Gold prices hit fresh multi-year highs of $1,635/oz and Silver climbed to $18.60/oz during early European session amid growing concerns for the coronavirus outbreak, the potential for a slowdown in the global economic growth, the lower interest rates and the general risk aversion sentiment in the financial markets.
Risk aversion sentiment dictated the global markets during the Tuesday trading session after Apple issued a revenue guidance warning considering the impact of the coronavirus outbreak. Safe-haven assets jumped on the announcement while riskier assets moved lower.
WTI and Brent crude oil prices jumped by 3% at $51 and $55.50 per barrel respectively while the global stock indices gained more than 1% amid reports from China that scientists have found an effective drug to treat people with the new Coronavirus. The China National Health Commission said last night that a total of 24,324 cases have been confirmed and 490 people have died in the country.
Global market participants have been surprised from the extraordinary outbreak of the Coronavirus across China and lately in other parts of the world. The death toll rose at 213 while the infection cases hit almost 10.000. Although the infection numbers outside China are still relatively small, investors fear the potential for a much larger outbreak which could damage the international commerce, travelling, consumer consumption, business investments, corporate revenues and reduce the demand for some industrial commodities such as Crude oil, Copper and Agricultural.
Regarding US fiscal policy, we expect that 2020 will remain unchanged up until the US presidential election. The likelihood of further stimulus will be in 2021 after the presidential election results have been decided.
Crude oil prices and global markets have been falling since the unexpected appearance of the mysterious Coronavirus epidemic at the beginning of this week which has already taken 25 lives. All cases reported in China and with hundreds more infected reported cases around the world. Consequently, this epidemic can cause a slowdown in global travelling, commerce and retail sales.
Energy sector caught in the middle of fresh geopolitical risks in the Middle East once again as both WTI and Brent crude prices spike up 2% on Monday morning after oil supply disruption of 800.000 barrels per day from Libya and widespread protests in Iraq. The oil rally faded soon as both events de-escalated, together with the weak fundamentals as the global market is well supplied.
After the end of the third quarter of 2019, Federal Reserve started Quantitate Easing and said it will begin buying $60 billion of Treasury bills per month. This means a negative impact on the USD because it increases the money supply and reduces purchasing power for the US dollar. Another negative factor for the US dollar - the Central Banks such as Turkey, China and Russia, are reducing US dollar reserves, converting about $ 400-500 billion into other currencies (JPY, EUR).
WTI and Brent oil prices have lost almost 10% while safe-haven precious metals, Gold & Silver prices lost 5% from their highs, after the Iranian missile attack on Wednesday morning. The de-escalation in the Middle East tension together with the coming sign of the new US-China “Phase 1” trade deal, was celebrated from the global equity markets while the Dow Jones index hit new record highs.
The Iranian strike with 15 missiles against two US military bases in Iraq last night caused the rally on the price of Crude Oil and the safe-haven assets such as Gold, Yen and Bonds while the global equity markets and other risky assets experienced a hard sell-off. The situation could have been worse but the news from Trump and Iraqi government that no casualties reported for the coalition after the attacks, eased the initial fear for escalation of the US-Iran tensions as it seems that US might won’t retaliate back.
A big “risk off” day as a US air strike in Iraq killed one of Iran’s top generals, prompting threats of “severe retaliation” from Iran. Precious metals and oil prices jumped, while the safe-haven JPY and to a much lesser degree CHF benefitted. The risk-sensitive commodity currencies fell, except for CAD, which was caught in between the risk-off mood on the one hand and sharply higher oil prices on the other and as a result didn’t move much at all.
The main issue facing us today is…is this the last year of the second decade this century or the first year of the third decade? Some people argue that since there was no year ”0,” the first decade ended in the year 10 and the second decade started in the year 11, meaning we are currently still in the second decade of the 21st century. I disagree. If you’re 20 years old and you try to use this logic to argue that you’re still a teenager, people will laugh at you. I say welcome to the third decade.