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Top World Bank Economist Says Financial Crisis Could Emerge From Pandemic By Bloomberg

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© Bloomberg. MADRID, SPAIN – DECEMBER

(Bloomberg) — World Bank Chief Economist Carmen Reinhart said the coronavirus pandemic is turning into a major economic crisis and warned of the possibility of a financial crisis emerging.

“This did not start as a financial crisis but it is morphing into a major economic crisis, with very serious financial consequences,” Reinhart said in an interview with Bloomberg Television. “There’s a long road ahead.”

Reinhart, who took her new role in June, is best known for her work with then-Harvard colleague Kenneth Rogoff on the last financial crisis in their 2009 book “This Time Is Different: Eight Centuries of Financial Folly.” It made the pair the go-to resource on the history of government defaults, recessions, bank runs, currency selloffs, and inflationary spikes.

Asked whether central banks buying bonds to keep yields low is ultimately a zero-sum game when everyone’s doing it, Reinhart said, “This is a war. During wars governments finance their war expenditures however they can and right now there are dire needs.”

“The scenario we are in is not a sustainable one,” she added.

Reinhart spoke after the world’s richest nations agreed to renew a debt-relief initiative for the poorest through at least the first half of 2021, falling short of the World Bank’s call for a full-year extension.

Read more: Why There’s a Looming Debt Crisis in Emerging Markets: QuickTake

China is owed almost 60% of the money that the world’s poorest nations would be due to repay this year, according to World Bank data. It has made many loans to developing countries with terms that aren’t transparent and at higher interest rates than the nations can afford, the bank’s president said in August.

Asked about China not participating in the debt-suspension relief, Reinhart said the nation was in fact involved, just “less than fully.”

The China Development Bank, a major lender, hasn’t joined the effort, nor have private sector creditors, she said. “Full participation is something we should strive for but unfortunately haven’t yet seen.”

©2020 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Gold Price Coils Up in Tight Range. Will US Election Trigger Breakout?

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GOLD PRICE OUTLOOK:

  • Gold prices ranged above a key support level at US$ 1,900 amid souring sentiment
  • The US election may serve as a catalyst for gold trading next week
  • 79% of the retail gold traders (within IG)are in long positions, slightly higher than a week before

Gold prices consolidated at above US$ 1,900 this week amid souring market sentiment due to a resurgence in coronavirus cases around the globe. The absence of geopolitical catalysts and a relatively muted US Dollar index have led gold prices to consolidate within a tight range between US$ 1,900 – 1,910. Some traders may prefer to sit on the sidelines until the political skies are cleared after the US election, which is only one week from now.

Although Democratic presidential candidate Joe Biden appears to have a comfortable lead in national polls, the potential tail risk of a Trump-win scenario can’t be neglected. This renders the risk-averse US Dollar susceptible to a strong haven bid should the election outcome derails from the poll forecasts. A strengthening US Dollar is likely to weigh on precious metal prices, especially when ‘risk off’ sentiment is prevailing.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -1% 4% 0%
Weekly 5% -4% 3%

The medium-term outlook, however, appeared biased towards the upside as the Fed continued to expand its balance sheet, albeit at a much slower pace compared to earlier this year (chart below). The Federal Reserve balance sheet hit an all-time high of 7.177 trillion in October, surpassing the previous record seen in early June. Ample liquidity and ultra-low interest rates may buoy the medium-term outlook for precious metal prices, albeit short-term pressure remains.

Gold Price Coils Up in Tight Range. Will US Election Trigger Breakout?

Source: Bloomberg, DailyFX

Technically, gold prices came off the all-time high (US$ 2,075) in early August and have since entered a three-month consolidation. Prices attempted to stabilize since end September after finding a strong support at US$ 1,870 (the 76.4% Fibonacci retracement).

Gold prices have also formed a few bearish harmonic pullbacks (highlighted in black straight lines) before entering into an “Ascending Channel” in October. Immediate support levels can be found at US$ 1,900 (50-Day SMA), followed by US$ 1,883 (lower Bollinger Band). A narrowing Bollinger Band width suggests that tight range-trading may continue.

Gold PriceDaily Chart

Gold Price Coils Up in Tight Range. Will US Election Trigger Breakout?

IG Client Sentiment indicates that retail gold traders are heavily leaning towards the long side, with 79% of positions net long, while 21% are net short (chart below). As gold prices consolidate, retail traders have trimmed long (-1%) positions and added short (+7%) bets overnight. Compared to a week ago, traders have added to both long (+4%) and short (+1%) exposure.

Gold Price Coils Up in Tight Range. Will US Election Trigger Breakout?

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— Written by Margaret Yang, Strategist for DailyFX.com

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Can Stock Markets Predict Presidential Elections?

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How Can Stock Markets Impact US Presidential Elections?

  • How can returns in the Dow Jones, S&P 500 influence voters at the polls?
  • This study analyzes the indices 1 year and 3 months before elections
  • Do voters respond to stock performance as an election nears?

Introduction

Many factors can impact the outcome of US presidential elections, such as the shape of the economy, a voter’s background, turnout, outcomes in swing states and more. But what about returns in the stock market?

This is a special report that will analyze the performance of the S&P 500 and Dow Jones leading up to the 22 presidential elections since 1932. I will examine how the two indices performed on average one year and 3 months before an election, comparing their returns against whether or not the incumbent party won.

Background

First, let us consider how might the performance in stocks influence elections in the first place? The price of a stock represents ownership of a fraction of a corporation, and is influenced by supply and demand forces reflecting the given firm’s expected fortunes. Some stocks will pay you a dividend and grant you voting access in shareholder meetings. But most importantly, you gain the right to sell the stock in the future.

If the price of a stock rises in value, the holder can make a profit by selling at a higher price than where they entered. If investors think that a business can make more returns in the future, boosting demand for their shares, then the price will often rise. There can be both specific and systematic forces that determine which way a stock can go. This piece focuses on the latter, or how the shape of the US economy as a whole drives stocks.

The S&P 500 and Dow Jones are stock indices that weight key sectors in the economy differently, such as information technology, real estate and energy. If their returns are positive heading into an election, this could be because investors expect the underlying businesses to generate more profits in the future. This could be due to a rosy outlook for economic growth, perhaps raising the odds of the incumbent party maintaining its grip on power.

Conversely, if stock returns are negative heading into an election, it could be due to a more pessimistic outlook for growth. If this is the case, then one might reasonably assume that the party running for reelection could be at a higher risk of losing its position. That is only the case, of course, if voters generally value the performance of stock markets. This is a limitation in this study, discussed in further detail at the end.

S&P 500, Dow Jones Returns 1 Year Before Presidential Election

Of the 22 elections since 1932, there were 18 instances when returns in the S&P 500 and Dow Jones one year before a presidential election averaged positive. Of those 18 occurrences, the incumbent party won 11 times, or about 61.11%. Returns in the stock market were negative the other 4 times. Of those, the incumbent party lost 3 times, or about 75% – see table below.

S&P 500, Dow Jones: Can Stock Markets Predict Presidential Elections?

S&P 500, Dow Jones Returns 3 Months Before Presidential Election

What happens in this study when the time frame changes from 1 year to 3 months before an election? In this case, of the 22 occurrences, there were 13 when stock returns were positive. Of those instances, 11 times, or 84.62%, the incumbent party won. Meanwhile, there were 8 instances when stock returns were negative. The incumbent party lost 7 times in this case, for about an 88.89% failure rate.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily 7% 1% 4%
Weekly 18% -7% 3%

S&P 500, Dow Jones: Can Stock Markets Predict Presidential Elections?

Conclusion

In short, the 3-month data seems to offer more consistent outcomes compared to 1-year out. More often than not, the performance of the stock market closer towards an election seems to correlate with whether or not an incumbent party wins. It should be noted that correlation does not imply causation. It could be that voters place greater emphasis on stocks 3 months before an election as they pay more attention to current events in preparation for casting ballots. There are some limitations to this study.

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Study Limitations

The election sample space is limited to 22, more observations tend to increase the accuracy of results.

This data does not take into account how much voters value stock returns around elections. According to Gallup, as of June 4 2020, about 55% of Americans reported owning stock.

This data does not take into account the depth of gains versus losses in stocks around election years. That is, do higher stock returns increase the likelihood of an incumbent party winning and vice versa?

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter





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Record Hong Kong Peg Defense Boosts Liquidity to $58 Billion By Bloomberg

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© Reuters. Record Hong Kong Peg Defense Boosts Liquidity to $58 Billion

(Bloomberg) — Investors keep piling into Hong Kong ahead of Ant Group Co.’s mega listing, with demand for the local dollar prompting authorities to flood the banking system with unprecedented liquidity.

The Hong Kong Monetary Authority on Tuesday sold a record HK$31.8 billion ($4.1 billion) worth of local dollars to curb the currency’s strength. This will lift the interbank liquidity pool to almost HK$450 billion on Thursday, surpassing the previous high in 2015.

The de-facto central bank has stepped in 83 times this year to prevent the local currency from strengthening past its permitted trading range with the U.S. dollar. The pace of interventions has picked up recently, and October’s size will top HK$183 billion, the largest on record.

An elevated liquidity pool means interbank rates will likely remain steady despite massive demand for cash during large stock sales. Suppressed borrowing costs will also benefit local businesses struggling in the wake of last year’s protests in the city and the impact of the coronavirus epidemic on the economy.

Ant’s initial public offering, month-end bank regulatory checks and demand for the Hong Kong government’s inflation-linked retail bonds — or iBonds — have helped increase demand for the local currency, said Carie Li, an economist at OCBC Wing Hang Bank. “This situation will likely ease up once Ant’s IPO finishes in early November,” she said. “By then, some capital may leave Hong Kong, allowing the Hong Kong dollar to move away from its strong end to trade at around 7.75-7.76 per dollar.”

However, the aggregate balance could still have room to rise further in coming months, given the local dollar’s interest rate premium over the greenback and with further listings by Chinese firms in the pipeline, Li added.

The one-month Hong Kong dollar lending rate, known as Hibor, was at 0.41571% as of Tuesday, near a multiyear low. The Hong Kong dollar was little changed at 7.75 per U.S. dollar as of 11:02 a.m. Wednesday.

(Adds quote, updates chart, prices)

©2020 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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