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Dow tanks 800 points in worst day of 2019 after bond market sends recession warning

DOW Jones Market – Gold price

The Dow Jones Industrial Average dropped about 801 points or 3%, while the S&P 500 fell 2.9% and Nasdaq Composite declined 3%. The Dow fell to a new low for August, giving up the entire rebound from a sell-off earlier in the month.

Stocks plunged on Wednesday, giving back Tuesday’s solid gains, after the U.S. bond market flashed a troubling signal about the U.S. economy.

The yield on the benchmark 10-year Treasury note on Wednesday broke below the 2-year rate, an odd bond market phenomenon that has been a reliable indicator of economic recessions. Investors, worried about the state of the economy, rushed to long-term safe haven assets, pushing the yield on the benchmark 30-year Treasury bond to a new record low on Wednesday.

Bank stocks led the declines as it gets tougher for the group to make a profit lending money in such an environment. Bank of America and Citigroup fell 4.69% and 5.28% respectively, while J.P. Morgan also dropped 4.15%. The S&P 500 Financials Sector dipped into correction territory on an intraday basis.

“The U.S. equity market is on borrowed time after the yield curve inverts,” wrote Bank of America technical strategist Stephen Suttmeier.

There have been five inversions of the 2-year and 10-year yields since 1978 and all were precursors to a recession, but there is a significant lag, according to data from Credit Suisse. A recession occurred, on average, 22 months after the inversion, Credit Suisse shows. And the S&P 500 actually enjoyed average returns of 15% 18 months after an inversion before it eventually turns.

The last time this key part of the yield curve inverted was in December 2005, two years before the recession hit.

“Historically speaking the inversion of that benchmark yield curve measure means that we now must expect a recession anywhere from six-to-18 months from today which will drastically, and negatively, shift our medium-to-longer term outlook on the broader markets,” Tom Essaye, founder of The Sevens Report, said in a note on Wednesday.

President Donald Trump on Wednesday lashed out at the Federal Reserve and “clueless” Jerome Powell, blaming the central bank for “holding us back.” He also called the inverted yield curve “crazy.”

August has been a volatile month for the stock market so far. Including Wednesday, the Dow has moved more than 200 points in either direction on seven occasions. Wednesday’s plunge was the biggest drop since the August 5 drubbing of 767 points, or 2.9%, on the Dow.

Shares of Macy’s tanked more than 13% to their lowest level in a decade after the retailer posted second-quarter earnings way below analysts’ expectations as heavy markdowns used in spring to clear unsold merchandise weighed on profits.

Global slowdown

Investors are increasingly worried about a global economic slowdown as weaker-than-expected data in China deepened the gloom in the world’s second-largest economy. Official data published Wednesday showed growth of China’s industrial output slowed to 4.8% in July from a year earlier, the weakest growth in 17 years.

Adding to the fears is Germany’s negative GDP print, which raised the risk that Europe’s largest economy is on the verge of falling into a recession. Euro zone GDP also grew by just 0.2% quarter on quarter, a significant slowdown from the 0.4% growth in the first quarter.

The U.S. decided to delay tariffs on certain Chinese goods while outright removing some items from the tariff list, the United States Trade Representative announced Tuesday. Wall Street cheered the news, with the Dow jumping as much as 529 points before settling to finish the day 372 points higher.

President Donald Trump said Tuesday that the move was designed to avoid any potential impact on holiday shopping ahead of the Christmas season. He added China would very much like to make a trade deal.

There are still seven “structural issues” the U.S. needs to settle with China through negotiations, White House trade advisor Peter Navarro told Fox Business Network on Wednesday. These issues include cyber intrusion into U.S. business networks, forced technology transfer, intellectual property theft and currency manipulation, he added.

China’s Commerce Ministry said Vice Premier Liu He had spoken by phone with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Tuesday and they agreed to talk again in two weeks.

Source: CNBC

Gold Prices Jump After President Trump Announces New 10% Tariff On China

Trump announces new tariff – Gold price rises

(Kitco News) – The gold market is seeing some renewed interest and is close to unchanged on the day as President Donald Trump fires another salvo in the U.S. trade war with China.

In a twitter post, Trump said that the government will impose a 10% tariff on the remaining $300 billion in imported goods from China. This is on top of the 25% tariffs on $250 of imported goods.

Gold price were in solidly negative territory but has cut its losses in initial reaction to the tweets. December gold futures last traded at $1,441.20 an ounce, relatively unchanged on the day.

Before Trump’s announcement investors selling gold, reacting with disappointment from a less dovish Federal Reserve following Wednesday’s monetary policy meeting, which saw the first rate cut in a decade. However, some analysts have warned that investors should look past U.S. interest rates and keep an eye on the fragile global economy facing renewed trade war tensions.

By Neils Christensen

Kitco News


Gold Sells Off Moderately, Then Recovers, After U.S. Rate Cut

Gold recovers from U.S rate cut

(Kitco News) – Gold prices are trading near steady in volatile action in the aftermath of the first U.S. interest rate cut from the Federal Reserve in 11 years. The yellow metal dropped to down around $10 on the day just after the FOMC statement. It could be that the precious metals bulls were initially a bit disappointed the Fed only cut rates by 0.25% instead of 0.50%. Or, it could be the classic “buy the rumor, sell the fact” phenomenon that occurs when the market has fully factored into prices a highly expected outcome of an event. However, gold traders quickly stepped in to “buy the dip” to push gold prices back higher. December gold futures were last down $0.70 an ounce at 1,441.00. September Comex silver prices were last down $0.083 at $16.465 an ounce.

The main economic data point of the week saw the Federal Open Market Committee (FOMC) statement on U.S. monetary policy cut its main interest rate, the “fed funds rate” by 0.25%, to a range of 2% to 2.25%. Most market watchers reckoned a 0.25% interest rate reduction was in the cards, but a few did look for a bigger 0.5% rate cut. The FOMC vote was 8-2 in favor of the quarter-point cut. This was the first rate decrease by the Federal Reserve in 11 years. The FOMC statement said the rate cut was enacted due to very low inflation pressures and concerns about global economic growth. The statement also suggests the door is opened to more interest rate reductions in the months ahead.

The U.S. dollar index actually moved up and hit new highs for the year on the FOMC news, as greenback bulls were happy the Fed did not cut rates by a half-point. U.S. stock indexes sold off a bit and hit session lows after trading firmer before the FOMC statement was released.

Today’s ADP national employment report showed a rise of 156,000 workers in July, which was close to being in line with market expectations. On Friday the more important U.S. employment situation report for July is out. The key non-farm payrolls number is expected to be up around 165,000. In June, non-farm payrolls were up 224,000.

The key “outside markets” today see Nymex crude oil prices higher and trading around $58.50 a barrel. The U.S. dollar index is slightly up and not too far below the new high for the year hit on Tuesday.

Live 24 hours gold chart [Kitco Inc.]

Technically, December gold futures prices closed nearer the session low and scored a mildly bearish “outside day” down today. The bulls have the firm overall near-term technical advantage and are keeping in place a nine-week-old uptrend on the daily bar chart. Gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at the July high of $1,467.00. Bears’ next near-term downside price breakout objective is pushing prices below solid technical support at the July low of $1,396.40. First resistance is seen at today’s high of $1,447.80 and then at the June high of $1,453.70. First support is seen at this week’s low of $1,427.50 and then at last week’s low of $1,423.90. Wyckoff’s Market Rating: 7.5

Live 24 hours silver chart [ Kitco Inc. ]

September silver futures prices closed nearer the session low today. The silver bulls have the solid overall near-term technical advantage. Prices are in a two-month-old uptrend on the daily bar chart. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $17.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $15.835. First resistance is seen at last week’s high of $16.685 and then at $16.75. Next support is seen at today’s low of $16.31 and then at $16.195. Wyckoff’s Market Rating: 7.5.

September N.Y. copper closed down 65 points at 267.20 cents today. Prices closed nearer the session low and hit a three-week low today. The copper bears have the firm overall near-term technical advantage. Copper bulls’ next upside price objective is pushing and closing prices above solid technical resistance at the July high of 280.30 cents. The next downside price objective for the bears is closing prices below solid technical support at the June low of 259.95 cents. First resistance is seen at 270.00 cents and then at this week’s high of 272.65 cents. First support is seen at today’s low of 266.05 cents and then at 264.00 cents. Wyckoff’s Market Rating: 2.5.

By Jim Wyckoff

Kitco News

India hikes gold import duty, industry fears smuggling surge

India alters Gold imports to reduce smuggling

By Rajendra Jadhav

MUMBAI (Reuters) – India raised the import duties on gold and other precious metals on Friday in a surprise move that industry officials say could dampen retail demand and boost smuggling in the world’s second-biggest bullion consumer.

Lower demand from India could weigh on global prices that are trading near their highest level in six years.

Jewellery trade associations have asked India’s government to reduce gold import duties, which have caused a surge in smuggling.

The government instead hiked the duty to 12.5% from 10% as policymakers try to bring down the fiscal deficit and recapitalise banks.

“This is a shocking move. We were expecting reduction in the custom duty,” Anantha Padmanabhan, chairman of All India Gem and Jewellery Domestic Council (GJC) told Reuters, adding the hike has effectively raised smugglers’ margins.

Gold smuggling surged in India after the government raised the import duty to 10% in August 2013. Grey market operators – businesses that smuggle gold from overseas and sell it in cash to avoid the duties – got a further boost in 2017 when India imposed a 3% sales tax on bullion.

The south Asian country also raised import duty on gold dore or non-refined mined gold, to 11.85% from 9.35% and to 11% from 8.5% on silver dore, Finance Minister Nirmala Sitharaman said in her first federal budget speech on Friday.

India has been trying to bring transparency in bullion trading by curbing cash transactions but the hike “will dilute efforts to reduce cash transactions”, said Somasundaram PR, the managing director of the World Gold Council’s Indian operations.

Gold futures jumped over 2% after the announcement to a record high of 35,100 rupees ($512.82) per 10 grams.

The high local prices may also further weaken demand, said Snehal Choksey, director at Shobha Shringar Jewellers.

Shares of jewellery makers such as Titan, P C Jeweller, Tribhovandas Bhimji Zaveri Ltd and Thanga Mayil Jewellery Ltd fell as much as 7.8%.

Up to 95 tonnes of gold was smuggled into India in 2018, according to the WGC.

“Legal imports would fall and smuggling could rise above 200 tonnes this year,” said a Mumbai-based dealer with a gold importing private bank.

Industry officials fear the higher duties could prompt customers to buy jewellery from some informal jewellers who use smuggled gold to make ornaments.

“The increase in custom duty makes gold sold by organised retailers more expensive and encourages customers to buy from unorganized jewellers,” said Vaibhav Saraf director of Aisshpra Gems & Jewels.

($1 = 68.4450 Indian rupees)

Source: Reuters

Gold Price Prediction – Prices Drop on Strong Jobs Data

U.S. Strong Job Data lowers Gold price

Gold prices traded on the defensive on Friday, following a stronger than expected US payroll report and very weak German manufacturing. US yields surged higher buoying the US dollar which paved the way for lower gold prices. The payroll report caught the market offguard following a worse than expected private payroll report releaed by ADP earlier in the week.

Technical Analysis

Gold prices tumbled on Friday, in the wake of the US payroll report and the German manufacturing report. Prices dropped 1.3%, but finished off session lows. Resistance is seen near former support at the 10-day moving average at 1,410. Support is seen near the July lows at 1,381. Medium term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line. The MACD histogram is printing in the red with a downward sloping trajectory which points to lower prices.

US Payrolls Surge Higher in June

US job growth unexpected rose more than expected according to the US Department of Labor. Non-farm payrolls increased by 224,000 jobs which was the best result since January. This compared to expectations that payrolls would increase by 165,000 jobs. The May payroll report was revised slightly lower to 72,000 from 75,000. The unemployment rate edged up to 3.7% as labor force participation rose. Expectations had been for the unemployment rate to remain unchanged at 3.6%. As more people started looking for jobs, the rate moved higher.

Separately, the Euro was weighed on by a worse than expected German manufacturing report releaed on Friday. The 2.2% overall drop month over month was far worse than the 0.2% fall predicted by economists. The year-on-year decline of 8.6% was the biggest in almost a decade.

Source: FX Empire

Gold Dips, but Defends $1400 Ahead of Trump-Xi Meeting

Trump to meet with Xi – Gold stays at $1400

By Barani Krishnan – China deal or no deal?

Speculation ahead of the meeting between U.S. President Donald Trump and China President Xi Jinping is blowing both hot and cold. That’s prompted gold bulls to yield little on the yellow metal’s price, even as it remains under pressure from tamped down expectations for a large rate cut in July by the Federal Reserve.

Spot gold, reflective of trades in bullion, traded at $1,409.55 per ounce by 2:10 PM ET (18:10 GMT) on Thursday, down $5.85, or 0.4%, on the day. It was the second negative day in a row for bullion, after seven-consecutive days of gains prior. On Tuesday, the spot price of gold had one last hurrah, reaching $1,438.99, its highest since May 2013, before slipping since.

Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, settled Tuesday’s trade down $3.40, or 0.2%, at $1,412 per ounce. On Tuesday, it peaked at $1,442.15, its highest level since Feb 2014.

Gold’s rally in June, a more-than-8% gain that’s been its biggest in three years, came to a halt this week as Fed Chairman Jerome Powell and St. Louis Fed President James Bullard doused expectations for a 50-basis-point rate cut in July.

Investors in the precious metal have turned since to reading the upcoming trade talks between Trump and Xi at the G20 in Osaka. But with just two days until their meeting, Larry Kudlow, Trump’s top economic advisor, said there were no preconditions set for the talks. Kudlow added that the White House may move forward with additional tariffs against Beijing.

Asked to clarify a similar comment from Trump on the forthcoming U.S.-China trade deliberations, Kudlow told Fox News that the president “is implying that he’s perfectly happy where we are and where he is in these so-called negotiations and talks.”

“And, if need be, we may move ahead – we may move ahead on additional tariffs,” he added.

Kudlow’s remarks came a day after U.S. Treasury Secretary Steve Mnuchin insisted that two countries were “90% of the way” toward a trade deal.

The U.S.-China trade war has been a major wildcard for gold this year. While the dollar has been the preferred hedge against the trade war, investors have also been using gold to offset risks from the tariffs battle between the two economic superpowers.

China apparently is going to present a series of conditions for any deal at the meeting, The Wall Street Journal reported Thursday. Among the most important is a demand that the U.S. remove its ban on the sale of U.S. technology to Chinese telecommunications giant Huawei Technologies.


Gold ends higher as the U.S. stock market pauses its rally

Gold rises as U.S stock market pauses

Gold futures ended higher on Wednesday, rebounding from their lowest levels of the year, as a rally in stocks that took two of the three main U.S. equity indexes to records cooled, providing support for the haven metal.

However, a perky dollar — hovering around its highest level in about 22 months— kept prices for the metal off the session’s high.

Gold for June delivery GCM9, -0.23%  rose $6.20, or 0.5%, to settle at $1,279.40 an ounce. The most-active contract settled at its lowest levels since about Dec. 26 a day earlier, according to FactSet data. The yellow metal had now posted gains in two of the past seven sessions.

Metals were recently been under pressure as stocks have mounted a steady climb to records since a selloff late last year, with the S&P 500 indexSPX, -0.22%  and the Nasdaq Composite Index COMP, -0.23% registering all-time peaks for the first time in months on Tuesday. However, equities headed lower as gold futures settled Wednesday.

Meanwhile, the ICE U.S. Dollar Index DXY, +0.47% a key gauge of the greenback against six major rivals, was up 0.4% at 97.987, trading at its highest since June 2017. A stronger U.S. unit can make buying the buck-pegged commodity comparatively more expensive for investors using other currencies.

“With the dollar churning higher and rates holding the most-recent rebound (back to the pre-March Fed meeting levels), the bullish case for gold has weakened significantly,” said analysts at Sevens Report Research, in a note. “Near term, further declines can be expected as the [fourth quarter 2018] rally unwinds. But on a longer time frame, nothing has changed as gold has been pinned in a trading range between roughly $1,150 and $1,350 since 2016.”

The recent bout of weakness in gold has made some assets pegged to the precious asset appear more attractive, one market technician said. “Gold stocks are starting to look appealing again after sharp drops down to areas of technical support. This area has some appeal from a countertrend perspective,” wrote Mark Newton, technical analyst and founder of Newton Advisors.

The SPDR Gold Shares exchange-traded fund GLD, -0.12%  edged up by 0.4%, while the miner-focused VanEck Vectors Gold Miners ETF GDX, +0.29%  added 1.5%.

The GDX “has also shown some evidence of downside exhaustion after moving lower for the last 8 of 9 sessions,” Newton said in a Wednesday note.

Among other metals, May silver SIK9, -0.17%  added 12.5 cents, or 0.9%, to $14.916 an ounce, while May copper HGK9, -0.02%  rose 0.6% to $2.91 a pound. July platinum PLN9, -0.17%  edged 0.6% lower to $888.60 an ounce, while June palladium PAM9, -0.09%  climbed 2.1% at $1,405.10 an ounce.

Source: MarketWatch

Why There’s a 75% Chance of a Recession

75% chance of a recession

Stocks are soaring again as the Federal Reserve’s attempt to engineer a soft landing by pausing its rate-hiking cycle has curtailed fears of an imminent recession. But some argue the damage has already been done and a recession is likely just around the corner. Ten, or more than 75%, of the last 13 rate-hiking cycles since the 1950s have ended in a recession, and David Rosenberg, chief economist and strategist at Gluskin Sheff, believes that poor track record for the Fed is at least one reason to think a recession is unavoidable, according to Business Insider.

He’s not alone. A recent report by the Duke Fuqua School of Business indicated that in a survey of CFOs, 67% believe the U.S. economy will enter a recession by the latter half of 2020; as much as 84% of respondents think the economy will be in recession by the first quarter of 2021. “I think we’re at the stage of recover, and there are enough uncertainties out there, that I think a recession is out there on the horizon,” John Graham, finance professor at Duke and director of the Global Business Outlook survey, told Fox Business.

Rosenberg’s Recession Warning Signs

  • Only three of last 13 rate-hike cycles ended in soft landing;
  • Fed’s ‘neutral’ rate only a hike away from the benchmark rate;
  • Recent inversion of yield curve;
  • Record-high corporate debt may be unsustainable if economy slows.

What It Means for Investors

Another major recession warning sign, according to Rosenberg, is the Fed’s continued lowering of its estimate of the ‘neutral’ (or natural) rate, also known as the terminal funds rate. The neutral rate refers to a theoretical level of interest rates at which the economy is on a sustainable path: stable prices, full employment, and neither slowing nor accelerating economic growth.

The last estimate put the terminal funds rate at 2.75%, just a hike away from the Fed’s current target for the benchmark rate, which has undergone nine successive hikes following a seven-year period of near-zero interest rates between December 2008 and December 2015. The implication is that the juicing effect on the economy and markets that low interest rates have had thus far is running out of steam, Rosenberg argues.

Then there’s the spread between the 10-year and 3-month Treasuries, which recently turned negative. That’s what economists call an inverted yield curve, a phenomena that has preceded every U.S. recession since the 1950s. The recent inversion was enough to send the New York Fed’s recession-probability model to an 11-year high, according to Business Insider.

Lastly, Rosenberg warns that corporate debt, which has reached a record high of $1.8 trillion, will come due in 2023. If the economy slows, businesses may struggle to make necessary their payments.

Looking Ahead

More optimistic is Leuthold Group’s Jim Paulsen, who believes that the recent economic and earnings slowdown along with the Fed’s more dovish stance will actually help to prolong the bull market. But his optimism is not without a touch of fear that the current weakness could easily trigger something much worse. “Recession and bear market fears would return very, very quickly and very harshly,” he told CNBC. “We have a good deal of fear. Fear of bear markets. Fear of recessions. Fear of negative yields. Fear of reverting curves. … We’re climbing a wall of worry.”

Source: Investopedia

Economy slumping faster than expected, with fourth-quarter GDP revised down

Economic News – Fourth quarter GDP

Image: New York City's New Hudson Yards Development Boasts Luxury Shopping
Visitors walk through the newly opened luxury shopping mall at the Hudson Yards in New York on March 18, 2019.Spencer Platt / Getty Images file

March 28, 2019, 6:27 AM PDT By Reuters

The U.S. economy slowed more than initially thought in the fourth quarter, keeping growth in 2018 below the Trump administration’s 3 percent annual target, and corporate profits failed to rise for the first time in more than two years.

Gross domestic product increased at a 2.2 percent annualized rate, the Commerce Department said on Thursday in its third reading of fourth-quarter GDP growth. That was down from the 2.6 percent pace estimated in February.

The economy grew at a 3.4 percent pace in the third quarter. The expansion will be the longest on record in July.

The revisions to the fourth-quarter GDP reading reflected markdowns to consumer and business spending, as well as government outlays and investment in homebuilding.

For all of 2018, the economy grew 2.9 percent as previously reported, despite the White House’s fiscal stimulus of $1.5 trillion in tax cuts and more government spending. Growth last year was the strongest since 2015 and was an acceleration from the 2.2 percent logged in 2017.

Compared to the fourth quarter of 2017, the economy expanded 3.0 percent, revised down from the 3.1 percent reported last month. President Donald Trump has highlighted the year-on-year growth figure as proof that fiscal stimulus, which has contributed to a swelling of the federal government deficit, has put the economy on a sustainable path of strong growth.

Trump likes to showcase the economy as one of the biggest achievements of his term, declaring last July that his administration had “accomplished an economic turnaround of historic proportions.” On the campaign trail, Trump boasted he could boost annual GDP growth to 4 percent, a goal analysts always said was unrealistic given low productivity, among other factors.

Economists polled by Reuters had forecast GDP in the fourth quarter being revised down to a 2.4 percent.

There are signs the slowdown in growth persisted early in the first quarter, with retail sales rising modestly and manufacturing production and homebuilding tepid.


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