Negative economic signals. The WTO said that trade momentum slowed in the third quarter and is likely to continue to slow in the last three months of 2018. The WTO says trade flows are at their slowest point since October 2016. Meanwhile, General Motors (NYSE: GM) announced plans to eliminate as many as 8,000 jobs and are considering shuttering several assembly plants as car sales slow. The stock market is also flashing warning signs about an economic slowdown. Still, stocks rebounded on Monday, easing some anxiety in the markets.
Chart of the Week
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- Stocks gained on Monday, clawing back some of the steep losses suffered over the past few weeks. However, the sudden volatility suggests an economic slowdown is coming.
- More than $3 trillion in value has disappeared from U.S. stocks since September.
- The percent of S&P stocks that are trading above their 200-day moving average collapsed over the past month, Bloomberg notes.
- There is disagreement among economists over whether or not this is terrible news. Some believe equities were overvalued earlier this year, so a price correction is natural.
Markets
Fed to keep rate hikes on track. A slowing global economy, stock market turmoil, fading fiscal stimulus and the growing headwinds from rising interest rates might convince the U.S. Federal Reserve to slow its pace of further rate hikes. However, the Fed’s concerns about inflation, an extremely low unemployment rate and a GDP growth rate that points to inflationary pressure, will likely keep the central bank on track to tighten monetary conditions further, Bloomberg Opinion argues. That creates problems for equity investors, evidenced by last week’s stock market volatility.
U.S. GDP could shrink by 10 percent because of climate change. A major report from 13 U.S. federal agencies warned that the U.S. economy could contract by 10 percent by the end of the century if climate change proceeds unchecked. Supply chains could be damaged or disrupted, exports could shrink, agricultural yields could fall to levels not seen since before the 1980s, and the fire season could spread to the Southeast. One of the political hurdles to government action on climate change has always been the cost; this report highlights the economic cost of inaction. Related: The Hottest Sectors For Investors Post-Midterms
UK and EU agree on Brexit deal. The UK and the EU have agreed on Brexit terms, although much uncertainty remains. British Prime Minister Theresa May still needs approval from her parliament, where she faces opposition from her right flank. The opposition Labour Party also opposes the proposal, but she is betting that a “no-deal Brexit” will scare enough MPs into voting for her deal.
Commodities
Silver prices under pressure. Silver prices have lost 15 percent of their value this year, qualifying it as one of the worst-performing precious metals. Part of the problem is a supply surplus, which is expected to persist into 2019. At the same time, demand has softened, led by a decline in solar demand. Other problems have also dragged down prices. “Confidence in the US economy, the rate-hiking cycle, equity markets and the current US administration have weighed on silver retail demand,” Standard Chartered wrote in a note.
Gold prices edge up. Gold prices have edged up close to $1,230 per troy ounce, benefitting from a slightly weaker U.S. dollar. Also, the Brexit negotiations have entered a new phase. “Whether this will actually enter into force will now depend on the UK parliament, where there has been huge resistance to the deal of late,” Commerzbank wrote in a note. “Voting in the House of Commons could take place in roughly two weeks, until which time the uncertainty is likely to continue. We believe this should generate good demand for gold as a safe haven.”
Goldman Sachs: Commodities “extremely attractive.” Goldman Sachs said that commodities – including crude oil, gold and base metals – are now offering an “extremely attractive entry point,” noting that oil and base metals are priced “below cost support.” The investment bank says this week’s G20 summit could be a “catalyst for a rebound as the China/US relationship and an OPEC+ cut will be discussed.”
Energy
Buenos Aires summit could decide oil market. The G20 summit in Buenos Aires could decide the fate of the oil market for the foreseeable future. On hand will be Saudi crown prince Mohammed bin Salman, Russian President Vladimir Putin, U.S. President Donald Trump, and Chinese President Xi Jingping. “I expect President Trump will be discussing the optimal price range with Crown Prince Mohamed bin Salman and President Putin at the G20,” Bob McNally, president of Rapidan Energy Advisors LLC, told Bloomberg. Trump will also meet with Xi over the U.S.-China trade war.
Saudis consider quiet cut. The Wall Street Journal reports that Saudi Arabia is aiming for an agreement in Vienna that avoids both a price spike and further price declines. To do that, OPEC+ would more or less take little action officially, reiterating the focus on the production cut deal. Quietly, however, Saudi Arabia would slash output in order to bring its production back in line with the deal.
Related: Regulatory Pressure Spooks Crypto Markets
Saudi Aramco to spend $500 billion. Saudi Aramco will spend $500 billion over the next decade in order to diversify its holdings and transform itself into a global refiner and petrochemical manufacturer. The $500 billion figure will include $160 billion for natural gas development and $100 billion for chemical projects, according to Bloomberg. The spending will also come in addition to the $70 billion stake Aramco plans to take in SABIC, the state-owned chemical company. The massive spending program is intended to diversify the company and hedge its bets against an oil market facing long-term demand questions.
Cryptocurrencies
Bitcoin selloff continues. Bitcoin crashed last week, dropping below $4,000. Bitcoin is now off more than 35 percent from earlier this month, and down more than 80 percent from last December. A lot of cryptocurrency insiders are blaming “hard forks,” or technical changes to the currency, for the selloff. However, skeptics see the plunge as proof that the whole crypto industry was a mirage. “I don’t think coins are going to be anywhere near as attractive as some of the other cross-asset plays,” Stephen Innes of Oanda Corp. told Bloomberg. “Gold prices are going to jump considerably higher and there’s an inverse relationship we’re starting to see with gold and coins.”
Ohio first state to accept Bitcoin for taxes. Ohio is set to become the first U.S. state to accept tax payments in the form of Bitcoin. Beginning this week, Ohio businesses will be able to pay taxes on OhioCrypto.com. The state treasurer sees the option to pay in Bitcoin as both a convenience for businesses and as an opportunity for “planting a flag” for Ohio, according to the Wall Street Journal.
600,000 Bitcoin miners shut down. The price meltdown for Bitcoin has forced between 600,000 and 800,000 miners to close their doors since mid-November, according to F2pool. “It’s hard to calculate a precise number of miners connected to us that had unplugged. But we saw over tens of thousands of them [shut down] in the past several days based on conversations we had with larger farms that we are in regular contact with,” Mao Shixing, founder of F2pool, told CoinDesk.
By Josh Owens for Safehaven.com
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