar. 6th2020 |
Net Change |
|
|
Gold |
$1299.00 |
$1671.73 |
372.73 + 28.69% |
|
Silver |
$15.34 |
$17.27 |
1.93 + 12.58% |
|
Platinum |
$816.95 |
$897.65 |
80.70 + 9.88% |
|
Palladium |
$1501.50 |
$2529.20 |
1027.70 + 68.44% |
|
Dow Jones |
25450.24 |
25864.78 |
414.54 + 1.63% |
Here are your Short Term Support and Resistance Levels for the upcoming week.
| Gold | Silver | |
| Support | 1600/1550/1500 | 17.20/16.80/16.40 |
| Resistance | 1650/1680/1700 | 17.65/18.00/18.25 |
| Platinum | Palladium | |
| Support | 870/850/830 | 2500/2200/2175 |
| Resistance | 890/925/950 | 2700/2900/3200 |