› News for December 18.

News for December 18.

Two largest U.S. investment banks - Bank of America Merrill Lynch and Goldman Sachs - predict gold price to surge in 2019 with the average price forecast reaching $1350 per ounce. Several fundamental factors are supposed to influence such a price action in precious metal. The US Federal Budget balance widened its negative gap as the last week’s report showed. Trump’s administration imposed tax cut reform, boosting corporate profits in the United States and supporting the bullish rally of stock indices throughout 2018. Major benchmarks charted all-time highs in September this year. On the other hand, those measures led to troubles in the Federal Budget as the negative surplus kept growing due to the fiscal revenue declined. Moreover, it’s getting harder for U.S. Treasury to fund the gap with the Federal Reserve tightening its financial conditions. Borrowing costs were increasing in both internal and external fixed-income markets with U.S. 10-year Treasury yields growing to 7-year highs in October. All of those factors keep weighing on the long-term investors’ sentiment, enlarging the demand for the safe-haven assets. Gold price struggled to grow in 2018 amid strong dollar demand across the board. However, the latest price action showed a pick up in the bullish momentum for gold, exceeding the price of $1240 in December, the first time since 2013. The stock indices crashed on brutal sell-off, adding uncertainty about a potential recession in the United States which is a supportive factor for precious metals. A further strength is seen for gold and silver also because of the International Monetary Fund cut its forecast for the global economic growth in 2019.

An unusual divergence was noticed by Wall Street analysts between U.S. stock indices and macroeconomic data. S&P500 benchmark lost more than 13% from its peak value noted in September, entering to the negative 12-month performance in 2018. Such a plunge suggests that market players are pricing in zero economic growth in the United States for the next year, while Goldman Sachs and JPMorgan Chase analysts stick to their basic forecast of 2.5% growth in 2019. Another significant deviation was seen in the S&P500 index and ISM index (Institute of Supply Management, measuring economic growth) which is still pointing to a robust economic growth with the latest reading of 59.3 points, while stock indices suggest a 50.0 points indicator, dividing the growth from decline. There was a survey among economists regarding the forecast for S&P500 in 2019 year-end. It showed an average prediction of 3050 points which is 19% higher than the current level. Goldman Sachs strategists are trying to calm down investors’ worries about an upcoming recession in the United States, underlying that those fears are overestimated and things aren’t so bad for the leading world’s economy. According to the given analysis, S&P500 has some short-term upside potential.

The Brexit issue kept concerning British investors last week. A deal with the European Union has been previously announced and it was necessary to pass the deal conditions through the British Parliament. However, all of a sudden, British Prime Minister Theresa May had cancelled the vote on Monday last week which was scheduled for the next day. The document, regulating relationationship between London and Brussels after the United Kingdom will leave the European Union (The Brexit Deal), had caused a government crisis earlier. Several British ministers resigned right after the document was published, including Brexit Affairs Minister Dominic Raab. Theresa May realized that she would not be able to get enough support in the Parliament vote and cancelled it after spending so many efforts for negotiating the deal conditions with EU. As a result, May faced a non-confidence vote in Parliament which she was able to withstand though. Meantime, Brussels is not going to review the deal conditions, which makes a non-deal Brexit scenario more likely with heavy negative consequences for the British economy. A second Brexit referendum is not an option as well, according to the British government's official position. The political crisis is the only possible outcome of such development which does not promise anything positive for the British pound which kept plunging versus major currencies last week. A further decline is more likely as Britain seems to stuck in the Brexit saga.

One of the leading global tech companies, Google, is going to accelerate efforts to close its social network Google Plus due to the vulnerability caused users’ data leakage. As it turned out, a second hack followed the first attempt to steal important data last week, with tens of billions users were touched on. As a result, the search-engine giant had to review the preliminary terms of shutting the social network down. Google published one more record about the hackers’ attack in its official blog for Google Plus. The vulnerability allowed third-party applications to get access to all of the users’ information. Potential intruders could get to know the name, e-mail address, age, occupation type and other data of a profile owner, even if it’s been hidden by privacy settings. It’s been a week between discovering the leakage and eliminating its consequence, with 52 million accounts were reported being under the threat during that period. Google officials assure that no signs of the steal were found for payments data or passwords, however, there were published no exact information regarding hackers’ activity in that space. The company’s position about own social network has been reviewed one more time, while the date of the abortion for Google Plus service has been rescheduled from August to April 2019.

Google Plus
Source: Business Insurance

Cryptocurrencies market is also in trouble with major coins kept plunging last week on a negative fundamental outlook and risk-aversion trading flows. Allianz Global Investors added oil to the fire, invoking on recognizing cryptocurrencies “out of the law”. The large European company managing investment assets portfolio insists on the need for regulators to prohibit cryptocurrencies as the investment to this type of assets leads to the loss of large amounts. “Cryptocurrencies have to be admitted out of the law”, Allianz Global Investors CEO Andreas Utermann stated in London. “I’m surprised that regulators did not step in yet, implementing tougher measures”. Utermann was talking to the Head of FCA in the UK, Andrew Bailey about the current situation in the cryptocurrency market. The regulator’s reply was that Utemrann exaggerates the impact, however, cryptocurrencies do not have any internal value. FCA regulator carefully monitors the current market situation also in the scope of Initial Coin Offerings (ICO) with which companies are trying to get funding for their projects related to the blockchain technology. What’s interesting is that another Allianz official, Mohamed El-Erian, never said anything negative about the leading cryptocurrency - Bitcoin, predicting an average “fair price” at the level of $5000 in 2019 when the exchange rate was at the level of $6500. El-Erian predicts a bright future for cryptocurrencies, being an important element fo a wider blockchain ecosystem.

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