- Federal Reserve Sees no Rate Hike in 2019
The Federal Reserve on Wednesday said interest rates could remain unchanged for a long time as global risks continue to weigh on economic growth and inflation rate remains muted.
“We don’t see data coming in that suggest that we should move in either direction. They suggest that we should remain patient and let the situation clarify itself over time,” he told a press conference Wednesday after officials slashed their projected interest-rate increases this year to zero from two. “It may be some time before the outlook for jobs and inflation calls clearly for a change in policy.”
Policymakers also announced that the central bank will slow down on balance sheet normalization stating from May, and put an end to it in September. The new policy approach suggests the Federal Reserve is wary of possible global uncertainties that could impact economic outlook and disrupt the ongoing progress in the U.S.
President Trump had accused the Fed of moving too aggressive in terms of the rate policy, saying rising interest rates would impact exports and erode companies profitability. The Fed, however, said its decision was based on economic reality and not political.
Policymakers left the target range of the federal funds rate at 2.25 per cent to 2.5 per cent.
The Federal Reserve Chairman Jerome Powell emphasized the danger of weak global price pressures during his post-meeting press conference, adding that it is ‘one of the major challenges of our time.’ He signalled that falling price gains leave the apex bank room to proceed with caution.
“I don’t feel that we have kind of convincingly achieved our 2 percent mandate in a symmetrical way,” he said. “That gives us the ability to be patient, and not move until we see that our target goals are being achieved.”
The statement caught some Fed watchers by surprise as most experts had predicted at least one rate increase in 2019.
“It was very dovish,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “It suggests that the Fed has jumped to the conclusion that the weakening we have seen since the start of the year will be more fundamental and more persistent, rather than being temporary crosscurrents.”
The Fed’s report is expected to further boost capital outflow from the U.S. and the rest of developed economies struggling with global uncertainties and slowing economic growth.
Therefore, emerging economies with stable economic fundamentals will profit from the surge in capital outflow from most developed economies as global investors are likely to focus on riskier assets for profit in 2019.
The U.S. 10-year treasury yield dropped to its lowest level in over a year after the report, while dollar declined against other currencies.
Silver Joins Haven Assets That Pullback on Dollar Strength
Silver Pulls Back on Dollar Strength
Silver pulled back on Friday after Donald Trump-led administration announced it was working on a new stimulus package to ease economic burden of the American people.
The United States dollar gained as investors jumped on it to hedge against US-China trade tensions.
Silver that has risen to almost eight years high of $29.84 on Thursday pulled back after the US government announced its plan on a new stimulus package.
The haven asset, like Gold, pulled back to $27.97 on Friday during the New York trading session.
“While there are no early chart clues to suggest the gold and silver markets are close to major tops, both are now getting short-term overbought, technically, and are due for downside corrections in the uptrends,” Kitco Metals senior analyst Jim Wyckoff said in a note.
“And remember that with the higher volatility and bigger daily price gains seen at present, there will also be bigger downside corrections when they come.”
Gold Pullback on Dollar Strength on Friday
Gold Pauses its Bullish Runon Dollar Strength
Gold pulled back from its record rally on Friday after the US dollar received a boost from the new stimulus.
The world’s safe-haven asset pulled back from $2074 per ounce it traded on Thursday to $2030 on Friday during the New York trading session.
“We’ll see some pullback (in gold) from these levels with USD bottoming for a while and maybe even see some strength in the USD in the near term, which will reverse these gains but not entirely,” said Spencer Campbell, director at SE Asia Consulting Pte Ltd. “People will be looking to re-enter the market on any pullbacks in precious metals as the medium to longer term views are significantly higher.”
Gold rose to an all-time high of $2074 on Thursday after rising over 35 percent on the back of the COVID-19 pandemic. However, economic uncertainties due to the second wave of COVID-19 continues to support gold rally and expected to continue until a concrete solution or vaccine is discovered.
“There are mixed signals that the economy is recovering and some of the signs of recovery are relatively superficial as they show aggregate figures and not how medium and small enterprises continue to suffer,” said Jeffrey Christian, managing partner of CPM Group.
“We have a very long way to go before we see a proper economic recovery.”
Finances of International Oil Companies Suffered in the Second Quarter
Finances of IOCs Plunged Amid COVID-19 Pandemic in the Second Quarter
Global leading oil companies suffered substantial losses in the second quarter, according to their various financial statements published in recent weeks.
On Thursday, Royal Dutch Shell posted $18.9 billion loss in the second quarter of 2020, far below the profit of $3.5 billion posted in the same quarter of 2019.
This, the company attributed to the plunge in global oil prices in 2020 due to the COVID-19 pandemic. Shell warned that oil demand remained uncertain, adding that it had cut its exploration plans for this year from about 77 wells to just 22.
This was after the price of Brent crude oil plunged to $15 per barrel during the peak of COVID-19 pandemic while the price of West Texas Intermediate crude oil dipped to -$37 per barrel, the lowest on record.
Also, the company said it has reduced its capital expenditure for the year from the initial $25 billion to $20 billion amid a plunge in revenue and demand for the commodity.
Similarly, ExxonMobil reported a $1.1 billion loss, its biggest decline on record. The oil company also announced it would be lowing spending by 30 percent in 2020 to about $23 billion.
Among the various oil companies posting negative financial statements for the quarter was Chevron Corporation, the company reported $8.3 billion decline in the second quarter of the year. The lowest ever posted by the oil giant in almost three decades.
Chevron, therefore, warned that the havoc caused by COVID-19 pandemic in the energy sector might continue to weigh on earnings.
“While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter of 2020,” Chevron’s Chairman and Chief Executive Officer, Michael Wirth, said.
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