In what could be an additional move to ease fears over the coronavirus, China has said that it will halve extra tariffs imposed on over 1000 US products – just a few days after its central bank, the People’s Bank of China (PBOC) had invested 1.7 trillion yuan / $242.74 billion in open market trading. Effective from 14th February, Beijing says some tariffs will decrease from 10% to 5% and others from 5% to 2.5%.
The news was welcomed with a surge of trading on Wall Street, with markets already riding a three day high following positive economic data such as a decrease in jobless claims and firms like Twitter and Boeing sharing strong corporate earnings reports. The rally saw stocks race to an all-time high yesterday (Thursday) with the Dow Jones Industrial Average up 88.92 points / 0.3% and the Nasdaq Composite up 0.7%.
According to a CNBC report though, investors could be jumping the gun a little in terms of their confidence – making now an opportune moment to buy gold before reality bites the markets once again. It cites Nikolaos Panigirtzoglou, a respected JP Morgan strategist as saying this week’s gains don’t give the full picture and there is still potential for the tide to turn.
He said, “Despite this week’s equity market rebound we are reluctant to chase short-term momentum. Instead we tactically trim the risk of our portfolio further and recommend a more modest equity overweight.
“Although we recognize that the peak in the rate of increase in the number of new coronavirus cases appears to be behind us as containment measures thus far appear to have been effective, this could change as factories reopen in China and more people come in contact with each other.
“In other words, there is a significant risk of an unexpected re-acceleration of new coronavirus cases.”
The re-escalation of the virus – which has already caused firms like Starbucks, Disney, KFC, H&M and McDonalds to cease operations in China and issue words of warning regarding earnings impact – could see the market sent into freefall once again. If Panigirtzoglou’s prediction comes to fruition, gold prices will likely rise, as we saw at the start of the outbreak, meaning those who buy now will be in the strongest possible position as risk aversion sets in once again.