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Reduced Tariffs, Direct Intervention, and Acquittal of President Trump Cause Markets to Shrug Off Coronavirus Threat - Nathan McDonald (07/02/2020)

Reduced Tariffs, Direct Intervention, and Acquittal of President Trump Cause Markets to Shrug Off Coronavirus Threat - Nathan McDonald (07/02/2020)
By Nathan McDonald 2 months ago 1509 Views No comments

February 07, 2020

Stocks, gold, oil, and just about everything else are trending higher, despite the ongoing concerns about the coronavirus, which continues to spread across the globe despite many countries' best efforts to contain it.

The stock markets appear unconcerned with the short to medium term damage this virus is causing to many sectors of the economy—and will continue to cause for at least the next couple of months, if not longer.

(Charts via google.com)

This move higher in prices not only includes Western stock markets but also Chinese markets. The CSI 300 in China rose by 1.1 percent throughout Wednesday's trading session, largely driven by direct intervention from the People’s Bank of China. The PBOC is unsurprisingly pouring billions of dollars into the markets, propping them up while the coronavirus continues to wrack the economy as a whole, thanks to the widespread restrictions China has placed on its people in an effort to stop the virus from spreading.

Many in the financial industry are taking heart with this direct intervention, as they believe other countries will follow suit and intervene in the markets if need be as well—likely an accurate assessment given our past history.

This intervention is playing a part in the recent rally seen in the S&P 500 and Dow Jones. However, other news is being factored in as well, such as another softening in the trade wars between China and the United States, in which China plans to massively cut tariffs on certain U.S. goods entering the country.

These cuts will affect $75 billion worth of U.S. imports including soybeans, pork, and auto parts, taking the effective tariff rate from 10% down to 5%.

However, many of the tariffs that were enacted during the trade wars of last year still remain in place and are likely to do so until both parties can fully resolve their issues.

Additionally, the acquittal of President Trump on Wednesday has led to a reduction of risk in the markets, as fears of an upheaval have been mitigated for the time being, meaning it is business as usual for Wall Street.

This has played a part in alleviating many people’s fears. Overall, President Trump continues to receive favorable polling in regards to the state of the economy. In fact, Americans’ confidence in the economy is the highest it has been in the past two decades.

(Chart source, goldprice.org)

All of this perceived positive news had an initial effect on the price of gold and silver bullion, both of which had suffered pullbacks early on in the week only to rally once again on Thursday as people once again realized that not everything is fixed and many problems still yet remain.

One of the risks causing people to return to safe haven assets such as gold bullion is The World Health Organization announcing the largest increase in cases in any single day since the outbreak of the coronavirus began.

WHO Director-General Tedros Adhanom Ghebreyesus had the following to say:

“Our greatest concern is about the potential for spread in other countries with weaker health systems and who lack the capacity to detect and diagnose the virus,” he said. “We’re only as strong as the weakest link.”

“We cannot defeat this outbreak without solidarity. Political solidarity, technical solidarity, and financial solidarity.”

As Mish Shedlock recently stated, there appears to be "no containment in sight".

The question that remains now is: how long can this rally in the markets continue? How long can governments around the world continue to print fiat currency, throwing it at any problem that may arise?

We shall see.

Until then, keep stacking and stay prepared.

Nathan McDonald is a libertarian, entrepreneur and precious metals enthusiast. He has always taken a keen interest in free markets and economics since an early age, which naturally led him to become a true believer in precious metals and all that they stand for.

Nathan served eight years in the Royal Canadian Navy as an electronics technician, seeing the true state of the world, before starting his first successful business. He has since gone on to create a number of businesses, all of which are still in operation and growing.

In addition to this, Nathan runs a network of successful precious metals blogs, and a growing newsletter that has attracted readers from all around the world. He is a regular and highlighted writer for the highly respected Sprott Money Blog, which covers world events, geopolitics and of course precious metals.

The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.You may copy, link to or quote from the above for your use only, provided that proper attribution to the source and author is given and you do not modify the content. Click Here to read our Article Syndication Policy.

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