Key Points
- U.S. hits highest single day of new coronavirus cases with more than 45,500, breaking April record 5
- Dow drops more than 700 points in worst day since June 11 as virus resurgence concerns grow 1
- Weak demand is forcing U.S. employers to lay off workers, keeping new applications for unemployment benefits extraordinarily high 2
- Bank of America backs gold for all-time high 3
- A correction is defined as a 10% or more decline in the price of an asset or index. [4][4]
- U.S. banking regulators are about to ease restrictions created in the aftermath of the financial crisis, a development that sent bank stocks surging Thursday. 6
Claims have dropped from a record 6.867 million in late March, but the pace of decline has slowed and they are still more than double their peak during the 2007-09 Great Recession. 2
Companies are hiring, but others are cutting jobs at nearly the same pace. The economy slipped into recession in February. 2
“There were some businesses that tried to maintain their workforce, waiting to see what would happen as businesses reopened,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “Even as the economy is picking up they are not seeing a lot of demand and are deciding that they don’t need that many workers.” 2
U.S. economy shrank at a 5% annualized rate in the first quarter, the biggest contraction since the financial crisis more than a decade ago. When second-quarter output is reported next month, the pace of contraction could exceed 30%. 2
“At least so far, hiring firms are barely overcoming the firing firms,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “We may not see a major decline in the June unemployment rate. Indeed, if BLS finally corrects its misclassification problem, we could actually see the rate rise from the May published rate.” 2
Bank of America Chief Global FICC Technical Strategist Paul Ciana said the uptrend in gold prices is set to test the 2012 highs of $1,790-1,805/oz in the next week. Should it break through expected resistance at $1,800, bullion will then set its sights on the all-time high of $1,920.70 made in 2011, Ciana said in a note Wednesday. 3
Spot gold edged up slightly to $1,763 per troy ounce by Thursday afternoon in the European trading day, down from the $1,779.06 touched early on Wednesday, its highest since early October 2012. 3
Coghlan acknowledged that any heavy selling in the equity markets could lead to near term gold weakness, but suggested that the $1,680 region for XAU/USD “should provide good support for buyers to resume their longs 3
“This disconnect between markets and the real economy raises the risk of another correction in risk asset prices should investor risk appetite fade, posing a threat to the recovery,” the IMF said Thursday in its updated Global Financial Stability report. [4][4]
A correction is defined as a 10% or more decline in the price of an asset or index. Triggers for a shift in market sentiment could include a second wave of coronavirus infections, further social unrest, changes to monetary policy and a resurgence in trade tensions, the Fund added. [4][4]
The IMF also warned that corporate debt had risen over several years and currently stands at a “historically high level relative to GDP (gross domestic product).” This, coupled with household debt, which has also grown over the last years, is another vulnerability in the financial sector and could have a broader impact in the ongoing economic crisis. [4][4]
“High levels of debt may become unmanageable for some borrowers, and the losses resulting from insolvencies could test bank resilience in some countries,” the IMF said. [4][4]
Officials from the Federal Deposit Insurance Commission said on a call that they are loosening the restrictions from the so-called Volcker Rule, allowing banks to more easily make large investments into venture capital and similar funds. The companies will also be able avoid setting aside cash for derivatives trades between different units of the same firm, potentially freeing up billions of dollars in capital for the industry. 6
The Volcker Rule, part of the 2010 Dodd-Frank Act meant to prevent another financial crisis caused in part by irresponsible risk-taking at banks, was designed to prevent banks from acting like hedge funds. The general principle is that they are allowed to facilitate trades for clients, but not allowed to strap on risk for big proprietary bets. 6