Gold gains on stimulus bets; Powell’s speech in focus
· Gold jumped over 1% on Wednesday as the dollar slipped on the eve of a speech from Federal Reserve Chairman Jerome Powell, and as investors bet on further stimulus to mitigate the impact of the coronavirus pandemic.
· Spot gold rose 1% to $1,948.07 per ounce, after declining to a two-week low early in the session. U.S. gold futures settled up 1.5% at $1,952.50.
· “The dollar is showing a little bit of weakness. They (investors) are trading on hopes and expectations that there is further stimulus to come,” said Jeffrey Christian, managing partner of CPM Group.
· The dollar eased 0.1% against key rivals, making gold cheaper for investors holding other currencies. Powell is set to speak at a virtual Jackson Hole symposium on Thursday, where he is expected to offer more insight on the U.S. central bank’s strategy on inflation and monetary policy.
· Last week’s Fed minutes gave few clues about whether a shift to easier policy is possible in coming months.
· Global central banks and governments have released massive stimulus to prop up their economies from the impact of the pandemic. This has pushed gold up about 28% so far this year as it is seen as a hedge against inflation and currency debasement.
· “Investors are waiting for something to come from the U.S. Treasury, and for (the U.S.) Congress to come to an agreement (on the stimulus bill),” said Bob Haberkorn, senior market strategist at RJO Futures, adding that further dovishness from the Fed will also be bullish for gold.
· Investors were watching for any developments in the U.S. coronavirus aid negotiations. U.S. Treasury Secretary Steven Mnuchin will testify before a House of Representatives panel next week.
· Silver rose 3.5% to $27.34 an ounce, platinum was up 0.3% to $929.91 and palladium gained 0.9% to $2,183.43.
· The Fed is expected to use a new pandemic-era tool to fight a long-running battle against low inflation
Even before Covid-19 crushed the economy, the Fed was worried about low inflation and was working on ways to let it run slightly hotter temporarily in order avoid the trap of long-term sluggish growth and weak pricing power.
Chairman Jerome Powell, in a much-anticipated speech Thursday, is expected to discuss the Fed’s policy framework and specifically how it will alter its posture on inflation. The Fed has had a 2% inflation target, but in the decade since the financial crisis it has more often than not seen inflation fall below its target.
The way the Fed is expected to meet its goal is to say it will have an “average inflation” target, and Fed watchers said officials may provide a band for tolerable inflation levels above and below its current target of 2%.The Fed is expected to make that announcement at its September meeting, and Powell’s 9:10 a.m. ET comments at the annual Jackson Hole symposium Thursday could be a preview.
· Fed’s Esther George sees risks building of double-dip recession
Kansas City Federal Reserve President Esther George said the recession that began in February could revisit the economy if the coronavirus pandemic intensifies.
“An important risk to that outlook is thinking about what happens as we come into the fall, whether we see any resurgence in the virus that would cause an additional pullback in the economy,” the central bank official told CNBC in an interview aired Wednesday on CNBC’s “Squawk Box.” “We’ll monitor that carefully to see whether that plays out.”
However, she said the baseline is “we will continue to see the economy improve,” and she did not commit to any further policy actions from the Fed, which already has cut short-term borrowing rates to near zero and instituted nearly a dozen lending and liquidity programs.
“Financial conditions are very accommodative. We have low rates, we still have capacity in those credit facilities,” George said. “So I think it’s too soon to try to speculate on whatever else might be needed, other than to say the Federal Reserve is going to be very vigilant on that and be prepared to respond if they would have to.”
· U.S. core capital goods orders rise; recovery uneven as COVID-19 shifts spending
New orders for key U.S.-made capital goods increased in July, though the pace slowed from June’s robust gain, suggesting the rebound in business investment would be gradual amid uncertainty about the course of the COVID-19 pandemic.
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 1.9% last month. These so-called core capital goods orders jumped 4.3% in June, which was the largest gain in six years.
Core capital goods orders are slightly below their pre-pandemic level. They fell 1.9% on a year-on-year basis in July. Last month’s rise in orders matched economists’ expectations.
· CORONAVIRUS UPDATE:
Global cases: More than 24.32 million
Global deaths: At least 822,876
U.S. cases: More than 5.99 million
U.S. deaths: At least 183,636
Gaza coronavirus lockdown extended by 72 hours after infections spread
Gaza will remain in lockdown at least until Sunday, health officials said on Wednesday after reporting two deaths and 26 COVID-19 cases in the first public outbreak of the coronavirus in the blockaded Palestinian enclave.
· GOP set to propose smaller coronavirus stimulus bill
Republicans are working on a more narrow coronavirus stimulus bill that they could release to members of Congress as soon as this week, two senior administration officials and three people briefed on the matter told CNBC.
The GOP is mulling a roughly $500 billion proposal that addresses only areas of bipartisan support: expanded unemployment insurance, a new authorization of small business loans, and money for schools and Covid-19testing, treatment and vaccines. The plan would not include another direct payment to Americans.
It would set enhanced jobless benefits at roughly $300 to $400 per week. The figure would be less than the $600 per week approved in March, which Democrats want to reinstate after it expired at the end of July.
· Trump could act to avoid thousands of airline layoffs, White House says
President Donald Trump could take executive action to avoid thousands of airline furloughs, said White House Chief of Staff Mark Meadows. The comments came a day after American Airlines said it plans to cut 19,000employees in October, after the terms of federal aid expires.
Airline labor unions and executives have urged lawmakers to extend $25 billion in federal aid that protects industry jobs through Sept. 30. The plan has gained bipartisan support in Congress and from President Trump but lawmakers haven’t yet come to an agreement on another national coronavirus relief package, which could include the airline aid.
“If Congress is not going to work, this president is going to get to work and solve some problems. So hopefully, we can help out the airlines and keep some of those employees from being furloughed,” Meadows said in an interview with Politico.
· U.S. targets Chinese individuals, companies amid South China Sea dispute
The United States on Wednesday blacklisted 24 Chinese companies and targeted individuals it said were part of construction and military actions in the South China Sea, its first such sanctions move against Beijing over the disputed strategic waterway.
The U.S. Commerce Department said the two dozen companies played a “role in helping the Chinese military construct and militarize the internationally condemned artificial islands in the South China Sea.”
· World Economic Forum says annual meeting in Davos will be delayed until summer 2021
· Global Trade Rebounds 7.6% in June After Lockdown Slump
Global trade surged in June as governments started to reopen their economies from strict lockdowns earlier in the year. There was growth in almost all countries, according to CPB World Trade Monitor, after huge declines in the previous three months. Even after the 7.6% jump in June, trade was down 12.5% in the second quarter, with the headline index at the lowest since 2014.
Reference: CNBC, Reuters, USINFLATIONCALCULATES, Trading Economics
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