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Market Outlook Amidst Virus Outbreak – Recession, Gold, Safe Havens

Market Outlook Amidst Virus Outbreak – Recession, Gold, Safe Havens

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Talking points on this podcast:

  • Global recession – How bad can it get?
  • Safe havens: USD, JPY or CHF?
  • How will the gold market move during the pandemic?

This time on Trading Global Markets Decoded, our host Martin Essex is joined by John Kicklighter, Chief Strategist at DailyFX. In this edition, we cover the latest thoughts on how severe a global recession might be, discuss the safe havens to consider at this time, and assess how the gold market might move in the pandemic. You can listen to this podcast by clicking on the YouTube link above or by using one of the alternative platforms listed below.

Global Recession: How bad can it get?

Talk begins with predictions for the severity of an upcoming recession. How deep might it be? “We will have a very intense GDP contraction and I’ve seen some fairly severe numbers,” John says. “The US is projecting a 25% loss on the quarter, which I don’t think is impractical [as] you’re shutting down the country forcibly.

“That being said, it’s not about what happens during that period where you essentially put the economy into an induced coma, it’s about what you do after you start opening the economy back up.”

The crux of the matter is, will people retain their jobs, will businesses be carried over with loans until they can get back to work, and essentially can we just pop right back up when the economy reopens?

“That’s not clear, but [with] the scale of stimulus from governments and central banks, I feel like the foundation is being set. The question is, exactly how much needs to be done? The debate is between a V recovery, a U recovery or an L-shaped ‘recovery’, which isn’t a recovery at all.

“I still think we’re in for something along the lines of a U recovery. I think people who are saying V are probably being overly optimistic, but so long as we continue down this path and we don’t have a subsequent wave of global pandemic into the fall or into the winter, I think that’s a relatively practical expectation.”

What safe havens could be key for this period?

Talk moves to safe havens. What has caused traders to opt for USD rather than other ‘traditional’ safe havens like JPY and CHF? “The thing about safe havens and risk assets is, people think that once you tip into the category of safe haven or risk asset it’s like flipping a switch, but there are degrees of intensity,” John explains. “The more aggressive risk aversion becomes, the more our needs as a market shift towards the more rudimentary/elementary, and that includes liquidity.”

This means if you’re looking at CHF or JPY, those generally do perform as safe havens, but in reality, for a couple of reasons they are not total havens; not total liquidity. “Having global funds come and park in your country because you represent a risk-free benchmark with deep liquidity – that’s more the speed of the US Dollar,” John says.

This doesn’t mean to say that people don’t have problems with USD but, when it comes to panic, USD, US market funds and US Treasuries are still the habitual retreat point. “And that’s what you saw particularly in the second half of March 2020 when the Dollar surged.

“But you notice after that hike and peak of panic eased back, so did the Dollar. [After that] the sense of risk aversion was still there and you get a little bit more of a dissemination into the Yen, Swiss Franc and gold for example.”

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